Int'l Sch. Serv. Inc. v. West Windsor Twp.

Decision Date06 July 2011
Citation21 A.3d 1166,207 N.J. 3
PartiesINTERNATIONAL SCHOOLS SERVICES, INC., Plaintiff–Appellant,v.WEST WINDSOR TOWNSHIP, Defendant–Respondent.
CourtNew Jersey Supreme Court


Mark D. Schorr argued the cause for appellant (Crow & Associates, attorneys).Michael J. Herbert argued the cause for respondent (Herbert, Van Ness, Cayci & Goodell, attorneys; Mr. Herbert and Rachel U. Doobrajh, Princeton, on the brief).Justice LaVECCHIA delivered the opinion of the Court.

In this local property tax appeal, we review a judgment that denied International Schools Services, Inc. (ISS) a tax exemption under N.J.S.A. 54:4–3.6. ISS challenged the 2002 and 2003 property tax assessments imposed on its office condominium units in West Windsor Township (Township), claiming it was entitled to exemption for property actually used in the work of a nonprofit corporation “organized exclusively for the moral and mental improvement of men, women and children.” N.J.S.A. 54:4–3.6. For many years prior, the portion of the property owned and occupied by ISS had been exempted from local property taxation on that basis; ISS had not claimed an exemption for those portions that it did not occupy and that were dedicated to the operations of its related for-profit affiliates. However, in tax years 2002 and 2003, based on a review of ISS's recent activities, the Township denied the exemption for the ISS-occupied property.

ISS appealed, first to the Tax Court and thereafter to the Appellate Division. Both courts applied the statutory test for determining whether buildings used by associations and corporations organized for the moral and mental improvement of men, women and children are entitled to exemption from taxation, as that test has been explicated in Paper Mill Playhouse v. Millburn Township, 95 N.J. 503, 472 A.2d 517 (1984). Although their reasoning was not perfectly aligned, both courts reached a common determination: ISS had conducted itself in a manner that entangled its activities and operations on its property with the advancement of for-profit activities of other related and unrelated for-profit entities. That commingling of effort and entanglement of activities and operations by ISS and its for-profit affiliates was found to be significant and it all flowed to the benefit of the for-profit entities. Thus, both courts concluded that because ISS allowed its property to be used for profit, it was not eligible for exemption during the tax years in issue.

In this appeal ISS claims that the judgment of the Appellate Division is in error for holding that its owned and occupied real property was not entitled to exempt status. It also requests clarification of the statutory test's application in these circumstances.

We granted ISS's petition for certification, International Schools Services, Inc. v. West Windsor Township, 203 N.J. 96, 999 A.2d 464 (2010), as much to settle the analysis that pertains in these circumstances as to review the holding against ISS. We now affirm the judgment of the Appellate Division.


The following description of the property and activities of ISS is drawn from the full and detailed record developed by the Tax Court in this matter.

The property whose status is the subject-matter of this appeal (Property) is located at 15 Roszel Road in West Windsor Township. ISS has owned and operated the Property, consisting of four office condominium units, since 1989, and has located its own central office at the Property since that time. During the years at issue, ISS employed approximately fifty people in its central office. It also leased portions of the space available at the Property to other organizations, including two organizations with which it was affiliated. For each year from 1990 through 2001, the Township granted ISS a property tax exemption, pursuant to N.J.S.A. 54:4–3.6, for the portions of the Property actually occupied by ISS. ISS paid property tax on those portions of the Property which were vacant or were leased to other tenants. On October 6, 2003, the Township revoked ISS's property tax exemption for the tax years 2002 and 2003 and ISS filed suit.


ISS is organized as a nonprofit corporation and maintains a tax-exempt status under Section 501(c)(3) of the Internal Revenue Service (IRS) Code. See 26 U.S.C.A. § 501(c)(3). It was founded in 1955 by Arthur Sweetser, whose goal was to ensure that American children living overseas received a quality, American-style education.

