<p>Actually, the standard the plaintiffs are trying to apply here is a standard used in just about every state, if not all: if an otherwise tax-exempt organization leases its property to a business or other non-tax-exempt entity, or if it uses its own property for business or other non-tax-exempt activities, then it must pay property tax on the portion of property so used. There’s nothing illogical about that. And again, rules on which activities are exempt from federal income taxation are set by Congress in the Internal Revenue Code, which the Internal Revenue Service has primary responsibility to interpret and enforce. Most states “piggyback” their state income tax on the federal definitions. But states are free to set their own rules about who, if anyone, is exempt from property taxation, and under what circumstances. They’re not obligated to grant a property tax exemption to every party or every activity that is exempt from federal income taxation; they could grant a wider or narrower scope of property tax exemptions, or no exemptions at all.</p>
<p>This is not my field, but I suspect the main reason plaintiffs aren’t also suing to compel Princeton to pay income taxes on the challenged activities is a technical legal one. Lawyers, correct me if I’m wrong, but I believe the courts have said a federal taxpayer generally doesn’t have standing to bring a lawsuit claiming that some third party should be paying income taxes, because the taxpayer making that claim can’t show she is harmed in a sufficiently concrete and substantial way. But many states do allow property taxpayers to bring suits concerning a third party’s non-payment of property taxes. If that’s the case, then it could very well be the case that the plaintiffs in the suit against Princeton think Princeton should be paying income taxes on the challenged activities as well, but legally they can’t do anything about that part of it; that’s between Princeton and the IRS. (Or, for all we know, it could be the case that Princeton is already paying income taxes on some or all of those activities).</p>
<p>Anyway, here’s what the New Jersey statute says, under Title 54 Taxation:</p>
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<p>So the standard the plaintiffs are trying to enforce in this case isn’t one they just made up. It’s right there in the statute. Whether and to what extent it applied to the particular activities cited by the plaintiffs is something the court will need to decide, but my understanding is the judge has already said the claim is sufficiently plausible to allow the case to go forward.</p>
<p>Perhaps the town shoud take the Princeton campus via eminent domain! They can convert those gothic buildings into condos and throw up a Walmart. The tax revenue generated would be a “public use” of the campus. Isn’t that what New London, CT did a few years back? The citizens of Princeton, NJ have nothing to lose, but their chains.</p>
<p>I would submit that it is a practical one. Income taxes would go to the state and feds, should P’ton lose its exemption for showing movies, or running a cafeteria. They are making a property tax claim because they get to keep the gains if they are successful.</p>
<p>I see your point. The two ideas are closely related, however. Taxpayers in Princeton, NJ have so little to gain by suing to get Princeton University to pay state and federal income taxes that it’s not worth it to them to do so. And because they have so little to gain personally from having the state and federal governments collect taxes from Princeton, they may be unable to show a sufficiently concrete injury to have standing to bring such a suit (at least in federal court; New Jersey law may be different). Local property taxes are a different matter, however, because the plaintiffs’ interests are more substantially affected.</p>
Yet, the plaintiffs are seeking for a property tax on the total University property? A property tax only on Frist Campus Center and the football stadium could not possibly amount to $28 million. It seems that the argument being made is that if the University is making a profit, then ALL of its property should be taxed because the University itself would lose tax-exempt status as a whole. Perhaps I am misinformed. </p>
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Yes, this is a very interesting claim. The Supreme Court has held, very recently, that substantial harm must be inflicted upon the complaining party, or else Justice has no jurisdiction. If the justices did make a ruling, they would run the risk of being accused of legislating from the bench. I would be very interested to read the opinion in this case - I do not think the plaintiffs meet substantial harm. Nothing material of theirs is being harmed directly from the University being tax-exempt. As I said, Princeton is very affluent. The argument might hold elsewhere, but not in Princeton. </p>
<p>Yes, I cited that statute earlier, if you read my post. This case will be particularly interesting because one of the sources of revenue claimed by the plaintiffs is the Frist gallery. Now, Frist Campus Center contains numerous classrooms and offices and is used PRIMARILY for educational purposes. It will be interesting to see how the plaintiffs propose taxing one PART of a building but not another. </p>
