Sisters Get Only Some Mercy From Tax Court on Exemption Claim

by: Anthony F. Della Pelle
3 Mar 2014

Last week, another property exemption case was decided by the New Jersey Tax Court, this one in partial favor of the property owner, the Sisters of Mercy of the Americans Mid-Atlantic Community, Inc. (the “Sisters”).  The Sisters own two parcels of property in Sea Isle City, Cape May County, which are located one block from the Atlantic Ocean.  The property contains a two-story building which hosts meetings and retreats, and includes a chapel, conference room, dining room, kitchen, bathrooms and bedrooms, as well as a separate parcel used for parking by those attending functions.

The Sisters is a non-profit, religious organization which serves to help the poor, sick and uneducated though social services, health care and education.  Summer retreats are not unstructured vacation, but rather involve prayer and other communal activities and administrative meetings.  Outside organizations are also permitted to use the facilities, but this use is limited to organizations with missions consistent with that of the Sisters, although the evidence in the case established that operation of the facilities is undertaken at a loss.

The property had been assessed for 2011 at $2,583,600 for the main building and $856,800 for the parking lot.  The sisters applied for an exemption pursuant to NJSA 54:4-3.6, but the municipal tax assessor denied the application and the matter proceeded to trial before NJ Tax Court Presiding Judge Patrick DeAlmeida.

In its opinion, the court reviewed the requirements under NJSA 54:4-3.6 for charitable purpose exemptions:

  • the entity claiming exemption must be organized exclusively for an exempt purpose;
  • the operation and use of the property must not be conducted for profit; and
  • the property must actually be used for the tax exempt purpose.

While the court found that the Sisters satisfied the first two prongs of the exemption test, it concluded that it was bound by an earlier Appellate Division opinion in the matter of Borough of Harvey Cedars v. Sisters of Charity of St. Elizabeth, 163 N.J. Super. 546 (App. Div. 1978), a case with facts “strikingly similar” to the case at hand. There, the oceanfront property on Long Beach Island used by a similar organization, for similar retreat purposes, was denied its exemption (except for a chapel on site), as it was found by an appellate court to fail the exemption test noted above because it did not exclusively use its property  for religious purposes.

In the case at hand, the “Sea Isle City” Sisters argued that the relevant statute was amended in 2001, after Harvey Cedars was decided, to remove the exclusivity requirement from the statute, and that more relaxed scrutiny has been applied by our courts since that time to instead focus on the qualifying uses as being “reasonably necessary” for the exempt purpose.  These arguments were not accepted by the Tax Court, which concluded it was bound by the earlier appellate precedent as being directly on point, although the Court did suggest that another appellate court could always disagree with him (and with the Harvey Cedars ruling).  Accordingly, in the case at hand, the Court granted exemption to the chapel, the conference room and the portion of the parking lot required for use of those facilities, granting a partial exemption but leaving the balance of the property as assessed property.

A copy of the Tax Court’s opinion in Sisters of Mercy v. City of Sea Isle City is available here.

Some of our prior posts regarding exemption cases and claims are available below:

Country Club’s Exemption Claim Lands in the Rough

Millburn Synagogue Retains Property Tax Exemption

Bergen County Hospital:  Safe or on Thin Ice?

Holiday House in Cape May Granted Exemption