PAPER MILL PLAYHOUSE, PLAINTIFF-APPELLANT, v. MILLBURN TOWNSHIP, DEFENDANT-RESPONDENT.
Supreme Court of New Jersey
Argued November 28, 1983—Decided March 15, 1984.
95 N.J. 503
Arnold K. Mytelka argued the cause for respondent (Clapp & Eisenberg, attorneys; Anthony K. Mytelka and Kevin R. Jespersen, on the briefs).
Vincent J. Apruzzese argued the cause for amici curiae George Street Playhouse, New Jersey Theatre Group, New Jersey Ballet Company, New Jersey Symphony Orchestra, New Jersey State Opera, Brendan T. Byrne, William T. Cahill, Robert B. Meyner, Maureen Ogden, Alexander B. Lyon, Jr., Margaret Q. Hager and Richard L. Amster (Apruzzese & McDermott, attorneys; Vincent J. Apruzzese and Philip B. Whitcomb, on the brief).
The opinion of the Court was delivered by
GARIBALDI, J.
The issue is whether Paper Mill Playhouse (Paper Mill), a nonprofit corporation, is entitled to an exemption from local property taxes under
The Essex County Board of Taxation denied Paper Mill‘s request for an exemption from local property taxes. The Tax Court reversed the County Board and granted the exemption.
I
Since 1913, New Jersey‘s policy has been to exempt from local property taxes property actually and exclusively used by nonprofit corporations for the moral and mental improvement of men, women and children.
* * * The following property shall be exempt from taxation under this chapter: * * * all buildings actually and exclusively used in the work of associations and corporations organized exclusively for the moral and mental improvement of men, women and children * * * provided, in case of all the foregoing, the buildings, or the lands upon which they stand * * * are not conducted for profit * * *.
To secure an exemption for its real property, a corporation must meet the following three criteria:
(1) it must be organized exclusively for the moral and mental improvement of men, women and children;
(2) its property must be actually and exclusively used for the tax-exempt purpose; and
(3) its operation and use of its property must not be conducted for profit.
The issue here is whether Paper Mill meets these criteria and is therefore entitled to exemption from local property taxes. For the reasons given below, we are satisfied that Paper Mill meets each of the three statutory criteria for exemption under
However, the basic inquiry always is the legislative intent as expressed in the statute. To that end the construction, while strict, must always be reasonable, and words are not to be given a rigid scholastic interpretation when it appears that they were used in another sense. The rule of strict construction must never be allowed to defeat the evident legislative design.
See Deubel v. Kervick, 33 N.J. 568, 574 (1960).
II
In 1934 Paper Mill was incorporated as a nonprofit corporation under
Paper Mill presents a wide variety of events, including its own major productions of musical and dramatic plays; special, “On School Time,” and Saturday programs to introduce children to the theater; and productions of various musicals, ballets, and plays in conjunction with other cultural groups such as the New Jersey Ballet Company and the Newark Boys’ Choir. All of these events are presented live at Paper Mill.
Paper Mill is governed by a Board of Trustees who serve without compensation. Daily management responsibilities are handled by a paid professional staff that includes an executive producer, a manager, ushers, clerical workers, and maintenance workers.
The Executive Producer and his staff decide what productions will be performed. Their policy is to present the best theater Paper Mill is capable of producing. The major productions include musicals and dramas representative of the theater presented in New York and London. According to the unchallenged testimony of the Executive Producer, the productions are not chosen to make a profit. Indeed, Paper Mill does not limit its losses by closing financially unsuccessful productions before their scheduled runs and, in fact, more than one-half of the productions result in a loss.
Paper Mill, under the direction of its Executive Producer, stages most of its own productions, negotiates directly with the playwrights to obtain copyrighted material, and locates its own actors and actresses through its permanent casting office in New York City. To present the high quality theatrical productions, it sometimes engages established stars to appear in its productions. Because of Paper Mill‘s well-known reputation, sometimes the stars are willing to take lower than a competitive salary when appearing. Occasionally these stars receive a percentage of net receipts, in addition to a salary. The remaining actors and actresses are members of Actors Equity and are paid union wages.