<p>bluebayou, Yes, it is a practical reason but also one based off of the principle of substantial harm. Because income taxes go to the state/federal level, the plaintiffs would not be able to demonstrate substantial harm to their person as a direct result of the University’s tax-exempt status. Such an argument has no chance of holding up in court.</p>
<p>This is a state court suit. What the U.S. Supreme Court says about standing in federal courts doesn’t apply. </p>
<p>But second, it’s much easier for a property taxpayer to show substantial injury when such a large entity as Princeton University isn’t paying proeprty taxes. The entire tax levy for the municipality of Princeton (consisting of the former Borough of Princeton and the former Princeton Township, which merged last year) is $29 million. According to the WSJ story, the lawsuit alleges that based on the value of Princeton University’s property, it should be paying $28 million in taxes, instead of the $10 million or so it now voluntarily contributes. Plaintiffs aren’t asking the the university to foot the entire property tax bill; the plaintiffs’ lawyer says his clients’ property tax bills would be at least 1/3 lower if Princeton paid its fair share. And that’s about the figure you’d get if you added sufficient property to the property tax base to generate an additional $18 million at the current tax rate, then cut the tax rate to the level needed to generate the $29 million the town needs to meet its budget. The non-university share would then be about $17.9 million instead of $29 million, about a 37% reduction. I would say a claim for 37% (or even 33%) of your property tax bill is enough to be able to claim substantial concrete harm in any court. </p>
<p>Affluent people can suffer economic harm, too, you know. In fact, it’s often easier for them to show the kind of big-dollar harm that courts will say is sufficient to confer standing. If a homeless person loses his makeshift dwelling, many courts will say he lost nothing of value. If a billionaire loses his mansion, courts will be impressed with the dollar value of what he lost–even if he has 4 or 5 “spare” houses at various prime locations, and plenty of cash to buy or build anew.</p>
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<p>Yes, but arguably any use for commercial purposes taints the property and voids its property tax-exempt status. Beside, as I understand the claim, plaintiffs also allege that by distributing some of the licensing fees from university-held patents directly to professors, apparently as additional compensation or “profit-sharing”, instead of using those funds for educational purposes, the university made itself into a type of for-profit business enterprise, essentially a biotechnology company. That’s an interesting claim and I don’t know if they can make it stick, but if they do it might implicate all university-owned property, or at least any property used in its biotech research.</p>
You are mistaken in your reading of law. U.S. Supreme Court decisions are binding upon all courts, federal or state, in a matter of federal law. If we’re talking about IRS, that’s a federal authority. Now, if you want to keep it solely within local authority and talk only about the property taxes, then substantial harm would still apply because it is a legal principle. The Court only reaffirmed this principle. The principle is that the plaintiff must demonstrate substantial harm in order for him/her to seek a judicial remedy. Otherwise, what harm is to be remedied by the court? If there is no tangible and personal harm, then the justices, even of the state court, would only be legislating from the bench. </p>
<p>In any case, you make a compelling point there. I would like to see the hard data there. I mean, you also have to take into account what is going into the town budget. I do understand that they are building a new police station as a result of the recent merger, but I think it’s only fair to assess the town’s budget in terms of what is actually needed and what is extraneous. I would analyze what the plaintiffs’ attorneys claim and analyze it well. I never take what lawyers say at face value - no offense to lawyers on here. </p>
<p>Now, the plaintiffs allege that those profits are distributed to professors. Now, it is not clear whether that goes towards research funds or whatever else. If it’s increasing salaries earned by professors, one could also make the argument that increasing salary attracts top professors, which betters the quality of research the institution produces. It’s all very interesting.</p>
