Princeton University Settles Property Tax Exemption Lawsuit
Updated September 8, 2021, to reflect status of third-party tax appeal legislation
On October 14, 2016, Princeton University announced that it had reached a settlement with a group of Princeton residents that had filed lawsuit challenging the property tax exemption of the university. The trial in the Fields vs. Trustees of Princeton University case had been set to begin October 17. The Center for Non-Profits, joined by several other organizations, had previously filed two amicus (friend of the court) briefs in support of the University in the case.
According to a statement released by the university, under the settlement the plaintiffs agreed to withdraw their challenges to the university’s property tax exemption. In exchange, the University will pay more than $11 million over the next six years for property tax relief and housing needs for Princeton residents, and extend its voluntary payments to the municipality by $7 million.
Major provisions of the settlement
- The plaintiffs in the case agreed that the settlement “is not to be construed as an admission that any of the University’s exempt property should be subject to taxation.”
- Princeton University will pay $2 million in 2017 and $1.6 million per year from 2018 to 2022 to a fund to provide property tax relief Princeton homeowners who received a homestead benefit under the New Jersey Homestead Property Tax Credit Act. According to Bloomberg, 869 Princeton households will share in this distribution. Under the agreement, any funds remaining after this disbursement will be given to 101: Inc., a non-profit organization that provides need-based scholarships for graduates of Princeton High School attending post-secondary educational institutions other than Princeton University.
- The university will also pay $416,700 annually from 2017 through 2019 to the Witherspoon Jackson Development Corporation to help meet the housing and related needs of low-income Princeton residents.
- The university will make an annual voluntary contribution of $3,480,000 to the town of Princeton in 2021 and again in 2022, the same amount it is scheduled to contribute in 2020, the final year of the University’s current seven-year agreement with the municipality. Although the municipality was named as a defendant in the original suit, it was not a formal party in the settlement agreement between the plaintiffs and the University.
- The plaintiffs agreed to withdraw their pending litigation challenging the university’s property tax exemption for tax years 2011, 2014, 2015, and 2016, and agreed not to challenge the University’s property tax exemption for the next six years.
What happens now?
Although the settlement brings this litigation between the plaintiffs and the university to an end, many key questions remain.
- No admission on the merits of the arguments – In reaching the settlement, neither Princeton University nor the plaintiffs made any concessions regarding the merits of any prior claims regarding the university’s property tax exemption. With the lawsuit withdrawn, for better or worse these questions will not be considered by the Tax Court of New Jersey.
- Expect other challenges to follow – Given how closely this case was being watched throughout the country, the settlement will likely spur additional claims against other higher education institutions and other non-profits throughout New Jersey and elsewhere. By way of recent example, in the wake of the June 2015 Tax Court of New Jersey ruling revoking most of the property tax exemption of Morristown Medical Center and the subsequent settlement agreement with the municipality, 35 other municipalities throughout New Jersey have filed formal legal challenges to the property tax exemptions of the hospitals in those localities. It is likely that the settlement announcement in the Princeton case will inspire similar challenges by other municipalities and plaintiffs.
- Third-party standing and non-profits vulnerability – Although the withdrawal of the lawsuit means that the challenge against Princeton University will not go to trial, several previous actions by the Tax Court judge in the case left non-profit property owners of all sizes vulnerable to arbitrary and costly litigation by third parties. As we have noted frequently, unlike most property tax challenges which are usually brought by the municipality, in this case the lawsuit was filed by a small group of residents who disagreed with the determination made by the municipal tax assessor. In a November 2015 procedural ruling in the case, the Tax Court judge held not only that the residents had legal standing to challenge the municipality’s determination that the University is property-tax exempt, but also that the non-profit (in this instance, Princeton University) would have the burden of re-proving its eligibility for property tax exemption, even when the challenge is brought by third parties. This ruling leaves thousands of non-profit property owners of all sizes – particularly those that might be unpopular or controversial – vulnerable to arbitrary legal challenges by residents that would be extremely costly and time-consuming to defend, diverting scarce resources away from essential programs and services.
- Third party appeals protection enacted – Protection for non-profits against these third-party appeals was signed into law in February 2021 as part of larger legislation focused on non-profit hospitals. This provision amended New Jersey’s property tax exemption statute to limit the ability of third parties to challenge the property tax exemption of non-profits, while preserving that authority for local governments. The Center strongly supported this provision. In April 2021, four municipalities launched a legal challenge to the new statute, claiming that the hospital elements violate the uniformity and tax exemption provisions of the State Constitution. Other parties may be seeking to join the suit as well.
If you have questions or would like more information about the Center’s involvement in this or any other non-profit issue, contact Linda Czipo at the Center.
Related articles: (most include links to additional resources)
- Legislation to Protect Non-Profits from Arbitrary Tax Exemption Challenges by Third Parties Enacted
- Center Files Second Amicus Brief in Princeton University Property Tax Exemption Case
- Tax Court Rules Against Hospital in Morristown Property Tax Case
- Localities look to Scale Back Property Non-Profit Tax Exemptions
- Front and Center blog: Non-Profits and Tax Policy: Not a One-Sided Equation
- Dodge Blog: Are You Watching the Court Rulings on Property Tax Exemptions? Maybe You Should
- “Is Non-Profit Property Tax Exemption Sound Public Policy?” Presentation slides of Center CEO Linda Czipo to 4/15/2016 Seton Hall University School of Law conference