NJ Supreme Court Rules Supportive Housing Programs Entitled to Property Tax Exemptions

In Advance Housing v. Teaneck, the Supreme Court of New Jersey upheld the tax-exempt status of two non-profit institutions that provide supportive housing and services. In doing so, the court rejected the arguments of several New Jersey municipalities that there was not a sufficient nexus between the housing and support services provided by the entities to justify the tax exemption.

The Facts of the Case

Plaintiff Advance Housing is a non-profit corporation that provides affordable, supportive housing and services for people with severe and persistent psychiatric disabilities. Plaintiff Advance 2000 was created as a subsidiary to acquire and own properties in compliance with the Department of Housing and Urban Development’s (HUD) requirements concerning the acquisition of housing. Both entities are exempt from federal taxation as charitable institutions.

Because HUD also provides funding for those who require supportive housing but do not require additional services, it mandates that residents cannot be required to accept any supportive service as a condition of occupancy. Accordingly, plaintiffs’ leases do not mandate that the client actually participate in counseling services. However, the plaintiffs testified that all of the tenants do indeed receive services from Advance Housing.

The plaintiffs claimed property tax exemption under four sections of N.J.S.A. 54:4-3.6: (a) provisions related to those who are “feebleminded,” “idiotic,” or “mentally retarded”; (b) provisions relating to the moral and mental improvement of men, women, and children; (c) the provision related to hospital purposes; and (d) the provision exempting properties that are actually and exclusively used for charitable purposes.

When nine municipalities refused to exempt the properties owned by Advance Housing and Advance 2000 from taxation under the statute, they filed tax appeals with the Bergen County Board of Taxation. While the Tax Court concluded that there was an insufficient nexus between the housing provided and the services offered by Advance Housing to justify a charitable property tax exemption, the Appellate Division reversed.

On appeal, the issue before the New Jersey Supreme Court was whether the plaintiff’s residences for individuals with psychiatric disabilities are actually used for charitable purposes consonant with N.J.S.A. 54:4-3.6, entitling the property to tax-exempt status. 

The Court’s Decision

The state Supreme Court ultimately held that Advance Housing was entitled to tax-exempt status under N.J.S.A. 54:4-3.6. In arriving at its decision, the panel applied a test set forth out in Presbyterian Homes of Synod of NJ v. Division of Tax Appeals. 55 N.J. 275 (N.J. 1970). The three-part test requires the taxpayer seeking the charitable exemption to show that: 1) it is organized exclusively for a charitable purpose; 2) its property is actually being used for a charitable purpose; and 3) its use and operation of the property is not for profit.

In this case, the court concluded that the record fully supports plaintiffs’ assertion that all of the residents are “actually” receiving services. It further noted that these services relieve the government of the burden of providing more costly housing and care for those with psychiatric disabilities, such as institutionalization, group homes, hospitalization, and, potentially, incarceration.

Accordingly, “the integrated charitable program provided by the plaintiffs to those who live in the properties involved in this appeal is of the type the Legislature sought to benefit through the general ‘charitable’ property tax exemption contained in N.J.S.A. 54:4-3.6,” the court stated.

For more information about this legislation or the legal issues involved, we encourage you to contact a member of Scarinci Hollenbeck’s Government Law Group. 

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