<p>Sorry, you’re in over your head on this one, tiger cub. Yes, of course, U.S. Supreme Court decisions are binding on all courts, but sometimes those decisions reach only the operations of the federal government. The law of standing as articulated by SCOTUS is one such area of law: it’s based on the Court’s interpretation of Article III of the U.S. Constitution, which confers jurisdiction on federal courts (so-called “Article III courts”). Article III says federal courts may only hear “cases or controversies”; SCOTUS says that its doctrine of standing follows from this requirement. But Article III says nothing about the jurisdiction of state courts, and neither do SCOTUS’s various pronouncements on standing interpreting Article III. State courts, and state legislatures if they care to intervene, get to make their own law of standing, but generally speaking, state court jurisdiction is much broader than federal court jurisdiction, and in many states standing requirements are not as stringent as those at the federal level. On a closely related point, SCOTUS has long insisted that federal courts may not issue “advisory opinions,” e.g., advising the legislature on whether a proposed bill would or wouldn’t be constitutional, again stating this follows from the Article III “case or controversy” requirement; but in some states, state courts can and do issue advisory opinions.</p>
<p>I’ve actually discussed this at some length with a close friend who happens to be a leading expert on federal court jurisdiction and has written extensively about the law of standing. Trust me on this. Or if you don’t trust me, ask any lawyer. Or look it up on wikipedia, if that suits you. </p>
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<p>No, the complaint is that it didn’t go toward research; it’s just a profit-sharing arrangement with the particular faculty members who did the research and made the discoveries that led to the lucrative patents. It’s as if the university said to those particular professors, “Well, we (the university) own the patents because you signed away any intellectual property rights to us as part of your employment contract, but because we’re making so much money off this stuff, and because it couldn’t have happened without you, we’ll now in effect treat you as a co-owner and split the take with you.” Now that might indeed create an incentive for those particular faculty members to stay at Princeton, and it might make Princeton a more attractive place for others in fields that could yield potentially commercially valuable patent, it is rather unusual behavior for a university. Most that I’m familiar with keep the patent revenue, and distribute it in the form of research grants. To be sure, Princeton is doing that as well with the bulk of the money, but the amount being paid out directly to faculty for their own personal use is not trivial. There’s been a pretty fuzzy boundary between “academic” research and commercial research in some discipline for a long. I’m not sure Princeton’s practice is unique, but it does seem to make the boundary between academic research and commercial research even more indistinct.</p>
<p>Specifically, the case mainly concerns one professor, who patented a chemical that became developed as an anti-cancer drug. The University made money from the patent and split it with the professor. Now, this is all fair, except that the plaintiffs claim that the University’s practice of splitting profits (essentially just this one patent to the professor) justifies its loss of tax-exempt status. Then they jump from this issue to claiming that 19 buildings on Princeton’s campus should be taxed, including Frist Center and McCarter Theater. The main claim is that these buildings are used for “non-academic” purposes. As to Frist, I am sure this is a case of the townspeople not being well-informed of its function. While Frist may sell tickets to student performances (open to the general public) and sell food in the gallery, all upper levels are appropriated for academic purposes. I have studied countless times in the study spaces in Frist, as well as used the OIT computer clusters on the upper floors. I have had several classes held in there. Frist includes a lecture hall and extensive library on East Asian Studies. The MAJORITY of Frist is definitely used for academic purposes. </p>
<p>Now, as to McCarter theater, it hosts student performances. The main problem here is that it sells tickets to the general public. So I see a simple solution to this. Cease the practice of selling tickets/food to the townspeople, who are obviously ungrateful for it. Make Princeton insular and even further removed from the town, if that’s what the townspeople want. Those townspeople who appropriate Frist Center spaces can walk all the way to Nassau for lunch and not use the Gallery. </p>
<p>As to buildings like Prospect House, it may be harder to definite their academic purposes, though Prospect House is essentially the faculty dining hall. They have those at other universities, don’t they? </p>
<p>Oh, and the fact that townspeople would pay a third or so less in property taxes does not constitute a substantial harm (if one need be met, which, in this case, it seems like it does not need to be met unless it gets appealed to a federal court). For instance, if my local public high school started paying property taxes, my property taxes would go down. However, I’m not exactly harmed by them NOT paying. That payment should never even exist, so I can’t claim harm by its not existing, if that makes sense.</p>
<p>^Though it might not be relevant in this case, SCOTUS still has authority over federal issues, no matter if it is brought before a state or federal court. IRS is a federal issue.</p>
