210 A.3d 917
N.J. Super. Ct. App. Div.2019Background
- Kean University built the New Jersey Center for Science, Technology and Mathematics (NJCSTM) financed through the New Jersey Educational Facilities Authority (Authority); the building includes an upscale public restaurant (Ursino).
- The University’s Board authorized the Kean University Foundation to complete and operate the restaurant project and required at least 10% of the restaurant’s gross revenues be allocated to scholarships.
- The Foundation contracted with Gourmet Dining (MSA) to be the exclusive manager/operator of the restaurant for ten years; Gourmet Dining hires staff (many students), pays management fees to the Foundation, and pays a percentage of gross revenues.
- The Township assessed property taxes on the restaurant portion of the NJCSTM for tax years at issue; Gourmet Dining and the University challenged the assessments in Tax Court.
- Tax Court granted the Township summary judgment, finding (1) the premises were not being used for a public purpose and (2) the MSA was functionally a lease (taxable leasehold); plaintiffs sought reconsideration and appealed.
- Appellate Division reversed: held the restaurant space is used for a public purpose (exempt under N.J.S.A. 54:4-3.3) and the MSA is a management agreement, not a lease; also no agency relationship with the Authority for exemption under N.J.S.A. 18A:72A-18.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the restaurant space is tax-exempt under N.J.S.A. 54:4-3.3 (public-purpose exemption) | Space serves public purposes: campus use, student employment, scholarship funding, recruiting/visibility; therefore exempt | Equivalent to a private restaurant open to public; not part of traditional student dining; revenue to Foundation insufficient to make use public | Reversed: space used for public purposes when all relationships and functions considered; exempt under 54:4-3.3 |
| Whether the MSA is the functional equivalent of a lease (taxable leasehold under N.J.S.A. 54:4-2.3) | MSA is a management/operation contract, not a lease; no exclusive possessory estate conveyed | Parties structured economic control and long-term exclusive operational rights akin to a lease; taxable leasehold follows | Reversed: MSA is a management agreement, not a lease; no taxable leasehold |
| Whether exemption under 54:4-3.6 (college buildings) applies or is defeated by profit-making use | If any, exemption under 54:4-3.3 prevails; MSA not a lease so 54:4-3.6 inapplicable | Even if building qualifies, leasing/use by for-profit operator makes portion taxable under 54:4-3.6 | Court held 54:4-3.3 exemption controls; because MSA is not a lease, 54:4-3.6 does not render portion taxable |
| Whether Gourmet Dining is an agent of the Authority for purposes of N.J.S.A. 18A:72A-18 tax exemption | Authority project exemption covers agent; University acted as Authority’s agent in construction and Foundation/Gourmet operate restaurant in furtherance of project | No contractual or apparent agency between Gourmet Dining and Authority; no third-party reliance on Authority’s agency | Affirmed Tax Court: no agency relationship between Gourmet Dining and Authority; 18A:72A-18 exemption inapplicable |
Key Cases Cited
- City of Newark v. Essex Cty. Bd. of Taxation, 54 N.J. 171 (1969) (defines broad, flexible public-purpose standard)
- Roe v. Kervick, 42 N.J. 191 (1964) (public-purpose concept and analytical approach)
- Cty. of Bergen v. Borough of Paramus, 79 N.J. 302 (1979) (ownership alone insufficient; requires public use)
- Thiokol Chem. Corp. v. Morris Cty. Bd. of Taxation, 41 N.J. 405 (1964) (distinguishes leases from licenses; exclusive possession test)
- Sandyston Twp. v. Angerman, 134 N.J. Super. 448 (App. Div. 1975) (definitional guidance on lease versus license; exclusive possession focus)
- Sears Mortg. Corp. v. Rose, 134 N.J. 326 (1993) (agency and apparent authority principles)