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Property Tax — Exemption: Granted (but not for your first year)

This article appears in the Fall 2011 CLINIC NEWS.

Like most states and the federal government, New Jersey grants preferential tax treatment to charitable organizations. When the Community Law Clinic (CLC) began working with the League, a Newark-based youth services organization, it discovered oversights in the New Jersey tax exemption statutes that required redress.

Although the CLC primarily handles transactional matters, at times a transactional case can proceed to litigation. Therefore, when the League brought an action against the City of Newark seeking a refund of taxes paid in 2009 on property it acquired in the same year, CLC students found themselves before the New Jersey Tax Court. 

The League had been granted a property tax exemption from 2010 forward but the 2009 property tax status was uncertain. The League’s situation revealed a gap in New Jersey’s tax statutes. When an indisputably tax-exempt organization acquires property from a nonexempt company, the first year is not exempt from property taxes. In contrast, the League acquired its property from an exempt organization, meaning that the prior owners had no tax liability for 2009 and, therefore, the League also was exempt. However, the City relied on a different section of the tax statute, which suggests that, in order for the exemption to continue uninterrupted, the League must have been a prior owner of different tax exempt property.

Asserting that this interpretation of the statute was contrary to legislative intent, which was to continue an exemption without interruption when property was being transferred from one exempt owner to another, the CLC filed a motion for summary judgment in New Jersey Tax Court, which was argued by Nicole Barna ’11 last May. The decision is pending, but students’ work on the case allowed them to experience first-hand the inherent flaws in legislative drafting and a taste of litigation.