A rose by any other name . . .

Case Caption: Respond, Inc. v. City of Camden, Tax Court Dkt. Nos. 016282-2012 et al. (DeAlmeida, P. J.T.C., decided May 20, 2013)

The central issue in this case is the misclassification of approximately thirteen tax-exempt properties owned by Respond, Inc.  For most people, the tax-exempt designation of their property is ancillary to the primary objection, which is simply to exempt the property from local property tax.  However, this case touches upon how the subtle nuisance regarding the tax-exempt classification granted to a property today may be critical to preserving the property’s exemption in years to come.

Respond, Inc. is a non-profit organization founded in 1967 to help economically disadvantaged residents of Camden.  Respond, Inc. owns various properties throughout the City of Camden where the Not-for-Profit Corporation’s services are provided.  Several of the charitable services provided by Respond, Inc. are funded by, or carried out in conjunction with, the City of Camden and/or other government entities.

Respond, Inc.’s properties were exempt from local property tax for several years until 2011 when the City of Camden revoked the exemption.  Therefore, Respond, Inc. filed appeals with the Camden County Board of Taxation challenging the Municipality’s revocation of the Not-for-Profit Corporation’s property tax exemptions for the 2011 tax year.  Respond, Inc. appealed the issue to the Tax Court of New Jersey after the Camden County Tax Board affirmed the Municipality’s revocation of Respond, Inc.’s property tax exemptions.

After conducting a trial on the merits in May 2012, the Tax Court determined that Respond, Inc.’s properties were exempt from local property tax under N.J.S.A. 54:4-3.6 because the properties were used for Respond, Inc.’s charitable purposes.  As explained in the Tax Court’s decision in this case, the correct tax exempt classification for Respond, Inc.’s properties would be “15D (Charitable)” under N.J.A.C. 18:12-2.1.  At the time of the Tax Court’s decision regarding the 2011 appeal, the Not-for-Profit Organization’s 2012 appeals were already pending before the Camden County Board of Taxation.  See N.J.S.A. 54:3-21 (specifying that appeals of properties assessed below $1 million must be filed to the county board of taxation on or before April 1st).  Therefore, the parties to the litigation submitted Stipulations of Settlement to the Camden County Tax Board, which expressly stated that the properties should be exempt from local property tax for the 2012 tax year under the Class 15D charitable use exemption of N.J.A.C. 18:12-2.1.

Notwithstanding the unequivocal language contained in the Stipulations of Settlement, the Camden County Tax Board entered judgments designating Respond, Inc.’s properties exempt under Class 15F of N.J.A.C. 18:12-2.1, which is the catch all subcategory for properties that are “exempt from taxation but not described in any of the foregoing classes” listed in N.J.A.C. 18:12-2.2.  In addition, the changed exemption designation occurred without notice to the Respond, Inc. or Camden and without an opportunity for either party to be heard on the matter in derogation of Title 18 of the New Jersey Administrative Code.  See N.J.A.C. 18:12A-1.9(i) (specifying that when a county board of taxation disapproves a settlement submitted in a local property tax matter, the tax board is required to notify the parties of said disapproval and schedule a hearing date for the appeal).  As a result of the mischaracterization in exemption, Reliance, Inc. was required to appeal the County Board judgments on all thirteen properties to the Tax Court of New Jersey.

Outcome: The Tax Court granted summary judgment in favor of Respond, Inc., that all thirteen properties should be exempt from local property tax under the Class 15D charitable use exemption of N.J.A.C. 18:12-2.1 rather than the Class 15F catch all category of the same administrative provision.  While at first blush the misclassification might appear inconsequential, as explained below, the distinction between the two categories can be significant in the long term.

Article 8 of the New Jersey Constitution specifies that exemptions from local property tax may be altered or repealed by the Legislature “except those exempting real and personal property used exclusively for religious, educational, charitable or cemetery purposes, as defined by law, and owned by any corporation or association organized and conducted exclusively for one or more of such purposes and not operating for profit.”  Art. VIII, § 1 ¶ 2 (emphasis added).  Any exemption that is not expressly excluded from alteration in the provisions of Article 8 quoted above could be modified or repealed entirely by an act of general legislation.  However, as the Tax Court notes in the decision in this case, a constitutional amendment would be required in order to change or repeal the exemptions italicized in Article 8.  Therefore, property owners who have obtained an exemption from local property tax in accordance with N.J.S.A. 54:4-3.6 should take the time ensure that the property receives the correct designation under N.J.A.C. 18:12-2.1.