Court Grants Tax Exemption To Nonprofit Property

by: Allan Zhang
16 Nov 2022

In a recent published Tax Court opinion by Judge Vito Bianco, J.T.C., the Court considered the exemption status of a property owned by nonprofit organization, Options Imagined (“Options”). Options had filed for exemption from property tax assessment of its property to the Morris County Tax Board which denied the application. Options appealed the decision to the Tax Court. There, the Township of Parsippany-Troy Hills (“Parsippany”) filed a summary judgment motion to dismiss the appeal. At issue was whether Options’ use was in furtherance of its organizational purpose set forth in its bylaws. The Court denied Parsippany’s motion and determined that Options’ use was in furtherance of its organizational purpose.

The fact are undisputed: Options is a nonprofit created by Joseph DeSimone in 2015 to provide NJ Department of Human Services, Division of Development Disabilities (DDD) recognized support services to adults with intellectual and developmental disabilities. In 2019, Options purchased a 2 bedroom condominium from DeSimone to be used exclusively for independent living and rehabilitative services. Since Options’ purchase, the only resident of one of the bedrooms is DeSimone’s autistic adult son, however, an additional DDD participant will soon occupy the second bedroom. DeSimone’s son lived at the property prior to Options’ purchase as well. The property receives Section 8 subsidies, Options receives in-home and service funding from various sources such as Medicaid Waiver Programs, home expenses are derived from resident funds and state funded housing programs, Options receives in-home and service funding from various sources such as Medicaid Waiver Programs, and while, the property itself is not yet approved by DDD, the DDD has issued a Notice of Intent to License. Options is approved by the DDD to provide services and support to adults with intellectual and developmental disabilities enrolled in various Medicaid Waiver programs. DeSimone’s son is enrolled in the Community Care Program (“CCP”) and receives funding through programs administered by the DDD, is cared for by fulltime trained Options support employees at the subject property as outlined in his approved NJ Individual Service Plan (“ISP”).

As there was no issue of material fact, the Court reviewed to determine whether Parsippany was entitled to judgment as a matter of law. The policy behind tax exempt properties was succinctly stated in Roman Catholic Archdiocese of Newark v. East Orange City, 17 N.J. Tax 298 (Tax 1998):

Exemption [from taxation] is justly sustained only upon the principle that the concession is due as quid pro quo for the performance of a service essentially public, and which the state there-by is relieved pro tanto from the necessity of performing…

Further, when making charitable exemption decisions, “it is the use of the property, not the status or character of its owner, that determines exemption.” Emanuel Missionary Baptist Church v. City of Newark, 1 N.J. Tax 264, 268 (Tax 1980). To meet the “use” test, an organization must demonstrate that the property is “reasonably necessary for the accomplishment, and an integral part, of the taxpayer’s activities in pursuit of a function forming the basis of an exemption under N.J.S.A. 54:4-3.6. Fountain House of New Jersey v. Montague Twp., 13 N.J. Tax 387, 402 (Tax 1993) (citing Long Branch v. Monmouth Med. Ctr., 138 N.J. Super. 524, 532 (App. Div. 1976), aff’d, 73 N.J. 179 (1977)).

N.J.S.A. 54:4-3.6 states:

The following property shall be exempt from taxation . . . all buildings actually used in the work of associations and corporations organized exclusively for the moral and mental improvement of men, women and children, provided that if any portion of a building used for that purpose is leased to profit-making organizations or is otherwise used for purposes which are not themselves exempt from taxation, that portion shall be subject to taxation and the remaining portion only shall be exempt. [N.J.S.A. 54:4-3.6]

In concluding that Options’ property had satisfied all the requirements for tax exemption, Judge Bianco’s considered, inter alia, that the use of the property was to care for the current resident that is receiving DDD approved services, which is consistent with Options’ charitable purpose. Further, while currently there was only one resident, the housing is not only limited to DeSimone’s son. An additional DDD participant was anticipated to be arriving in the near future. Indeed, the Court addressed this stating “it is not pertinent to the requirements of either the use test of N.J.S.A. 54:4-3.6 that Mr. DeSimone’s son is the sole resident.”

To view the full Options Imagined, Inc. v. Parsippany-Troy Hills Township decision please click here.