Presbyterian Homes of Synod of N. J. v. Division of Tax Appeals

Decision Date21 January 1970
Citation261 A.2d 143,55 N.J. 275,37 A.L.R.3d 1181
Parties, 37 A.L.R.3d 1181 The PRESBYTERIAN HOMES OF the SYNOD OF NEW JERSEY, Petitioner-Appellant, v. The DIVISION OF TAX APPEALS, State of New Jersey, The Township of East Windsor, a municipal corporation of the State of New Jersey, and the Borough of Hightstown, a municipal corporation of the State of New Jersey, Defendants-Respondents.
CourtNew Jersey Supreme Court

Morris M. Schnitzer, Newark, for petitioner (Smith, Stratton, Wise & Heher, Trenton, attorneys, Garrett M. Heher, Trenton, and Waldron, Kraemer, Newark, on the brief).

Hervey S. Moore, Jr., Princeton, for respondent Borough of Hightstown; Henry F. Satterthwaite, Trenton, for respondent Township of East Windsor (Henry A. Hill, Jr., Princeton, on the brief; Satterthwaite & Satterthwaite, Trenton, attorneys for respondent Township of East Windsor).

Arthur J. Sills, Atty. Gen., filed a statement in lieu of brief (Charles H. Landesman, Deputy Atty. Gen., of counsel).

The opinion of the court was delivered by


The issue before us is whether Meadow Lakes Village, a retirement community owned and operated by petitioner, The Presbyterian Homes of the Synod of New Jersey, is tax exempt within the meaning of N.J.S.A. 54:4--3.6, which provides in pertinent part:

The following property shall be exempt from taxation under this chapter: * * * all buildings actually and exclusively used in the work of associations and corporations organized exclusively for the moral and mental improvement of men, women and children, or for religious, charitable or hospital purposes * * * provided, in the case of all the foregoing, the buildings, or the lands on which they stand, or the associations, corporations or institutions using and occupying them as aforesaid, are not conducted for profit, except that the exemption of the buildings and lands used for charitable, benevolent or religious purposes shall extend to cases wherein the charitable, benevolent or religious work therein carried on is supported partly by fees and charges received from or on behalf of beneficiaries using or occupying the buildings; provided the building is wholly controlled by and the entire income therefrom is used for said charitable, benevolent or religious purposes.

The property straddles the line dividing the Township of East Windsor and the Borough of Hightstown. Both of these municipalities levied the disputed taxes for 1965.

The Mercer County Board of Taxation rejected petitioner's claim of exemption and held that the property was not operated for a 'charitable purpose' as required by the statute. The Division of Tax Appeals affirmed. In an unreported Per curiam opinion, the Appellate Division affirmed on the ground that there was ample evidence in the record to support the conclusion of the Division of Tax Appeals. Thereafter, we granted certification. 53 N.J. 349, 250 A.2d 751 (1969).

Petitioner was incorporated in 1916 as a New Jersey nonprofit corporation. It is operated by a board of trustees elected by the Synod of New Jersey, a part of the United Presbyterian Church, U.S.A. Among the purposes enumerated in its amended certificate of incorporation dated June 1, 1964 is 'to provide and maintain retirement facilities and other services for those who desire entrance regardless of their race, religion or nationality.' Petitioner's self-described objective is 'to encourage the dignity of the individual and to care for the whole person.'

In 1962 petitioner acquired the 103 acres upon which Meadow Lakes Village subsequently was erected. The facilities and operation of Meadow Lakes will be described as of the assessment date. Meadow Lakes then consisted of 23 apartment buildings with a total of 221 units, each connected by glass enclosed corridors. Most of the apartment units are garden apartments. The interiors are bright and emphasize a modern decor. Each occupant supplies his own furnishings which minimizes an 'institutional' appearance. The entire complex is air-conditioned.

There are various recreational and service facilities, including fishing, barbecue and picnic areas, bowling greens, barber, gift and beauty shops, arts and crafts areas, lounges game rooms, a snack bar, a dining room, and a health center. The meals are prepared by an independent contractor and are served by waitresses.