Paper Mill also engages, on a part-time basis, a press agent, set designers, hairdressers, stage hands, and musicians. Its advertising is not extensive and consists primarily of advertising in newspapers. It does not advertise on radio or television or by posters in cabs or buses.
Paper Mill‘s audience is drawn primarily from Northern New Jersey. The uncontroverted testimony is that it does not compete with commercial New York theater, but with regional theaters such as McCarter Theater in Princeton, The Whole Theater in Montclair, and George St. Playhouse in New Brunswick. Paper Mill‘s policy is to set its ticket prices as near cost as possible. Accordingly, the ticket charges for major productions
In 1977 the major productions presented at Paper Mill were:
“The Belle of Amherst” starring Julie Harris;
“The Mousetrap;”
“The Fatal Weakness;”
“Jesus Christ Superstar;”
“My Fair Lady;”
“The Ginger Rogers Show;”
“Good News;”
“Grease;”
“Shenandoah;”
“The Nutcracker” with The New Jersey Ballet;
“New Year‘s Eve Special” with Victor Borge.
The theater season in 1977 (as in other years) lasted 44 to 46 weeks; and a total of approximately 200,000 people attended the major productions.
In addition to its major productions, Paper Mill produces programs to introduce children to, and to interest them in, professional theater and the dramatic arts. Their “On School Time” program is operated in conjunction with various school districts throughout New Jersey, which bring students to the theater during school hours. In 1977 there were 53 performances of 19 productions attended by a total of approximately 50,000 children. Paper Mill purchases most of these productions, which include such shows as “Snow White,” “Hansel and Gretel,” “Babes in Toyland,” and “A Christmas Carol,” as well as “Amahl and the Night Visitors” by the Newark Boys Chorus and “Nutcracker Suite” by the New Jersey Ballet Company. The ticket charges for such performances range from $1.50 to $2.25. In addition, Paper Mill provides these same shows to other children in special Saturday performances. Approximately 19,000 children attended such programs in 1977 at an average admission charge of $2.25. Of Paper Mill‘s total attendees in 1977, over 25% were children who attended the special children‘s programs.
Paper Mill has a special relationship with the New Jersey Ballet Company, a tax-exempt organization promoting ballet in New Jersey. The Ballet is considered “in residence” at Paper Mill and stages Tchaikovsky‘s “Nutcracker Suite” there for two weeks each year. In addition, in 1977 the Ballet presented Monday evening ballet performances at Paper Mill. The proceeds of these productions, if any, are shared with Paper Mill. Paper Mill also produced, in conjunction with the Newark Boys Chorus, a tax-exempt organization, several performances of “Amahl and the Night Visitors.” There were no profits from these performances.
To allow those who otherwise could not afford the theater the opportunity to enjoy it, Paper Mill in 1977 offered a 25% discount to senior citizens and students. Paper Mill also offered free tickets to various charitable organizations. The New Jersey State Council on the Arts gave special recognition to these programs by contributing a matching grant of $15,000.
Paper Mill receives approximately 94% of its gross income from ticket sales. In addition to its theater activities, Paper Mill maintains a parking lot and a refreshment concession, publishes a theater program with advertising, and operates a small art gallery in the upper lobby of the theater for the exhibition and sale of works by local artists. These ancillary operations produce either a small profit or a small loss depending upon the accounting procedures used in reporting the income therefrom.
