In today’s tax dollar hungry environment, municipalities are consistently searching for ways to increase their ratable base and in this regard are viewing tax exemption claims even more critically.  Real property tax exemptions are a creature of statute and run against the Constitutional mandate that all property is to be taxed uniformly, with all property owners required to shoulder their fair share of the local property tax burden.  As such, these exemptions are to be strictly construed and it is the burden of the applicant to prove entitlement to the exemption.  Abunda Life Church of Body, Mind & Spirit v. Asbury Park City, 18 N.J. Tax 483, 485 (1999) and Teaneck v. Lutheran Bible Inst., 20 N.J. 86, 90 (1955).

In a recently decided case, the New Jersey Tax Court held that although the municipality may have been correct in rejecting an exemption on the grounds that the property did not constitute a religious parsonage, it erred in denying the exemption as the property was deemed to be essential to the religious use and actually used in conjunction with the religious operations.  Mikvah Association v. Township of Teaneck, Docket Nos 015784-2014; 012594-2105; 010909-2016; and 012807-2017.

The relevant exemption statute, N.J.S.A. 54:4-3.6, provides an exemption for:

[A]ll buildings actually used in the work of associations and corporations organized exclusively for religious purposes, including religious worship, or charitable purposes, provided that if any portion of a building used for that purpose is leased to a profit-making organization or is otherwise used for purposes which are not themselves exempt from taxation, that portion shall be subject to  taxation and the remaining portion shall be exempt from taxation … the buildings, not exceeding two, actually occupied as a parsonage by the officiating clergymen of any religious corporation of this State, together with the accessory buildings located on the same premises; the land whereon any of the buildings hereinbefore mentioned are erected, and which may be necessary for the fair enjoyment thereof, and which is devoted to the purposes above mentioned and to no other purpose and does not exceed five acres in extent ….

In Mikvah, the Tax Court rejected the availability of an exemption under the “parsonage” provision holding that the resident of the home, who was responsible for supervising the mikvah, did not qualify as an “officiating clergyperson.”  There the court found that the resident in question did not perform the expected duties of an officiating clergyperson in the context of the Jewish faith in that she did not perform such critical “officiating” tasks as teaching, leading, participating in religious services, providing sermons, or officiating at Congregation weddings, funerals and bar mitzvahs.  See City of Long Branch v. Ohel Yaacob Congregation, 20 N.J. Tax 511, 519 (2003).

Even though the court precluded exemption under the parsonage provision, it nonetheless found exemption of the residential structure to be appropriate in this instance because the resident of the property, which is located on the same street as the recognized exempt facility where religious bathing rituals are performed, was deemed to be the Ritual Director, responsible for maintenance and operation of the mikvah, and on call 24 hours a day, seven days a week.

Because the religious organization property owner required the resident of the property to be physically proximate to the mikvah and readily accessible to ritual participants, the court found her to be a necessity for the proper and efficient operation of the mikvah and not simply residing in the residence as a matter of convenience for the resident.   Consequently, the Tax Court concluded that the residential property in which the Ritual Director resided with her family, was “actually used” in the operation of the mikvah and qualified for exemption pursuant to N.J.S.A. 54:4-3.6

The Opportunity Zone program enacted as part of the 2017 federal Tax Cuts and Jobs Act is designed to spark long-term capital investment into low-income and urban communities. The 169 Opportunity Zones (or tracts) designated in New Jersey by Governor Murphy are a complete game changer and contain attractive investment incentives for developers and investors.

Via the Opportunity Zone program, developers and investors can tap into and reinvest their unrealized capital gains without paying capital gains for a period of time, if at all. For example, capital gains invested or reinvested in an Opportunity Fund will receive a step up in basis of 10 percent if held for at least five years and by an additional 5 percent if held for at least 7 years, excluding up to 15 percent of the original gain from taxation.

An even greater savings is realized if the investment in the Opportunity Fund is held for at least 10 years. The gain accrued while invested is permanently excluded from taxable income of capital gains upon the sale or exchange of the investment.

With these tax incentives in place, Senator Corey Booker (NJ) believes the barriers between communities and the capital needed to generate economic growth and opportunity will be broken down.

