Legislation to Protect Non-Profits from Arbitrary Tax Exemption Challenges by Third Parties Signed as Part of Broader Bill
Updated September 8, 2021
Legislation that would help curtail arbitrary challenges to non-profits’ property tax exemptions by limiting the ability of third parties to appeal the property tax exempt status of other entities was signed into law in February 2021 as part of comprehensive measure to clarify non-profit hospitals’ property tax exemption in the wake of a 2015 tax court ruling involving Morristown Medical Center. The third-party provision, which was strongly supported by the Center for Non-Profits, addresses a significant concern that arose in light of the property tax challenges to Morristown Medical Center and Princeton University.
In the Princeton case, a challenge to the property tax exemption of Princeton University was brought by a small group of residents who disagree with the exemption already granted by the municipality. The municipality was named a defendant in that suit. In October 2016, Princeton University announced that it had reached a settlement with the plaintiffs in that case, but significant questions still remain.
In the case against Princeton University and the municipality, in a November 2015 procedural ruling, Tax Court of New Jersey Judge Vito Bianco held not only that the residents have legal standing to challenge the municipality’s determination that the University is property-tax exempt, but has also ruled that the non-profit (in this instance, Princeton University) has 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.
Amending the existing statute to limit the ability of third parties to challenge non-profit property tax exemptions will help to protect organizations from being arbitrarily forced to re-prove their exemptions repeatedly and from needlessly siphoning resources away from charitable purposes.
Non-profit organizations are straining under the weight of skyrocketing demand for services and resources that have not kept pace with the steadily escalating costs of providing programs and services that our communities need. Clarifying that third parties do not have standing to challenge the property tax exemption of non-profits, while preserving the authority of local governments, would provide needed assurance and protection for thousands of non-profit property owners throughout the state.
Court Challenge Launched to New Law
In April 2021, four municipalities launched a legal challenge to the hospital elements of the new statute, claiming that they violate the uniformity and tax exemption provisions of the State Constitution. Other parties may be seeking to join the suit as well.
The Center continues to track the court decisions, legislation, and other developments closely for their potential ramifications for New Jersey’s charitable community. We are committed to promoting policies that preserve the ability of the non-profit community to provide the programs and services that people need.
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.
Read our statement in support of S-1767 (7/16/2020)
Related articles: (most include links to additional resources)
- 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 executive director Linda Czipo to 4/15/2016 Seton Hall University School of Law conference