Paper Mill‘s financial situation fluctuated during the five-year period ending June 30, 1979. Its profits and losses from specific operations are set forth below:
| 6/30/75 | 6/30/76 | 6/30/77 | 6/30/78 | 6/30/79 | |
|---|---|---|---|---|---|
| Theatrical Productions * | $(82,488) | $(259,650) | $(11,369) | $160,036 | $(173,616) |
| Children‘s Shows | 33,588 | 28,360 | 30,021 | 25,825 | 45,416 |
| On School Time Programs | 31,875 | 37,629 | 38,422 | 18,982 | 21,539 |
| Parking Lots | $ 929 | $ 6,993 | $ 17,423 | $ 20,894 | $ 12,252 |
| Art Gallery | (2,087) | (2,481) | (2,164) | (1,421) | (2,144) |
| Programs & Concessions | 27,016 | 16,931 | 18,708 | 18,772 | 15,561 |
| Misc. Income (inc. interest) | 6,703 | 15,357 | 21,003 | 32,025 | 53,142 |
| TOTAL | $ 15,536 | $(156,861) | $ 112,044 | $ 275,113 | $ 22,150 |
* This figure encompasses expenses for “Dark Weeks” shown on the financial reports.
Paper Mill also receives contributions from individuals and corporations. In the fiscal year ending June 30, 1977, Paper Mill received approximately $100,000 in private donations and in the following fiscal year approximately $115,000. As of June 30, 1977, Paper Mill had accumulated earnings of $323,975 and a donated surplus of $291,905. As of June 30, 1978, the accumulated earnings had increased to $599,088 and donated surplus was $370,533. As of June 30, 1977, its liquid assets were approximately $430,000.
Paper Mill‘s Certificate of Incorporation provides that upon its dissolution, its assets must be turned over to another similar charitable organization and cannot inure to the benefit of any person. The accumulation of surplus, therefore, cannot benefit any person, group of persons, or for-profit organization.
All of the income and the surplus is rededicated to the operation of the theater. The monies are used to produce theatrical productions, to maintain the theater, and to provide necessary capital improvements, including expansion. In 1977, the building was 108 years old and in constant need of expensive repairs and maintenance. Moreover, Paper Mill began construction of an addition to the theater in 1977. The addition was to provide needed space for craftsmen, dressing rooms, and a rehearsal area. The estimated cost of the construction was $650,000.
Paper Mill is an exempt organization under
Paper Mill‘s contributions to the State of New Jersey have been widely recognized. Throughout the years Paper Mill has received official recognition from the State of New Jersey for its contributions to the cultural enrichment of the State. On June 20, 1972, Governor Cahill issued a proclamation designating Paper Mill as the State Theater of New Jersey, a distinction Paper Mill still retains. In his proclamation, Governor Cahill extolled Paper Mill‘s major contributions to the State in its presentation of drama, ballet and, particularly, its programs for children.
On June 1, 1976, Governor Byrne issued a proclamation that likewise extolled the cultural contributions of Paper Mill to the citizens of New Jersey, particularly its special programs for senior citizens and students, and urged “all citizens to support this outstanding New Jersey cultural institution.” Millburn also issued resolutions in 1971 and 1974 in support of Paper Mill as a cultural center.
Significantly, this strong support from the State continues. Since a fire destroyed the theater in 1980, the State Legislature, with the approval of two Governors, has appropriated $600,000 to Paper Mill in support of the arts and to aid in the reconstruction of the theater, “a statewide performing arts resource.” The State further supports Paper Mill by actively participating in its effort to obtain national and private funding grants.
III
The first statutory requirement Paper Mill must meet is that it is “organized exclusively for the moral and mental improvement of men, women and children.”
