Charitable Property Tax Exemption Upheld by Tax Court Despite Zoning Violations

by: Matthew Erickson
23 Aug 2022

On March 24, 2022, the Tax Court of New Jersey rendered a twenty-five (25) page opinion in Life With Joy, Inc., v. Township of Green (hereafter “Life With Joy”) where the court evaluated whether the subject property was qualified for a charitable exemption to its requirement to pay local property tax.  Here, the Hon. Vito Bianco, J.T.C., ruled that for most of the years under appeal, the property was qualified for a charitable exemption, only declining to rule for them in one year where the court lacked the jurisdiction to review that appeal.

In Life With Joy, the subject property, located in Green Township, New Jersey, is a two-story five-bedroom house situated on three and one-half acres.  The property is owned by Life With Joy, Inc. (“LWJ”), a New Jersey non-profit corporation that has been federally recognized as a 501(c)(3) organization.  That organization and the subject property are specifically set up to provide “living arrangements and life skills training to young adults with developmental disabilities.”  The house contains: a 2,000 square foot gym, a movie theater with a six-person capacity, an area for crafts, a storage pantry, kitchen, dining room, greenhouse, chess room, and a library.  While the house accommodates full-time residents, many areas of the house are available for scheduled activities for non-residents.  These activities are primarily centered around teaching life skills to young adults with developmental disabilities.

LWJ offered classes at the subject property in the 2016 and 2017 tax years.  LWJ charged for these classes.  In November 2016, Green Township sent LWJ notice that they were in violation of local ordinances by holding those classes at the subject property.  Further, the notice also explained that LWJ did not obtain any of the necessary permits that would allow it to prepare food, host parties at the subject property, or use the property for any commercial purpose.  LWJ responded to this notice by moving some of their classes to a nearby church.  A further notice was sent in May of 2018, noting that the property was still in violation of the local ordinances.  LWJ did not formally respond to this later notice and the court noted that no enforcement action was undertaken by the Township after this notice was sent.

In examining whether the subject property qualifies for a charitable exemption for purpose of property taxes, the court delved into the Paper Mill Playhouse test, a test commonly used by the Tax Court of New Jersey when charitable property tax exemptions are contested.  The Paper Mill Playhouse test looks at three specific prongs which must be met in order for a property to be eligible for the charitable property tax exemption.  The prongs are:  1) the “organization test”; 2) the “use test”; and 3) the “profit test”.  Because LWJ was formed as a charitable entity, and due to their recognition of the entity as an IRC 501(c)(3) non-profit, LWJ’s qualification under the “organization test” was not contested.  This left the court to examine the “use test” and the “profit test” as the remaining parts of the Paper Mill Playhouse test.

Turning to the “use test” the court found that the actual use of the property was in line with the charitable purpose.  The court found ample evidence that the property was used for the stated purpose of fostering the social development of the resident and non-resident young adults with developmental disabilities.  The municipality had contested LWJ’s ability to satisfy the “use test” due to the LWJ owners living on premises.  The court did not entertain this argument as it found that the statute allows for the test to be met without the use being exclusive or meeting some level of threshold use.

The court then quickly addressed the “profit test” and found that LWJ did not make a substantial profit in its operation of the property, even if the operation as a whole did receive some money from the New Jersey Division of Developmental Disabilities.  The court found that this money went to the aides that would work at the property and not the LWJ entity.

Lastly, the court did take a short detour to examine whether failure to meet local zoning requirements could be fatal to the application for a property tax exemption.  Here, as noted above, some of the uses that occurred on the property were against local zoning ordinances and resulted in the property being sent notices by the municipality.  Here the court found that the State’s interest in providing for property tax exemptions for charitable purposes outweighed the interest in strictly following local ordinances.  The court found that if the legislature wanted it to be, they needed to clearly say so in the statute.  Since they did not, the court would not use the failure to comply as a reason to not grant the exemption.

Having found all parts of the Paper Mill Playhouse test met and finding no reason to prevent the exemption due to noncompliance with local zoning ordinances, the court ruled that the property was entitled to an exemption for all years that they timely appealed.  Only in 2019, when the appeal was not timely did the court decline to grant the exemption.

This case is a good example of all the different factors that need to be evaluated and proved if you are seeking a charitable property tax exemption in New Jersey. From initial intake to final resolution, an experienced tax appeal attorney can help you navigate through the specifics of each individual case.  If you have any questions concerning your property tax assessment or how to receive a property tax exemption, contact McKirdy, Riskin, Olson & DellaPelle, P.C. to speak with an experienced attorney. To view the full Life With Joy decision, click here.