<p>If they give faculty research funds out of profits those are tax free funds. If they give them pay increases those are taxed as income. WARF has given the former for years with minimal strings. Research can be a nice trip to a lab in France.</p>
Sure–if it can make a credible threat to move if it doesn’t get a tax break. It’s kind of a moot point in this discussion, since Princeton isn’t going anywhere.</p>
<p>the obvious question in that (strawman) caterpillar point is whether the fine citizens of Princeton, NJ would vote to replace that on-the-dole University with a fine corporate, tax-paying citizen – with blue collar jobs and pollution-- like Cat. (I’m guessing that the vote would be 99:1 against.)</p>
Right, and as I keep saying, the town of Princeton isn’t complaining that Princeton University is not paying enough taxes to cover its costs to the town; the town is complaining that it would get more tax revenue if another entity were there.</p>
<p>We also tax conservation land at a lower rate than land which is built up; do people complain that homeowners with huge tracts of conservation land should pay taxes as if that land were a cul-de-sac full of mansions? Yes, you would get more tax money from that particular parcel of land if homes were built up on it, but the town may become less desirable, and the homes would incur costs to the town that are not currently there.</p>
<p>One problem in Boston, where more than 50% of the land area is controlled by non-profits and it therefore exempt from property tax, is that institutional creep leads to many of these groups constantly expanding into the surrounding community, which then removes those properties from the tax rolls, decreasing revenue to the city.</p>
<p>Boston has a fairly aggressive PILOT (Payment In Lieu Of Taxes) program, but some the amounts paid are next to nothing. Northeastern, for example, paid only $30,000 in 2009, with a property value of over a billion dollars.</p>
<p>This paper is a little long but it is an interesting read:</p>
<p>Boston calculated that non-profits should pay 25% in cash or services of what their property taxes would be if fully taxed, based on what percentage of the city’s budget was determined to be for public services like police, fire, transportation, etc. Almost none come close to this.</p>
<p>If Princeton is already paying 35% or so, they are probably already paying their fair share.</p>
<p>Since Boston zoning approves those encroachments, no such problem should exist; or if it results in one, Boston City Council is complicit/responsible.</p>
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<p>Except that is comparing apples to oranges. Demanding PILOT money from a college that has its own police and its own fire is a shake down, IMO. How many “fires” occur in dorms that the city police is called on to support? And, what “transportation” does the City of Boston provide to college kids? (The students pay full fare for the bus/T lines. If ambulance services, just send the parents a bill.)</p>
<p>^ exactly. The only “public service” Princeton uses is the fire departments- a large part of which is constituted by Princeton employees. Princeton has its own fully sworn police officers and the ambulance service is a for-profit organization that bills students per use anyway.</p>
<p>I’m not sure the BRA or the BCC has any say in whether a non-profit can buy a building and convert it to non-profit use.</p>
<p>In Boston (and I think in most places) fares paid for bus/subway lines does not come close to paying the full cost; the MBTA assesses all the member towns some amount based on population and the level of services - for Boston it is large. </p>
<p>The colleges don’t pay for the roads leading to and from the schools, or to plow and maintain them. </p>
<p>The non-profits’ employees’ children are educated in the local public schools, which are funded primarily by property taxes in MA.</p>
<p>A school might have its own ambulance, but who is paying for the hospital it goes to (which is also probably a non-profit and therefore being supported by taxpayers)?</p>
<p>Etc. </p>
<p>They don’t exist in a vacuum.</p>
<p>This was discussed a few years ago here, there may be more information in that thread that is interesting:</p>
<p>Here’s another paper which has a very nice treatment in the first part of property tax exemptions for non-profits, and then a good writeup on PILOT programs:</p>
<p>@notrichenough, everybody pays the same fare on nj transit. So your argument cannot be used to specifically target the university. I’m not exactly sure what point you’re trying to make there. Princeton employees’ children may go to public school, but those employees pay property tax on their own property (I’m making the reasonable assumption that employees live in the area covered by the school district since their kids go to that school. Not sure how your argument here applies to the university either. University Medical Center at Plainsboro, I assume, is in part funded by the school, hence the “University Medical Center”. The hospital is also not free for students - it charges students the same rate to use as the public. That’s where those funds come from.</p>