In Chester Theatre Group v. Chester, 115 N.J.Super. 360, 365 (1971), the Appellate Division confronted the question whether dramatic productions fell within the term “moral and mental improvement.” In holding that they did, the court stated: “It is generally accepted that dissemination of literary material through the dramatic arts and the presentation of musical recitations advance the intellectual and social bases of man in general.” See New Brunswick v. George St. Playhouse, Inc., 2 N.J.Tax 407, 411 (1981). Other jurisdictions also have taken this position. See Stockton Civic Theatre v. Board of Supervisors, 66 Cal.2d 13, 20, 423 P.2d 810, 815, 56 Cal.Rptr. 658, 663 (1967); Greek Theatre Ass‘n v. County of Los Angeles, 76 Cal.App.3d 768, 777-88, 142 Cal.Rptr. 919, 923 (1978); Little Theatre of Watertown v. Hoyt, 7 Misc.2d 907, 911, 165 N.Y.S.2d 292, 296 (N.Y.Sup.Ct.1956), aff‘d. o.b., 4 App.Div.2d 853, 167 N.Y.S.2d 240 (N.Y.App.Div.1957).
We do not attempt to enumerate all the theatrical activities that might fall within the ambit of moral and mental improve-
IV
The second prerequisite for exempt status is that the property must be “actually and exclusively used” for the moral and mental improvement of men, women and children.
Millburn contends, however, and the Appellate Division and the dissenting justices agree, that Paper Mill operates like a commercial enterprise and therefore its property is not actually and exclusively used for society‘s mental and moral improvement. Neither Millburn, the Appellate Division, nor our dissenting colleagues define a “commercial enterprise.” Inferentially, the definition involves a combination of the following facts: the professional production of popular shows that attract large audiences; the employment of a full-time salaried staff and the hiring of professional actors and actresses; and the occasional making of a profit from its theatrical production and the retention of such profit as surplus.
The proper application of the “exclusive use” test depends upon the facts of each case. Princeton Univ. Press, supra, 35 N.J. at 216. The facts here establish that Paper Mill‘s operation is substantially distinguishable from a commercial enterprise. No commercial enterprise, whose essential purpose is to make money, would follow Paper Mill‘s policies. A com-
It is important also to recognize the tremendous financial support and extraordinary recognition Paper Mill has received from the State of New Jersey, both the legislative and executive branches, through four administrations. The State, by designating Paper Mill as the State Theater of New Jersey, acknowledges the outstanding contributions of Paper Mill to the cultural enrichment of the citizens of the State, particularly those who normally would not be able to experience theater, such as children, senior citizens, and students. Such recognition and financial support are not given ordinarily to a commercial enterprise. In view of such financial support, it is difficult to conceive that the Legislature would intend today that Paper Mill be denied an exemption under
Paper Mill‘s position is supported by two New Jersey cases, which address the same issue as present here: whether a theater owned by a nonprofit corporation was used actually and exclusively for society‘s moral and mental improvement as required
Chester Theatre Group, a nonprofit corporation under Title 15 of the New Jersey statutes, was organized “to stimulate, perpetuate and develop interest in the dramatic arts and to educate the general public in the arts.” Chester Theatre Group, supra, 115 N.J.Super. at 361. Its property was used for drama workshops, plays, art displays, and productions of music. Id. at 362-63. The Appellate Division held that the property was used exclusively for the moral and mental improvement of society.
George Street Playhouse was also a nonprofit corporation under Title 15 of the New Jersey statutes. It was organized to “promote the artistic and cultural welfare of the citizens of New Jersey” and to “encourage young people to become acquainted with drama and participate therein.” It presented theatrical performances, conducted drama workshops, and maintained a traveling children‘s company that presented free dramatic productions to area schools. George St. Playhouse, supra, 2 N.J.Tax. at 409. The court found that the activities of the George Street Playhouse were “essentially the same as those of the Chester Theatre Group,” id. at 411, and concluded that it was organized exclusively for society‘s moral and mental improvement.
Like Chester Theatre Group and George Street Playhouse, Paper Mill is a nonprofit corporation organized under Title 15 of the New Jersey statutes to further the arts. Its property, too, is used for theatrical performances, displays of art, and children‘s plays.