Its Certificate of Incorporation explains in detail the purposes for which the company was organized:

The purpose or purposes which the Corporation will hereafter pursue are: (1) to aid, promote and encourage, by all appropriate means, including gifts of money or other property, or by other means schools, facilities, and other organizations that are exclusively educational in character, (2) to foster the provision of education by the payment of salaries, fellowships and grants to teachers and instructors, and (3) to devote all or a part of the income and any or all of the principal of any property, real or personal, to the furtherance and support of projects and institutions that are exclusively educational; provided, however, that no part of the net earnings of such schools, facilities, projects, institutions and other organizations inures to the benefit of any private shareholder or individual, and provided further, (a) that no substantial part of the activities of such organizations is carrying on propaganda, or otherwise attempting, to influence legislation, and (b) that such organizations do not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office.

The ISS website, as of June 11, 2003, also set out a general purpose statement for the organization:

The mission of [ISS] is to advance the quality of education for children in international schools by providing innovative services and solutions for learning communities and corporations throughout the world. This is accomplished by working with all groups that are involved in the education process.

As of 2002 and 2003, ISS served approximately 800 schools in as many as 185 countries around the world. Each school sought to provide an American-style education, with classes conducted in English. ISS assisted the institutions by selecting qualified American teachers and superintendents to serve as staff; procuring school supplies; providing the management operations necessary to the functioning of a typical American school; providing financial management services; and making grants to individuals and schools to promote educational curricula. Cumulatively, the services encompassed the broad functions, both educational and administrative, performed by a local board of education. In addition to serving independent schools, ISS also had begun to own and manage its own international schools.

ISS provided the enumerated services based on the particular needs of the individual schools it was assisting. Its decisions were made irrespective of whether its engagement would result in net earnings or losses. ISS often priced its services at below-market rates, and would occasionally reduce those prices further when a school was unable to pay the full fee. Generally, its school management services were priced in consideration of a school's size, the risk attaching to the region where the school was located, and the difficulty of providing educational services in that region. ISS's personnel placement services were based on the size of the client school and its ability to pay. In 2002 and 2003, placement fees ranged from $2,900 to $7,500. For procurements of educational supplies, which schools obtained at a discount through ISS, ISS charged a minimum of $2,000.

In addition to its consulting work and direct provision of services, ISS published annually a “Directory of Schools,” which detailed the educational programs of approximately 600 of the international schools with which it was engaged. The Directory's intended audience was parents who were looking for educational options while living abroad and educators who were deciding where they wanted to teach. ISS also published a quarterly newsletter designed to link schools, to allow schools to advertise for teachers, and to facilitate communication among teachers allowing them to share educational ideas. Advertisement space was sold in the publications, but the Directory and the newsletter were provided free to schools and teaching candidates.

Between 1998 and 2004, ISS operations ran at a net loss in all but one year; operational losses ranged from about $100,000 to more than $1.2 million. In 2001, the single year that operations resulted in a surplus, the gain approximated $120,000. Looking beyond operations, ISS experienced a decrease in net assets for all but two of the years from 1998 to 2004. Although net assets increased approximately $75,000 in 2000 and $420,000 in 2001, in all other years ISS experienced losses between approximately $40,000 and $920,000. When ISS ran a surplus, it reinvested the money in its operations and/or placed the money in its reserves to ensure that the organization's operations would be able to continue in lean times. In 2002 and 2003, ISS's reserves ranged from $2.8 million to $3.1 million.

Should ISS dissolve, its assets would not be distributed to any individual. Instead, the Certificate stipulates that all assets must be distributed to a similar “charitable or educational” institution.

A twelve-person uncompensated Board of Directors governs ISS, while the daily management responsibilities are fulfilled by a professional staff. Compensation is limited by the Certificate of Incorporation to reasonable salaries for services actually performed. ISS's president, John Nicklas, has received a salary in accordance with the findings of a compensation survey that...

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