New Jersey Carpenters Apprentice Training and Educ. Fund v. Borough of Kenilworth

• Decision Date: 17 December 1996
• Citation: 685 A.2d 1309,147 N.J. 171
• Parties: NEW JERSEY CARPENTERS APPRENTICE TRAINING AND EDUCATION FUND, Plaintiff-Respondent, v. BOROUGH OF KENILWORTH, New Jersey, Defendant-Appellant.
• Court: New Jersey Supreme Court

Page 171

147 N.J. 171

685 A.2d 1309

NEW JERSEY CARPENTERS APPRENTICE TRAINING AND EDUCATION

FUND, Plaintiff-Respondent, v. BOROUGH OF KENILWORTH, New Jersey, Defendant-Appellant.

Supreme Court of New Jersey.

Argued Sept. 10, 1996.

Decided Dec. 17, 1996.

Robert F. Renaud, Cranford, for appellant (Palumbo & Renaud, attorneys).

Andrew D. Borg, Roseland, for respondent (Oransky, Scaraggi, Borg & Abbamonte, attorneys).

The opinion of the Court was delivered by

GARIBALDI, Justice.

N.J.S.A. 54:4-3.6 exempts from real property taxation any building that (1) is actually used as a "school" and (2) is "not conducted for profit." Plaintiff, the New Jersey Carpenters Apprentice Training and Education Fund (Fund), owns a building in which it operates a training center for apprentices. The question to be resolved in this case is whether that building is exempt under N.J.S.A. 54:4-3.6.

I

The Fund is a Taft-Hartley trust fund created under an Agreement and Declaration of Trust (Trust) in 1969. The Fund was established "for Apprentice Training and educational purposes." Four parties signed the trust agreement: (1) the New Jersey State Council of Carpenters, an unincorporated association of local trade unions and district councils affiliated with the United Brotherhood of Carpenters and Joiners of America (Union); (2) the Building Contractors Association of New Jersey, an association of employers in the building construction industry; (3) additional employers in the construction industry who are under an obligation to make contributions to the Fund by virtue of their respective collective bargaining agreements with the Union; and (4) the trustees, representatives of both the Union and the employers.

The trustees oversee the Fund's activities and investments. Originally composed of fourteen members, the board has been expanded to twenty-four members. Under the Trust, half of the trustees are appointed by the Union and half by the employers. The Union trustees serve at the will of the Union and the employer trustees serve at the will of the employers.

The Fund's purpose is described in the Trust:

The Fund is established for Apprentice Training and educational purposes and no part of the earnings or assets of the Fund shall inure to the benefit of any private shareholder or individual or any Employer or Union.

[Trust, Art. II § 4.]

To effectuate that purpose, the Trust provides that the trustees may use the funds and assets only to pay for reasonable expenses and for the payment of "Apprentice Training and Educational benefits" as permitted by the IRS and the Trust. The Fund is exempt from federal income taxes under 26 U.S.C.A. § 501(c).

Contributions from Union employees support the Fund. Under collective bargaining agreements, all Union carpenters are obligated to contribute one percent of their wages to the Fund. The assessment is collected through employer-withholdings by those employers who have signed collective bargaining agreements.

The Trust does not grant any express power of revocation to either party, but it terminates "when there is no longer in force a Collective Bargaining Agreement between a single Employer and the Union requiring Fund Payments to the Fund." The parties, therefore, effectively have the power to revoke the Fund if they do not provide for contributions to the Fund in their collective bargaining agreements. However, the Trust does provide that, on termination, "no part of the corpus or income of this Fund shall be used for or diverted to purposes other than Apprentice Training and Educational purposes.... Under no circumstances shall any of said corpus or income revert to any Employer or Union."

The Trust does grant a power of modification to the trustees upon a two-thirds vote of the trustees, but that power is limited:

[N]o amendment shall divert the Funds then constituted or any part thereof, to a purpose other than as set forth in this Agreement, nor permit a return or payment of the assets to the Employers....

[Trust, Art. IX, § 1.]

To comply with the Employee Retirement Income Security Act of 1974, the Trust was amended to provide that "[a]ll provisions of the Agreement which are in conflict with the Employee Retirement Income Security Act of 1974 are deleted."