Millburn, however, faced with what it concedes is the broad holding of Chester Theatre Group, supra, 115 N.J.Super. at 365, that “dissemination of literary material through the dramatic arts and the presentation of musical recitations advance the intellectual and social bases of man in general,” and the adherence of George St. Playhouse, supra, to that holding, argues that
More importantly, the position of Millburn and our dissenting colleagues that a theater that produces popular shows is a commercial enterprise whose property therefore is not exclusively used for society‘s moral and mental improvement is fundamentally unsound. Implicit in this position is the notion that a successful show cannot improve society‘s moral and mental outlook. There is no evidence that popular productions fail to further society‘s moral and mental improvement simply because, coincidentally, they are entertaining. It is well-known that some of today‘s popular shows become tomorrow‘s classics. The fact that an exhibit at a museum in terms of both popularity and financial returns is successful, as the King Tut Exhibit or the Vatican Exhibit are, does not mean that it is not culturally enriching. Must a play be unpopular and poorly produced for it to have cultural value? Obviously not. In fact, the reverse is more likely to be the case. Popularity may go in tandem with quality. A professionally and well-produced production generates more popular attraction, and ultimately a greater number of people will be culturally enriched.
This distinction is unacceptable not only because it is based upon an incorrect premise but also because of its practical consequences. Decisions about taxability would turn on whether a play was more like “Annie” than “Hamlet.” The tax assessor, therefore, would be put in the untenable position of drama critic and by extension, censor, determining whether a specific play promotes society‘s moral and mental improvement. Worse, nonprofit theaters would be discouraged from presenting valuable new works with no history as to their appeal for fear that the tax assessor would find the new work “popular” and deny them an exemption from property taxes. Certainly, the Legislature did not intend to foster this kind of climate in the administration of its ad valorem tax laws.
Indeed, any fine attempt to determine which plays improve moral and mental improvement and which do not is unwise. As the United States Supreme Court once noted:
What is good literature, what has educational value, what is refined public information, what is good art, varies with individuals as it does from one generation to another. There doubtless would be a contrariety of views concerning Cervantes’ Don Quixote, Shakespeare‘s Venus & Adonis, or Zola‘s Nana. But a requirement that literature or art conform to some norm prescribed by an official smacks of an ideology foreign to our system.
[Hannegan v. Esquire, 327 U.S. 146, 157-58, 66 S.Ct. 456, 462, 90 L.Ed. 586, 593 (1946) (footnote omitted).]
The statement is as applicable to dramatic literature as it is to prose.
To say that Paper Mill is not used exclusively for moral and mental improvement because it presents “entertainment” is to attempt to make a determination of literary normality. That a performance “may delight the viewer and that the performer may enjoy his role is incidental to and does not derogate from the inherent intellectual and educational value of the production.” Chester Theatre Group, supra, 115 N.J.Super. at 366.
There also is no merit in Millburn‘s allegation that a theater that employs professionals is significantly different for tax purposes from one that does not. Millburn makes this assertion in its attempts to distinguish Paper Mill‘s operations from those
The fact that the actors and staff employed by defendant are paid salaries does not detract from the beneficial effect of defendant‘s activities upon the public. If anything, the employment of professional actors and staff assures a high standard of quality for all the defendant‘s undertakings. [Id.]
Participation is not essential in learning to appreciate culture. Just as one need not paint to learn to appreciate paintings, one need not act to learn to appreciate dramatic performance. Like the patron at an art museum, the spectator at a theater can be morally and mentally improved by learning to appreciate theater. Any attempt to distinguish nonprofit theaters on the basis that one allows the public to participate in the design, performance, and direction of the productions, whereas the other allows the public to participate only as spectators, is faulty.
