Fore! State-Owned Golf Course Ruled Tax Exempt Due to Public Purpose Law

by: Thomas Olson
2 Aug 2019

The New Jersey Tax Court in Cream Ridge Golf, LLC, et. al., v. Township of Freehold examined whether a state-owned golf course (which is tax exempt) loses its exemption by leasing the property to a private entity for profit, then is the private entity also tax exempt? The Court said so long as the golf course and amenities on the property are being used for a public purpose, then they are tax exempt.

The land in question, located in Freehold Township, consists of a golf course, driving range, pro shop, maintenance structures, and the restaurant. The golf course has been in use since 1952, and the New Jersey Department of Environmental Protection (DEP) purchased the property in 2006, including a restaurant entitled the Roost at the time, whose lease was included in the purchase. Following the purchase, the DEP leased out the golf course to be run by Cream Ridge Golf Club, Inc. In 2011, the DEP signed another lease for the maintenance of the restaurant and in 2012 the DEP signed a management contract with Meticulous Landscaping, Inc., which provided that the private company would oversee all other entities on the property besides the restaurant. In 2015, a private entity named Linx and the DEP agreed to a lease where Cream Ridge was made a subsidiary of Linx.

The court’s determination focused on N.J.S.A. 54:4-3.3, 2.3, and 1.10, which state that if real estate which is exempt from real property tax is leased to an entity which is not exempt from real property tax, but is nevertheless used for a public purpose, then it is tax exempt. Freehold’s main argument was that the property was not used for a public purpose, but for a for-profit business purpose. Additionally, the Township argued that since the DEP did not oversee the golf course nor its grounds, and since private companies were making a profit, then they were not allowed to claim a tax exemption.

The court disagreed with the Township, and determined that the golf course and its amenities, including the restaurant, were owned by a state entity and featured a proper “public purpose” for the property. The main piece of evidence the court focused on in supporting the public use was the certified statements of Linx’s CEO and the Manager of the Office of Leases and Concessions for DEP. In those two certifications, the court found that at the restaurant, during the day 95% of all restaurant diners were golfers, while during the evening it was a mix of golfers and non-golfers who could eat there. Additionally, the court found in the certifications that the restaurant’s use of the facilities for banquets and special events equated to 7.8% of the entire revenue generated by Cream Ridge Hospitality in 2017, and that 75-80% of the events were golf oriented. The court found that since the restaurant was a part of the golf course’s ordinary operation, and its other amenities like the pro shop, driving range, and maintenance facilities were all within the normal parameters of golf course use and operation, then these uses were tax exempt. The court further noted that if the golf course did not have those facilities, it would be looked at as antiquated and might lose business. Therefore, the court determined that the restaurant and amenities were essential to the success of the golf course, did not vitiate the public purpose of the course itself, and because the golf course served the public itself, and the state’s definition of public purpose in the relevant legislation encompassed the golf course use, the property was entitled to maintain its property tax exemption.

The court cited to the recent Gourmet Dining decision, noting that recently, the Appellate Division reversed a Tax Court decision declaring a restaurant operated on the Kean University campus by a for-profit entity to be non-exempt. Gourmet Dining, LLC v. Union Twp., A-4799-17T3 (App. Div. May 31, 2019). The Gourmet Dining court found that the attention brought to the University from the restaurant, the revenue provided to the University from the restaurant, the regular patronage of the restaurant by the students and their parents, and the restaurant’s location on the campus, were persuasive facts for granting the exemption. The same rationale applied here and the Cream Ridge golf course restaurant was entitled to tax exemption

A copy of the Cream Ridge decision is available here.

The author acknowledges the assistance of William Olson, a summer intern at McKirdy, Riskin, Olson & DellaPelle, in preparing this article.  Mr. Olson is a member of the Day Class of 2021 at Rutgers Law School.