Appeals Court Finds Restaurant on University Campus Tax Exempt Due to Colorful Arguments
On May 31, 2018, the Tax Court of New Jersey held that a restaurant operated on Kean University’s campus did not constitute a university space and therefore was liable for local property taxes. Exactly one year later, an Appellate Division decision reversed the Tax Court decision and ruled that space on Kean University’s campus was tax exempt.
In Gourmet Dining, LLC v. Union Township and Jersey Educational Facilities Authority, and Kean University, the main issue was whether the restaurant operated by plaintiff (called “Ursino Steakhouse and Tavern”) inside of Kean University’s New Jersey Center for Science, Technology, and Mathematics (NJCSTM) was entitled to an exemption from real property tax.
Gourmet Dining’s first argument was that the building, which was owned by Kean University, was exempt because the restaurant was utilized for a “public purpose” pursuant to N.J.S.A. 54:4-3.3. In support of their argument, Gourmet Dining presented a certification from Kean University’s Vice President for Administration and Finance and Executive Vice President of Operation which argued that the building was designed to be a “visual landmark” to serve the university’s needs. He argued the restaurant would help with public perception of the University, had donated over $377,000 in scholarship money for students, that the University considered it a “valuable tool” for communicating to the public and attract students, and finally that the restaurant’s good reputation attracted people who may not have otherwise known of the university. Additionally, Gourmet Dining produced certification from a manager of the restaurant which stated that 85% of the employees in the restaurant were students, and that many students ate there for lunch or brought their parents. The appeals court determined that while none of these factors themselves were dispositive, the totality of these factors combined demonstrated that the restaurant was used for a “public purpose,” overturning the Tax Court’s opinion.
Additionally, the appellate court determined that the Management Services Agreement (MSA) that Gourmet Dining signed with Kean University did not create a leasehold relationship, but rather a license. The Tax Court held the MSA to be a lease, thereby possibly subjecting Gourmet Dining to real property tax under N.J.S.A. 54:4-2.3. The reasoning behind the Tax Court’s holding was that the lease gave a proprietary interest to Gourmet Dining for exclusive control of the space. In determining that the MSA was a license, the Appeals Court held it did not change the nature of the space in the NJCTSM to constitute a lease by Gourmet Dining, but rather was just a license of the space to be used for a term of ten years. The Court also found that the MSA simply granted Gourmet Dining the right to run the restaurant, not exclusive possession of the space itself. The Court there determined since this relationship was a license to operate the restaurant, and not a lease, that the Tax Court was wrong to conclude that it was a leasehold agreement.
Considering all of the these factors as a whole, the court determined that the relationship between Gourmet Dining and Kean University was a license relationship to operate the restaurant and that the restaurant constituted a “public purpose” entitling the property to exemption from real property tax. law.
To access the full opinion, you can do so here.
The author acknowledges the assistance of William Olson, a summer intern at McKirdy, Riskin, Olson & DellaPelle, in preparing this article. Mr. Olson is a member of the Day Class of 2021 at Rutgers Law School.