Millburn, in support of its commercial enterprise theory, relies principally on a nontheater case, Princeton Univ. Press, supra, 35 N.J. 209. Its reliance on this case is misplaced and indicates a misunderstanding of the issue.5 In Princeton Univ. Press, we held that the Press morally and mentally improved society by publishing outstanding scholarly works that other publishing companies would be unlikely to publish because of insufficient financial returns. To finance this work, the Press also engaged in traditional profit-making printing work, printing letterheads, examinations, bill heads, football programs, pamphlets, and cat-
Similarly, in Teaneck v. Lutheran Bible Inst., 20 N.J. 86 (1955) (exemption denied for residential houses occupied by ministers and their families), and Sisters of Peace v. Westervelt, 64 N.J.L. 510 (Sup.Ct.1900), aff‘d, 65 N.J.L. 685 (E. & A.1901) (exemption for summer boarding house in which patrons paid for accommodations), two separate and distinct uses were made of the property.
Factually, these cases are dissimilar. In those cases, the property was used for two distinct purposes, one related to the tax-exempt purpose of the organization, the other to a nontax-exempt purpose of the organization. Paper Mill, however, makes only one use of its property; it presents live dramatic performances that further its tax-exempt purpose, i.e., society‘s moral and mental improvement. Thus, these cases offer no support for Millburn‘s position.
V
Millburn also relies on Princeton Univ. Press, supra, 35 N.J. 209, to support its allegation that the retention of a surplus and the mere fact that Paper Mill occasionally runs financially successful productions makes it a commercial enterprise. We disagree. This is a difficult issue to discuss as Millburn does not allege that Paper Mill was conducted for profit. Instead, it, like the dissenting opinion, alleges that regardless of its intention, because Paper Mill at times realizes a profit and generates a
Additionally, to place the issue in perspective, it must be stressed that the facts here do not support Millburn‘s allegations. The uncontradicted testimony at trial was that Paper Mill is not conducted for the purpose of making a profit, that profitability is not a consideration in determining which shows to produce, and that a production is never closed before its scheduled run because it is losing money at the box office. Whatever surplus exists is reinvested in theatrical productions, maintenance of the theater, or necessary capital improvement, including expansion. Further, for four out of five years, 1975 through 1979, Paper Mill suffered the following substantial losses from its theatrical productions, purportedly the nub of its commercial enterprise: 1975—($82,488); 1976—($259,650); 1977—($11,369); and 1979—($173,616).
Although Paper Mill produced a net income in 1978 from its theatrical productions, that fact alone does not mean that it is conducted for profit. Our cases require a pragmatic inquiry into profitability.6 The decisions reveal a realistic common sense analysis of the actual operation of the taxpayer; mechanical centering on income and expense figures is to be avoided. As Chief Justice Vanderbilt stated in The Kimberly School v. Mont-
Similarly, in Trenton v. N.J. Div. of Tax Appeals, 65 N.J.Super. 1, 10 (1960), where a real property exemption was granted to Rider College, which had sizable surpluses at the time, the Appellate Division stated:
We perceive nothing in the statute requiring, as a condition of tax exemption, that a non-profit educational institution must actually operate at a loss, or that it must gear its tuition rates and other receipts so as to avoid an excess of income over current expenditures. To hold that a college may not accumulate a surplus, even though accomplished in some measure by the generosity of donors, without losing tax-exempt status, would be tantamount to declaring that such institutions may not plan on a sound fiscal basis for the replacement of antiquated facilities or the expansion of facilities almost all colleges are finding necessary to accommodate the ever-mounting demands for a college education. The tax statute imposes no such sanction.
Accord, Boys’ Club of Clifton, Inc. v. Jefferson, supra, 72 N.J. at 403-04.
A crucial factor is where the profit goes. As the Appellate Division stated, “[i]f the college does show operational surpluses for some years, the crucial inquiry is, ‘Who gets the money?’ If we can trace it into someone‘s personal pocket * * * the college is not entitled to tax exemption * * *.” Trenton v. N.J. Div. of Tax Appeals, supra, 65 N.J.Super. at 12.
