Colacitti v. Murphy

Decision Date22 July 2022
Docket NumberDOCKET NO. L-0738-21
Citation474 N.J.Super. 309,288 A.3d 44
Parties Joseph G. COLACITTI, City of Elizabeth, Township of Plainsboro, Peter Cantu, Neil J. Lewis, Ed Yates, Nuran Nabi, City of Vineland, and Township of Livingston, Plaintiffs, v. Philip D. MURPHY, in his official capacity as Governor of New Jersey, and The State of New Jersey, Defendants.
CourtNew Jersey Superior Court

Michael S. Simitz and Edward J. Kologi for plaintiffs Joseph G. Colacitti and City of Elizabeth (Kologi Simitz, attorneys)

Martin Allen and Wesley E. Buirkle for plaintiffs Peter Cantu, Neil J. Lewis, Ed Yates, Nuran Nabi, City of Vineland, and Township of Plainsboro (DiFrancesco Bateman, Kunzman, Davis, Lehrer & Flaum, PC, attorneys).

Michael J. Caccavelli and Grace Chun for plaintiff Township of Livingston (Pearlman & Miranda, LLC, attorneys).

Abiola G. Miles, Michelline Capistrano Foster, and James Robinson, Deputy Attorneys General, for defendants (Matthew J. Platkin, Attorney General of New Jersey)

Renee Steinhagen and Bruce Afran for amici curiae New Jersey Citizen Action, Maura Collinsgru, American Federation of Teachers, Donna Chiera, and Mark and Katherine Smith (New Jersey Appleseed Public Interest Law Center, Inc., and Law Offices of Bruce Afran, attorneys)

SUNDAR, P.J.T.C., (temporarily assigned) This opinion decides defendantsmotion to dismiss the above captioned complaint, which challenged the constitutionality of certain sections of L. 2021, c. 17 (hereinafter Chapter 17), for failure to state a cause of action for which relief can be granted under R. 4:6-2(e), and plaintiffs’ responsive motion (labeled as a cross-motion) for summary judgment that Chapter 17 is facially unconstitutional. The opinion also addresses the pleadings filed by amici in support of plaintiffs’ motion.

For the reasons set forth below, the court denies defendantsmotion to dismiss the complaint under R. 4:6-1(e) and denies plaintiffsmotion for summary judgment.

Because the court finds that as a matter of law, Chapter 17 is facially constitutional and injunction against application of this law is unwarranted, it dismisses the complaint with prejudice and denies injunctive relief.


Plaintiffs filed the complaint with an Order to Show Cause asking this court to void certain sections of Chapter 17, and preliminarily enjoin its enforcement. Those sections grant local property tax (LPT) exemption to nonprofit hospitals in the State even if areas of the hospital are used by or leased to for-profit medical providers "for medical purposes related to delivery of health care services directly to the hospital," provided that the "portion of the hospital ... is used exclusively for hospital services." N.J.S.A. 54:4-3.6j(b). In return, the hospital, as property owner, must pay an annual community service contribution (ACSC). N.J.S.A. 54:4-3.6j(c) ; N.J.S.A. 40:48J-1. These provisions also apply to a satellite emergency care (SEC) facility, which is one "owned and operated by a hospital, and which provides emergency care and treatment for patients." N.J.S.A. 54:4-3.6j(d). Section 4 of Chapter 17 retroactively bars the imposition of any omitted or regular assessments on such properties for tax years 2014 through 2020.1 Plaintiffs’ complaint alleges that these provisions (1) violate the Uniformity Clause of the New Jersey Constitution; (2) violate the Exemption Clause of the New Jersey Constitution; (3) invalidly permit payment of an ACSC as the New Jersey Constitution only permits payments in lieu of taxes; (4) constitute invalid special legislation; and (5) violate the Due Process and Equal Protection clauses.

Defendants (collectively referenced herein as the State) moved to dismiss the complaint for failure to state a cause of action under R. 4:6-2(e) on grounds the above provisions of Chapter 17 are constitutional. Plaintiffs opposed and cross-moved for summary judgment on grounds these provisions are unconstitutional. The State filed a reply, and plaintiffs filed a sur-reply brief as permitted by the court. By Order of January 3, 2022, the court, over the State's opposition, permitted participation of certain entities/individuals as amici, only as to issues impacting LPT assessments.2 The State filed an opposing brief.


N.J.S.A. 54:4-3.6 titled "Tax exempt property" lists the types of nonprofit entities, property uses, and conditions to qualify for LPT exemption. Generally, "buildings" actually, or exclusively, or actually and exclusively, used for certain purposes, and the land required to support those buildings, are tax exempt. Ibid. Other requirements are that (1) "the buildings, or the lands on which they stand, or the ... corporations or institutions using and occupying them as aforesaid, are not conducted for profit;" (2) the corporate claimant must "own[ ] the property in question"; (3) the corporate claimant is "incorporated or organized under" New Jersey laws;3 and, (4) the corporate claimant is "authorized to carry out the purposes on account of which the exemption is claimed." Ibid.

