TAX NEWS - 2010

New Jersey Tax: No tax break for Cottage Club

TRENTON -- An exclusive private club for Princeton University students and alumni does not merit special historic status exempting it from paying property taxes, a state appellate panel ruled yesterday.

The decision, the latest in a lengthy court battle, means that Princeton Borough does not have to return some $600,000 in back taxes and interest to the University Cottage Club, which occupies a posh mansion on Prospect Street. It also means the borough can continue collecting annual taxes from the fraternity-like eating club, one of 11 at the university.

"It's a tremendous relief," said Michael Herbert, borough attorney. "It would have been a tremendous blow to taxpayers."

The ruling upheld the state Department of Environmental Protection's decision to deny the social club's request for tax-exempt status because it is virtually closed to the public.

"Cottage Club's limited hours of access to the public, 12 days a year, represented a pittance to the public," the appellate panel ruled in affirming the DEP decision. "Meanwhile, the taxpayers of Princeton Borough would, in effect, be helping to subsidize a private dining club at Princeton University."

The attorney for Cottage Club did not return a call seeking comment yesterday.

Yesterday's ruling caps a nine-year tax battle between town and gown.

In 2001, Cottage Club sought tax-exempt historic status from the DEP, arguing that it qualified by virtue of its status as a nonprofit organization combined with its established inclusion on the state and federal registers of historic places.

In 2003, DEP Commissioner Bradley Campbell denied the application, ruling that the club wasn't freely accessible to the public on a regular basis.

In its application, the club had indicated it would be open to the public 12 days each year, a minimum recommended by the administrator of the state Office of Historic Preservation, which is part of the DEP.

Still, in the borough's view -- as well as Campbell's and that of the state attorney general's office -- even 12 days of free public access annually wouldn't provide enough public benefit to justify allowing the private club to duck out of paying taxes on its 1.3-acre property, assessed at the time at $1.56 million.

Cottage Club appealed that decision to the appellate division, which upheld the ruling in 2005. The club then went to the state Supreme Court, which ruled in 2007 that the club met all the requirements to be a state-certified historic and tax-exempt site.

But when Cottage Club went back to the DEP for its tax-exempt certification, the department refused to address the matter. The agency said the Supreme Court ruling was superseded by a 2007 law requiring sites run by nonprofit organizations to be open to the public for at least 96 days each year in order to receive historic-based tax exemption through the DEP.

The 2007 law made the 96-day minimum retroactive to 1999, the year Cottage Club began its bid for the tax exemption. The legislation was sponsored by Assemblyman Reed Gusciora, D-Princeton, and state Sen. Shirley Turner, D-Lawrence.

"I think it's a victory for property taxpayers in Princeton Borough, who would have had to pay in excess of $480,000 to the Cottage Club, and we would lose the property taxes that we pay from here on in," Gusciora said yesterday. "It's primarily a private club that would have enjoyed tax-exempt status. If it was tax-exempt, then anyone in the public should be invited to their social parties."

Cottage Club had appealed the DEP's action to the Supreme Court, which remanded it to the appellate panel that made yesterday's ruling.