None of Paper Mill‘s surplus can be traced into someone‘s pocket. Paper Mill pays no dividends to anyone. Although it pays salaries to its staff, its actors, and others, there are no allegations that it pays excessive salaries or bonuses. As long as salaries are not excessive, the mere payment of them is not sufficient grounds for denying the tax exemption: See The Kimberly School v. Montclair, supra, 2 N.J. at 38; Trenton v. New Jersey Div. of Tax Appeals, supra, 65 N.J.Super. at 12. Moreover, none of the surplus would flow into someone‘s pocket
Millburn‘s reasoning leads to illogical and irrational results. For a nonprofit organization to retain its tax exemption, it would have to lose money or at least do no better than break even. This makes no sense. Ordinary prudent judgment requires that nonprofit organizations, like other organizations, try to generate a surplus for emergencies and, in this case, capital expansion. Here, whatever surplus exists is reinvested in theatrical productions, maintenance of the theater, or necessary capital improvements, including expansion. Retaining a surplus is reasonable, particularly since an addition to the theater was being constructed in 1977. Further, prudence dictates that a surplus be retained due to the wide fluctuations in Paper Mill‘s income as evidenced by the receipts from theatrical productions.
In cases where we have held that the taxpayer was operating for a profit, the profit arose from the nonexempt operation of the organization. See Princeton Univ. Press, supra, 35 N.J. 209; Sisters of Peace, supra, 64 N.J.L. 510. Paper Mill‘s “actual and exclusive” use of its property, however, is solely in the furtherance of its exempt purpose, the production of live dramatic art for the moral and mental improvement of men, women, and children.
VI
In conclusion, Paper Mill‘s operation is substantially distinguishable from a “commercial enterprise.” Millburn‘s allegations are not sufficient to establish that Paper Mill is a “commercial enterprise,” whatever such a term connotes. Nor do we share Millburn‘s concern that commercial enterprises will flock to follow Paper Mill‘s operation to avoid property taxes. We
Accordingly, we hold that the property of Paper Mill is exempt from local property taxes under
We reverse the judgment of the Appellate Division and enter judgment for Paper Mill Playhouse.
CLIFFORD and SCHREIBER, JJ., dissenting.
Property tax cases are not notorious for their emotional appeal. This one is not much different in that regard, although we acknowledge a certain seductive allure to the claim of tax-exempt status by Paper Mill Playhouse—a veritable oasis in an otherwise vast expanse of but modest thespian attainments. Trouble is, the tab has to be picked up by the rest of Millburn‘s property owners. In this instance, that is both unfair and contrary to the legislative scheme.
As a general rule our statutes seek to impose the public burden of taxation on real property in just and equal share. Princeton Univ. Press v. Princeton, 35 N.J. 209, 214 (1961). Because statutes granting exemption from taxation represent a departure from this rule, they are construed “most strongly” against those claiming an exemption. Id. The burden is on the taxpayer to prove that his property falls within the statutory exempt enclave. Jamouneau v. Division of Tax Appeals, 2 N.J.
That part of the statute,
The Township‘s argument, with which we agree, essentially is that Paper Mill is a professional theatre whose major productions represent a commercial endeavor. To the extent that the production phase of its operations takes on the nature of and is a profit-making commercial enterprise, Paper Mill‘s use of its property is not exclusively for a tax-exempt purpose. It was Paper Mill‘s burden to establish this exclusivity requirement—a burden that it did not choose to assume until 1978, when for the first time in over forty years it sought an exempt status. This “exclusivity” requirement, a specific of the statute, was put into sharp focus by this Court in Pingry Corp. v. Hillside Township, 46 N.J. 457, 462-63 (1966).
