Property Tax Exemption Unaffected by Non-Permitted Use of Property

Society of Holy Child Jesus v. City of Summit, 418 N.J. Super. 365 (App. Div. 2011).  State tax statutes and the Municipal Land Use Law (“MLUL”) are not often bedfellows in the same case.  This case is one of those times.  The Appellate Division, in an opinion by Judge Messano that reversed a decision of the Tax Court, held that an otherwise valid property tax exemption under N.J.S.A. 54:4-3.6 was not voided by the fact that the subject property was being used in a manner that was not permitted by applicable municipal zoning.  The property was being used for school purposes, which supported a tax exemption under the statute.  But the land was in a single-family home zone, and school uses were allowed only as conditional uses, a status that the property owner had not sought.

The Appellate Division observed that the language of the statute did not indicate that the use of the property should affect the exemption.  The Tax Court had relied not on the statutory language, but on what that court viewed as an analogy:  caselaw under the Farmland Assessment Act (“FAA”), N.J.S.A. 54:4-23.1 to -23.23, that had held that property used in violation of a municipal ordinance could not qualify for a preferential assessment under the FAA. 

Judge Messano found support for the idea that there is a “vital nexus” between taxation and zoning in the FAA context, because the FAA and the MLUL had a number of common objectives, such as the preservation of agricultural uses and open space, among many other things that the Appellate Division carefully cited.  But the underlying policy of N.J.S.A. 54:4-3.6, unlike that of the FAA, is not “to achieve overall land use objectives,” but to compensate the taxpayer for “the contribution of the exempt facility to the public good.”  As long as the property is being used for the tax-exempt purposes embodied in 54:4-3.6, such as a school, whether that use is permitted by the zoning is not material to the validity of the exemption.

The court considered potentially persuasive authorities from several other states.  Judge Messano found most of those cases inapplicable.  But a Pennsylvania case supported the “bright-line standard that entitles the taxpayer to exemption if its use of the property is consistent with the tax-exempt purposes embodied in its legislation.”  The Appellate Division found that standard “consistent with New Jersey’s statutory and constitutional mandates.”