To provide a training center for apprentices, the Fund purchased property in Kenilworth for $2.8 million in 1990. The Fund has a similar training center in South Jersey. The premises are used as a training facility for apprentice carpenters. The program is open to anyone, without any requirement of union membership. The only requirement is that students have a high-school diploma or equivalency degree. The Fund recruits apprentices from union locals, by advertising at high-school career days, from vocational schools, and through advertising at unemployment offices. There is no charge for tuition, books, or supplies.

Apprentices are required to work full-time in carpentry and attend the facility four weeks per year, once every thirteen weeks, for a four-year period. In order to become journeymen carpenters, apprentices must complete 160 hours of on-premises training each year over the four-year period. Apprentices who attend the training center are taken into local unions.

The training center is not a traditional school with lectures and classrooms, but instead takes a "hands-on" approach. Students must master several skills in order to become journeyman carpenters. For each skill, students watch a slide show or video. After viewing the slide show, the students attempt the skill. Instructors, who are qualified carpenters and full-time employees of the Fund, are available to answer questions, but they do not teach in a traditional manner. No academic programs are offered. Students do not receive grades, but those who fail a skill are not allowed to proceed to the next level of carpentry and may not receive accompanying raises. Reports on the apprentices are sent to the local unions on a monthly basis. As the Administrative Manager of the Fund testified:

A. Number one, if they don't come to school--we're not--we're not disciplinarians, alright? Their home locals take care of that. We give a report to their local monthly. If they don't complete their blocks or go to school they don't go on to the next level, they won't get a raise. That's how their [sic] basically rated.

... You have to complete your 160 hours a year.... And if they don't perform properly, get their hours in or do their work, we send a report to their home local and it's up to them to discipline them.

The school is not accredited by the New Jersey Department of Education, the Middle States Association, or any similar agency. Nor is the program established, maintained, or supervised by the New Jersey Commissioner of Education as required for vocational schools operated by school districts or county vocational school boards. ¹ The United States Department of Labor, however, monitors the program, and all those who complete the program are awarded a journeyman's certificate by the Department as well as from the national union's office in Washington.

In 1991, the Fund had nine employees, five administrators and four instructors, although two instructors worked only for part of the year. Generally, the employees were paid and given benefits in accordance with the union scale for a fifty-two-week year. The salaries for full-time employees ranged from $103,726 for the Administrative Manager to $30,379 for the Office Manager. Employees also received benefits packages equal to one-third of their salaries.

As discussed supra, the training center is funded by a one-percent assessment on all union wages. Through the years, this amount has exceeded the cost of the program, and the Fund has accumulated a substantial surplus. According to the Fund's 1991 Internal Revenue Service Form 990, the Fund's assets totalled $9,684,000 at the end of 1991. The assets included land, property, and a $5,000,000 reserve fund. In 1991, the surplus grew by approximately $800,000. That year, the Fund obtained $2,350,000 from the wage assessment and $354,000 from investment income and had costs of $2,000,000. Of the costs, only $754,000 were directly related to program services. The remainder was allocated to management and general expenses, including $230,000 for "contest expenses." The Fund is sufficiently well-off that it bought the $2,800,000 Kenilworth facility without any borrowed funds.

The revenue from the wage assessment fluctuates with the condition of the economy and the amount of wages paid to union carpenters. For example, the amount collected from wages for the four years prior to 1991 fluctuated from a low of $1,468,000 in 1987 to a high of $2,550,000 in 1990. Evidence also showed that the fund collected only $1,500,000 in 1994 because of a weak economy.

In 1991, the Fund applied to defendant, the Borough of Kenilworth, for an exemption from real-estate taxes for the training center pursuant to N.J.S.A. 54:4-3.6. The Fund claimed that it was operating a school that was not conducted for profit. Kenilworth denied the exemption. The County Board of Taxation affirmed the assessment. Plaintiff filed a complaint with the Tax Court of New Jersey, which found that the property was neither a school nor nonprofit and entered a judgment affirming the assessment. The Appellate Division reversed the Tax Court's decision. New Jersey Carpenters Apprentice Training & Educ. Fund v. Borough of Kenilworth, 284 N.J.Super. 521, 665 A.2d 1128 (1995). We granted defendant's petition for certification. 143 N.J. 329, 670 A.2d 1069 (1996).

II

Tax-exemption statutes are strictly construed against those claiming exemption because of the compelling public policy that all property bear its fair share of the burden of taxation. Princeton Univ. Press v. Borough of Princeton, 35 N.J. 209, 214, 172 A.2d 420 (1961). However, strict construction does not require "a rigid scholastic...