Pingry is important for its tracing of the legislative history of the exemption statute‘s “colleges and schools” clause; of the original “actually and exclusively used” language, Act of April 8, 1903, ch. 208, 1903 N.J.Laws 394; and of the later deletion of “exclusivity,” Act of April 8, 1913, ch. 278, 1913 N.J.Laws 570. Its particular significance lies, of course, in its graphic demonstration of the Legislature‘s understanding of how to broaden the exemption when it wished to by removing any requirement that the property be used exclusively for an exempt purpose—a step it took for colleges and schools but has resolutely refrained
Even more significant in Pingry, which involved the tax-exempt status of seven faculty houses owned by the school, was this Court‘s analysis of whether those properties were actually used for school purposes. The Court posited the following proposition:
Where the institution by its rental agreements with its faculty members assumes the role of an ordinary landlord and profits, the purpose to which the buildings are put can be said to only indirectly further the goals of school and thus the finding of “actual use” cannot be found. However, where, as here, the landlord-tenant relationship is secondary to the primary purpose of providing the housing for the faculty on the campus site and no profit is possible, an exemption can be justified. [46 N.J. at 463 (emphasis added).]
A second significant decision is Princeton Univ. Press v. Princeton, supra, 35 N.J. 209, which emphasized the importance of the nonexistence of a profit when, in order to qualify for exempt status, the property had to be exclusively used for the beneficial purpose of “moral and mental improvement of men, women and children,” the same exemption provision as is before us. The statute‘s “exclusivity” requirement failed of satisfaction because in addition to publishing outstanding scholarly works, Princeton Press did commercial printing work in order to offset the losses it incurred through its purely scholarly pursuits. Id. at 216. That work was undertaken for the purpose of making a profit. “Hence, in this sense the printing [took] on the nature of a commercial enterprise and, therefore, it cannot be said that the property is exclusively used for the statutory purpose.” Id. (emphasis in original). That the profit was used to support publication of scholarly books did not alter the
These cases demonstrate that the taxpayer must prove both (1) that the purpose of the organization qualifies and (2) that in carrying out that purpose, the organization does not use the exempted property for profit making.
Although the commercial nature of Paper Mill‘s activity may not stand out so starkly as the commerciality in Princeton Univ. Press, it is nevertheless unmistakably present. Some of its more important features are that Paper Mill retains a full-time salaried staff, including a producer, manager, ushers and other maintenance workers, and has all the trappings of a full-fledged commercial theatre, such as a press agent, union set designers, hairdressers, stage hands and musicians, and a permanent casting office in New York City. We would not presume to quarrel with the character of its productions, and are prepared to concede for today‘s purposes that an appearance of Bert Parks or the enormously talented Victor Borge does not of necessity mean that the theatregoer would be deprived of moral and mental improvement; but the list of productions for the 1977 season (that preceding the tax year in question), ante at 509, strongly suggests that Paper Mill‘s management had one eye fixed at least as firmly on filling the house as the other was fixed on uplifting the cultural level of the community.
Equally persuasive to us are the numbers: average income of more than $44,000 for the fiscal years (June 30) 1974 to 1979; $275,000 in earnings for fiscal 1978; earned surplus at the close of fiscal 1977 of $324,000; and earned surplus at the end of fiscal 1978 of $600,000. Its box office receipts from theatrical operations in fiscal 1978 were $1,795,000.1 These figures indicate at best that the property for which the tax exemption is claimed is being used only indirectly, and not exclusively, for the moral and mental improvement of men, women, and children.
The majority misconceives the nature of the exemption, seeking to distinguish Paper Mill from a commercial enterprise predicated on a series of factors that heretofore have never been dispositive of the issue of “exclusive” use of the structure in question. The Court starts with the predicate that “[n]o commercial enterprise whose essential purpose is to make money will follow Paper Mill‘s policies“, ante at 514 and 523-24. Of course not. The majority relies on features of corporations organized for profit, such as the distribution of assets on dissolution, division of profits, and use of surplus. None of those factors exists in non-profit corporations. See, e.g., Princeton Univ. Press, supra, 35 N.J. 209. The pivotal question is, does the Paper Mill ever use the theatre to make a profit?2
We would affirm.
For reversal—Chief Justice WILENTZ and Justices HANDLER, POLLOCK, O‘HERN and GARIBALDI—5.
For affirmance—Justices CLIFFORD and SCHREIBER—2.