When Princeton University announced it had settled litigation with area homeowners who had argued it is a profit-making institution in order to challenge its exemption from property taxes, it appeared to be paying millions of dollars to clear long-lingering uncertainty.
But the agreement, announced Oct. 14, leaves key legal issues unresolved in New Jersey. Although the university did not admit its currently exempt property should be taxed, a court did not affirm its tax exemptions, either.
That could foreshadow additional challenges to research universities in the state—challenges many think could be copied elsewhere in the country as taxpayers or revenue-strapped municipalities search for sources of cash. And the lawyer who filed the Princeton case says the homeowners he represented could bring another lawsuit in six years.
Within New Jersey, a key development in the case took leverage from Princeton University. A judge ruled that the burden of proof for tax-exempt status was on Princeton University, meaning it would have been required to prove itself qualified for property tax exemptions it was already receiving. That’s a major difference from the homeowners bringing the suit having to prove that Princeton did not deserve tax breaks. It’s also a potentially slow and expensive process for the university.
On a larger scale, it’s not yet clear whether challenges to college and university tax exemptions will become common outside of New Jersey, although politicians have eyed the possibility in several states. But the Princeton settlement plainly fits into an era in which college and university finances, tax exemptions, and operations are challenged from all sides.
The settlement comes more than five years after several residents sued Princeton over its tax-exempt status. Like other nonprofit institutions, Princeton is exempt from paying property taxes on much of its property. It does, however, pay taxes on some commercial properties that don’t qualify for exemption—like a movie theater it owns—and on others it voluntarily keeps on the tax rolls, like graduate student housing. It also makes voluntary contributions to the local municipal government.
Princeton University says it is the largest property taxpayer in the Borough of Princeton municipality, with an $11.1 million property tax bill. Residents, however, argued that they have had to pay more in taxes to compensate for money the university should be paying on exempt property. The lawyer representing them has said that Princeton’s tax bill would be in the $30 million to 40 million range if it paid taxes on all of its property.