Kean: Under the new rulings, these non-profit organizations and their towns face a blizzard of lengthy and costly litigation. The state must step in. Watch video
By Tom Kean
Every now and then a relatively obscure body makes decisions that have a great and unexpected impact. Last year it was the U.S.Tax Court.
In a ruling that received a lot of attention, the court ruled that Morristown Hospital failed to demonstrate it qualified for a property tax exemption. In addition, in a number of procedural rulings that received little notice, the tax court set aside decades of property tax policy and tax law.
Taken together, these judicial rulings have the potential to jeopardize the ability of non-profit organizations across the state to pursue their missions of service to the public.
In a case still pending, the tax court allowed a group of individuals to challenge property tax exemptions that were granted to a nonprofit educational institution by a town assessor. Additionally, the court ruled that the burden of proving that the educational institution was entitled to its exempt status fell to the non-profit organization and the town. In doing so, the court overturned a long-established principle that those who challenge a decision by an assessor have to prove that the decision was wrong. If those bringing challenges do not have to offer proof, there is little to stop others from bringing similar charges against other non-profits and municipalities.
We are a home rule state. Citizens have long had the ability to challenge the valuation of their own property as well as property owned by others. For more than 50 years, the law has required a taxpayer challenging a property tax assessment to prove that the assessment was erroneous in some way. In deciding such challenges, the courts have given deference to the decisions of local municipal assessors, recognizing the assessors' expertise and specialized knowledge.
Charities and other non-profits have always borne the burden of establishing their right to a property tax exemption under the New Jersey Constitution and municipal assessors have always been responsible for determining whether an exemption should be continued. But once the exempt organization documented its nature and the tax assessor determined it was exempt, the decision held unless someone could prove that an error had been made.
The state benefits enormously from a broad range of non-profit organizations. They provide services for our poor; education for our children, medical services for the needy, and contribute in significant ways to the state's economy and the quality of life of our citizens.
Under the new rulings, these non-profit organizations and their towns face a blizzard of lengthy and costly litigation; for hospitals, this has already begun. Religious and educational institutions, community theaters and domestic violence centers, animal shelters and soup kitchens, and virtually any non-profit in any town may be called upon to go to court to defend their property tax exemptions.
The risk to the state goes beyond diverting scarce resources from serving public purposes to paying legal costs. The greater risk is that organizations on tight budgets will simply not be able to absorb these additional costs and towns will once again have to turn to the property tax to defend against the suits.
Given the potential negative impact on the state of reducing the capacity of these organizations to carry out their missions, a legislative response is in order.
There is a bill now pending in the Assembly that would offer some protection to non-profit hospitals, but that is not enough. Every other charitable organization could still be sued. To bring some sense to all of this our Legislature really should act.
Unless or until the Legislature can respond and the law can be clarified, non-profits would be well served to be vigilant. Since the Morristown hospital decision already more than two dozen New Jersey hospitals have been dragged into expensive litigation, while the municipalities also are incurring legal costs.
Common sense requires something better. The Legislature should appoint a body to review the issues involved and come to a reasonable bipartisan conclusion. After all, property tax exemptions for religious, educational and charitable uses are recognized by our New Jersey Constitution and have been protected for decades by state law.
The Legislature should impose a moratorium on tax exemption lawsuits to protect charities and the tax payer, while it works toward a reasonable set of policies. And it should act soon, before the cost to the charities and the tax payer mount even further.
Tom Kean is a former Republican governor of New Jersey, and chairman of the 9/11 Commission.
Follow NJ.com Opinion on Twitter @NJ_Opinion. Find NJ.com Opinion on Facebook.