The Opportunity Zones were designated based on key economic indicators in certain neighborhoods and communities such as income, unemployment rate and property values but also consideration was given to accessibility to mass transit and the value of existing investments. The 169 tracts were approved by the US Department of the Treasury on April 9, 2018. You can view the interactive map of designated Opportunity Zones for New Jersey by clicking here.

In a recent ground-breaking decision, the New Jersey Tax Court in AHS Hospital Corp., d/b/a Morristown Memorial Hospital v. Town of Morristown shattered the previous near incontestability of the tax exemption that has shielded nonprofit hospitals from local property tax obligations for over 100 years.  In response, the New Jersey Legislature, in conjunction with the New Jersey Hospital Association, quickly joined forces in an attempt to formulate a “fix” and alleviate the resulting great uncertainty that has left municipalities and nonprofit hospitals clamoring for answers.

The resulting bi-partisan supported fix, embodied by Bill No. 3299 (approved early this year) was sent to the Governor’s desk for signing with just days left in the recently completed legislative session.  Unfortunately, due to the fast track of this legislation, the late submission of the bill for consideration to the Governor’s office, claims of constitutional infirmity swirling, the Governor, not having been afforded adequate time for fair comment, instead allowed the time to lapse for taking action on the bill.  As a result, the bill was killed by virtue of the Governor’s pocket veto.

The import of this failed bill is that while it worked to attempt to reaffirm the longstanding exemption applicable to nonprofit hospital property, it also, in a controversial twist, declared that even those portions of the hospital that were being utilized for, or supporting, for-profit medical activities, should be exempted from taxation.  By attempting to continue the exemption, even for components deemed unquestionably “for-profit” by the tax court in the AHS Hospital case, this bill worked to effectively strip away the host municipality’s ability to effectively contest the applicability of the exemption.  In return, however, the Legislature attempted to create a special “Community Service Contribution” obligation that was to be borne by the hospital in lieu of paying taxes.  This contemplated Community Service Contribution was championed by the sponsors as being readily calculable and serving to remove the need for costly litigation to determine what, if any, portions of the hospital should remain exempt.  The funds received by the municipality through this “contribution” obligation in turn would have been earmarked to offset local expenses and financial hardships created by the presence of these typically large facilities that introduce thousands of patients, employees, professionals and associated vehicular activity into the community.  The failed bill therefore, although controversial, appeared to strike a reasonable balance between stakeholders, affording both hospitals and municipalities benefits that were left to chance in the unstable environment created in the aftermath of the recent tax court decision.

The killed bill would have required non-profit acute care hospitals to pay a Community Service Contribution equal to $2.50 a day for each licensed hospital bed at the exempt acute care facility.  In addition, satellite emergency care facilities of acute care hospitals would have been required to contribute $250 a day for each such facility.  These mandatory contributions were to have been made in equal quarterly installments and, as in the case of tax payments, payable on February 1, May 1, August 1 and November 1 of each year.  These new obligations were to also have been treated the same as other local tax obligations from an enforcement perspective (i.e., the same penalties for late payments and exposure to municipal lien foreclosure actions would apply in the event defaults).

The proposed legislation also dictated that 5% of these contribution payments were to be paid to the County.  Such fund sharing would not otherwise have been required in the traditional payments made in lieu of taxes (so-called “PILOT” payment) setting.  As a result, the failed bill also afforded county officials some measure of comfort and pre-empted any claims that counties were being unfairly ignored.

This failed legislation further afforded the subject hospitals and satellite emergency care facilities an opportunity to seek relief from these Community Service Contributions obligations where the facility was able to demonstrate that it: 1) had a negative operating margin in the prior tax year; 2) was not in full compliance with the financial terms of any bond covenants, 3) was in financial distress, or 4) was at risk of being in financial distress.

The present impasse however occasioned by the pocket veto continues an environment of uncertainty that will undoubtedly foster a spike in tax court actions to determine the scope and applicability of the hospital tax exemption.  Consequently, the question that remains is not if, but when, some refashioning of this proposed legislation will find its way back to the desk of the Governor for adoption.