Bergen County Hospital: Exemption Safe or on Thin Ice?

www.bergenregional.com

A recent opinion by New Jersey Tax Court Judge Christine Nugent concluded that a long-time Bergen County hospital could remain exempt from local property taxation, but directed further proceedings to determine if the exemption would, in fact stand.  The hospital, formerly known as the Bergen Pines County Hospital in Paramus, has been operated by a for-profit, third-party entity for approximately 15 years and is currently known as the Bergen Regional Medical Center.   The property is approximately 62 acres in size, and is improved with 22 buildings totaling about one million square feet of space.

In 2001, the hospital began leasing portions of its facilities to physicians and other health care service providers.  This led to partial property tax assessments being levied by the Borough of Paramus beginning in 2005 and, in 2008, the Borough filed an appeal to remove the exemption on the bases that the operation by a for-profit administrator and the third-party leases invalidated the exemption which had been historically enjoyed pursuant to N.J.S.A. 54:4-3.3, which governs county-owned properties used for a public purpose.

The consolidated years under appeal came before the Tax Court earlier this year in a summary judgment proceeding.  The Court concluded that the operation by the for-profit administrator did not cause the hospital to forfeit its property tax exemption because the authorizing legislation specifies that the property be owned by a County (which it was) and that it be used for a public purpose (which it was).

Two issues were left unresolved, and require further fact-finding:

(1) whether the act of leasing space to third-party providers vitiates the exemption as a private use or purpose of the property; and

(2) whether use of the space, even if a private use, could constitute a de minimus use, which would not invalidate the exemption.

This one will be interesting to watch, as the Tax Court indicated that the outcome of the trial could render the property either entirely exempt or wholly taxable.  With an estimated assessed value of nearly $100,000,000, the loss of the exemption would provide a significant new ratable for the Borough.

A copy of the Tax Court’s opinion is available here.