In a case of first impression, New Jersey's Appellate Division reversed the Tax Court's decision in Gourmet Dining, LLC v. Union Township, 30 N.J. Tax 381 (Tax Ct. 2018), which denied a property tax exemption to a restaurant on Kean University's campus. Kean contracted, through a management agreement, with Gourmet Dining, LLC, for the "exclusive right to operate, manage and control" the restaurant in question for a 10-year period, wherein Gourmet was designated the "exclusive manager" for that period of time. The agreement required the annual payment by Gourmet to Kean of $250,000 for the first nine years and $500,000 for the 10th year. Gourmet also agreed to pay Kean's operating foundation 12.5 percent of the gross revenues derived from the restaurant. Revenue generated by the restaurant and paid to Kean was slated to fund scholarship programs, and since its opening the restaurant generated more than $377,000 for such programs. Moreover, more than 85 percent of the restaurant's employees were students of Kean.
The Tax Court denied the exemption on the ground that the restaurant was not used for public purposes, which is a statutory requirement for tax exemptions pursuant to N.J.S.A. 54:4-3.3 and N.J.S.A. 54:4-3.6. The Appellate Division disagreed, noting, "We are convinced ... that the [tax] court took an unduly narrow view of the facts." The Appellate Division noted that "the restaurant is unique because it is located on-campus. The record shows that the University's students and their parents regularly dine at the restaurants. Moreover, the University views the restaurant as an important recruiting tool for students and faculty." The Appellate Division also concluded that the restaurant "provides students, other members of the University community, and visitors to the campus an alternative dining experience." Additional facts that weighed in favor of its public purpose were that the restaurant "provides revenues that are specifically earmarked for scholarships for University students," that "approximately eighty-five percent of the restaurant's employees are University students," and that "the restaurant will use produce grown on the University's property and will provide compostable waste for the University's science program, where it will be used for research by faculty and students."
The Appellate Division also emphasized "the concept of public purpose 'must expand when necessary to encompass changing public needs of a modern dynamic society.'" The court held that "when all of the relationships between the restaurant and the University are considered, they warrant the conclusion that the subject property is being used for a public purpose."
The Tax Court also denied the exemption on the grounds that the restaurant's management agreement was "functionally a lease" to a for-profit organization under N.J.S.A. 54:4-2.3 and N.J.S.A. 54:4-3.6, which also deprived the restaurant of an exemption. The Appellate Division again disagreed. In that regard, the Appellate Division noted, a lease is a possessory interest in land. The management agreement gave Gourmet the "exclusive right to operate, manage and control the restaurant, not the property," and was therefore more akin to a license which permits use, rather than a possessory interest in land. Therefore, the Appellate Division held that Gourmet was not subject to local property taxation under either N.J.S.A. 54:4-2.3 or N.J.S.A. 54:4-3.6. This holding has a much broader implication since N.J.S.A. 54:4-2.3 and N.J.S.A. 54:4-3.6 typically exclude from exempt status the leased portion of property if the lessees are not themselves nonprofit or nonexempt entities. Under the Tax Court's rationale, a license or a management agreement was the equivalent of a lease, which could deprive a property of exempt status. The Appellate Division has settled the issue and permits exemptions under management or similar agreements provided there is a continuum of the public use of the property.
On January 17, Craig Gianetti and Justin Hannan will be speaking on a panel, "Low Income Housing Tax Credits and Opportunity Zones: Synergies and Conflicts," at the 2020 Economic Leadership Forum, produced by the New Jersey Bankers Association.
On December 11, Craig Gianetti will be speaking at "The Land Use Institute: Mt. Laurel and Other Hot Topics," a program presented by the New Jersey Institute for Continuing Legal Education (NJICLE) in cooperation with the New Jersey State Bar Association (NJSBA) Land Use Section and the New Jersey Chapter of the American Planners Association.
On October 25, Christopher Stracco and Katharine Coffey co-presented a webinar for the New Jersey Institute of Continuing Legal Education (NJICLE), entitled "The Legal Aspects of Electronic Billboards and Signs."
Katharine Coffey and Peter Wolfson are serving as the organizers of Redevelopment Planning Law, a two-day course presented by the New Jersey Redevelopment Authority Redevelopment Training Institute (NJRA-RTI) that will be held on October 23 and 24 at Kean University in Union, NJ.
Day Pitney Alert
Day Pitney LLP announced today that April F. Condon has joined the firm as a partner in the Real Estate and Environmental group in its Stamford office. She joins from Robinson & Cole LLP.
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Firm Ranked Tier 1 Nationally for Energy Law and Trusts and Estates Law
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Craig Gianetti, a partner in Day Pitney's Real Estate & Land Use group, has been elected to serve as Vice Chair of the Land Use Law Section of the New Jersey State Bar Association (NJBSA).
Day Pitney's representation of Cottontail Holdings LLC and Two Franklin Realty is noted in an article, "NJ Office Complex Overvalued By $15M, State Tax Court Says," published by Law360 Tax Authority.