Thus, "[t]o secure" an LPT exemption, an entity "(1) ... must be organized exclusively for the" statutorily allowed tax exempt purpose; "(2) its property must be actually [, or actually] and exclusively used for the tax-exempt purpose; and (3) its operation and use of its property must not be conducted for profit." Paper Mill Playhouse v. Millburn Twp., 95 N.J. 503, 506, 472 A.2d 517 (1984) ; see also Advance Housing, Inc. v. Teaneck Twp., 215 N.J. 549, 567-68, 74 A.3d 876 (2013) (same). Whether there is an actual, or actual and exclusive use of the property as required by the statute, is a fact specific inquiry. Advance Housing, Inc., 215 N.J. at 572-73, 74 A.3d 876.

A partial LPT exemption is merited "if any portion of" a building is "leased to profit-making organizations or otherwise used for purposes which are not themselves exempt from taxation." N.J.S.A. 54:4-3.6. The leased "portion shall be subject to taxation and the remaining portion only shall be exempt." Ibid. As interpreted by our Supreme Court, this partial exemption, "[o]n a purely facial level ... means that property of a nonprofit exempt-entitled entity can be used for non-exempt purposes so long as the two purposes can be separately stated and accounted for and so long as the non-exempt use is never subject to the property tax exemption." Int'l Sch. Servs. Inc., v. West Windsor Twp., 207 N.J. 3, 23, 21 A.3d 1166 (2011).

Statutory LPT Exemption for Hospitals

Until 1983, the LPT exemption for hospitals was incorporated in the exemption afforded to "buildings actually and exclusively used in the work of associations and corporations organized exclusively for the moral and mental improvement of men, women or children, or for religious, charitable or hospital purposes." See L. 1977, c. 370. In 1983, the Legislature provided an LPT exemption for property used for hospital purposes in a separate clause and eliminated the exclusive use requirement. L. 1983, c. 224, § 1. Further, the LPT exemption could be retained by a nonprofit hospital if only a portion of its property was leased to for-profit entities.4 Ibid. Thus, an LPT exemption was granted to

all buildings actually used in the work of associations and corporations organized exclusively for hospital purposes, provided that if any portion of a building used for hospital purposes is leased to profit-making organizations or otherwise used for purposes which are not themselves exempt from taxation, that portion shall be subject to taxation and the remaining portion only shall be exempt;

The legislative history explicated that the amendment was:

to permit certain hospitals to lease space within the facility and retain its tax exempt status on the remainder of the property. Occasionally, there are portions of hospital property which are not being fully utilized. That space could be rented to nonemployee physicians and other health care related professions to provide a service within the hospital utilizing hospital equipment and laboratory services. This would produce rental income for the hospital and allow it to maximize the investment in laboratory services and equipment, all of which would serve to reduce total health care costs.
[Assemb. Rev. Fin. and Approp. Comm. Statement to A. 1974 (Dec. 13, 1982).]

See also Roman Catholic Archdiocese of Newark v. East Orange City, 17 N.J. Tax 298, 319 (Tax 1998) (law "granted a partial exemption to hospitals to maximize investment returns and reduce total health care costs"), aff'd, 18 N.J. Tax 649 (App. Div. 2000) ; Jersey Shore Med. Ctr. v. Neptune Twp., 14 N.J. Tax 49, 57-58 (Tax 1994) ("the intent of the Legislature in 1983 ... was to make it easier to qualify for the hospital ... exemption[ ]").5

By L. 1993, c. 166, the Legislature amended N.J.S.A. 54:4-3.6 to include a definition of "hospital purposes." The definition does not really define, but simply includes certain facilities that qualify for LPT exemption under the hospital purposes clause. The amendment's goal was to ensure that nonprofit facilities for seniors would be tax-exempt. Assemb. Approp. Comm. Statement to A. 2048 (Feb. 22, 1993) (while "nonprofit health care facilities for the elderly may be exempt from [LPT] under general provisions of current law, there [was] no explicit exemption for such facilities").

Trial Court's Decision in AHS Hosp. Corp. v. Town of Morristown

In AHS Hosp. Corp. v. Town of Morristown, 28 N.J. Tax 456 (Tax 2015) (hereinafter AHS II ), the Tax Court ruled that the entire portion of the property used as a hospital did not qualify for the exemption. That ruling was based on extensive factual findings. Id. at 466 (the court's "determination is based substantially on a failure of the evidence ... [and] the Hospital has failed to meet its burden of proof under law establishing that it meets the criteria to qualify for the exemption"). The court found that plain...

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