Meadow Lakes has a total staff of 207 employees, with an estimated annual payroll of $810,000. It is nondenominational, and an analysis of the residents as of May 26, 1966 indicates that of the total number of 266, 104 were Presbyterian. Most of the remainder belonged to various Protestant denominations, but there were also some members of other faiths and several people professed no religious affiliation. The same analysis reveals that the residents who had been employed prior to entering Meadow Lakes were engaged in what might be called middle-class vocations--social workers, teachers, professionals, business executives, salesmen, and white-collar workers.

The financing arrangement is quite novel. The construction costs of Meadow Lakes exceeded $12,000,000. A part of the cost, $721,000, was borrowed from the Presbyterian Homes' endowment fund. There was also a Federal grant of $419,000 for the health center. A 25-year mortgage for $6,600,000 was obtained and the balance of $4,450,000 was provided by 'founder's fees,' 1 paid by the original residents.

The founder's fees are, in effect, admission fees which are usually retained by Meadow Lakes. They are actuarily calculated so that at the end of 25 years, the mortgage, both principal and interest, will have been retired by utilizing founder's fees paid by present and future residents. If all goes according to plan, the property should be owned outright around 1990. The executive director of the Presbyterian Homes testified that anyone who could not afford the founder's fee need not apply for admission.

Under the original rate schedule, founder's fees ranged from $11,000 for a oneroom studio to $31,500 for a large twobedroom, two-bathroom unit. By 1965, the rates had undergone two revisions and ranged from $12,000 to $43,000. It is noteworthy that Meadow Lakes contains only six of the minimum 'capital fee' apartments and that the vast majority of the apartment units (134 out of 221) require a capital fee of $25,000.

The residents must also pay a monthly charge which ranges from $205 to $365, depending upon the number of occupants and the type of accommodation. Proceeds from the monthly charges are used exclusively for current operating costs--meals, utilities, maintenance and cleaning, hospitalization, etc. Thirty dollars of each monthly charge goes to the medical care fund, which pays for all medical care and expenses. The cost of these services is self-sustaining. If a patient has to be transferred from the medical unit to a hospital, all expenses are borne by petitioner with the exception of drugs and appliances.

Each resident signs a 'residence agreement,' several aspects of which are particularly relevant. If the resident fails to make a monthly payment within the prescribed time, the agreement provides that petitioner may serve notice that if payment is not made within a further 15 days, it may terminate the agreement. If the 'sole and bona fide' reason for nonpayment is lack of funds, however, petitioner will 'review' the matter, and the resident agrees to take all reasonable steps which petitioner may propose 'in aid of the resident's financial condition.' Nevertheless, the executive director testified that if the resident took all such steps and was still unable to pay, he would be permitted to remain. A fund, then totaling $2,342.50, had been established to aid needy residents.

The agreement further provides that if a resident becomes emotionally disturbed or acquires a contagious or dangerous disease, petitioner may effect a transfer to an appropriate institution, and such transfer terminates the agreement.

The corporation or the resident could terminate the agreement on 120 days notice for any or no reason. If the agreement is terminated for any reason other than death, there is a partial return of the capital fee, computed on a proration actuarial basis. This partial refund, however, occurs only when the apartment is occupied by a new resident who has paid his entrance fee. If death is the cause of termination, no part of the founder's fee is refundable. The executive director testified, however, that if a resident died very soon after occupying his apartment, the capital fee would be refunded to his estate.

Despite the testimony modifying its terms, the agreement also provides that it constitutes the entire contract, and that the corporation is not responsible for any statements not included therein. In addition, the corporation reserved the right to increase the monthly charge on 30 days notice 'as may from time to time be determined to be necessary.'

In regard to the nursing and health center, the executive director testified that its principal function was to provide 'assistance or continuing care for the elderly' or for convalescents 'who had been discharged from the hospital.' The center had 90 beds, 65 of which were occupied. Of the 65, only 17 were occupied by Meadow Lakes residents. The nonresidents were from various localities, and they paid $125 per week for a double room and $165 for a single. These fees covered only operating costs, I.e., nursing care, linen, and food. The costs for druges and physicians were additional. Two patients were being subsidized at the time of the hearing.

The staff of the health center consisted of three doctors, including the medical director. There were 57 nurses, only 11 of whom were registered nurses. No doctors were at the health center in the evening; the center was then run by one registered nurse.

If a resident is transferred to the center for what appears to be a...

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