On appeal from the former Supreme Court.
For reversal -- Chief Justice Vanderbilt, and Justices Case, Oliphant, Burling and Ackerson. For affirmance -- Justice Wachenfeld. The opinion of the court was delivered by Vanderbilt, C.J.
[2 NJ Page 29] The present appeal has been brought to review a determination of the former Supreme Court dismissing a writ of certiorari and in effect affirming the judgment of the Division of Tax Appeals which denied an exemption
from taxation for the years 1944, 1945 and 1946 on the real and personal property owned and used by the prosecutor for school purposes.
The Kimberley School is a private day school in Montclair having a total enrollment of approximately 230 students, drawn in the main from Montclair and neighboring communities. It was founded in 1906 by Miss Mary K. Waring and was thereafter operated by Miss Waring and Miss Mary A. Jordan as co-owners until 1941. At that time the prosecutor corporation was organized under the act dealing with corporations not for pecuniary profit, R.S. 15:1-1 et seq., for the purpose of operating the school. The certificate of incorporation and by-laws stipulate that the school "shall be conducted without profit to the members of the corporation and no part of the net earnings shall inure to the benefit of any individual." It is therein further provided that in the event of dissolution, the net assets of the corporation "shall be considered as a trust fund for educational purposes to be distributed as such by the then trustees * * * to such other educational institution or institutions then organized and existing under the laws of the State of New Jersey as shall have been incorporated for purposes other than pecuniary profit and shall be maintained and operated without profit to the members thereof and no part of the net earnings of which shall inure to the benefit of any individual * * *." Should the trustees fail to make such distribution within a reasonable time, provision is made for distribution "to such educational corporation or corporations as shall be designated by the Chancellor of the State of New Jersey."
Commencing with the fall term in 1941, the prosecutor took over and continued the operation of the school until 1943 under lease from the two owners. In September, 1943, the school properties were sold to the prosecutor by Miss Waring and Miss Jordan for approximately $50,000. The purchase price was paid by the assumption by the corporation of two existing mortgages on the school lands and buildings amounting roughly to $10,000, by paying $1,000 each to Miss Waring and Miss Jordan, and by giving each of them
a bond in the amount of $19,000, both bonds being secured by a single purchase money mortgage. The bonds provided for interest at the rate of five per cent. and for amortization of the principal sums. Beginning October 1, 1946, the amortization payments in any one year were to be increased in limited amounts by one-half of an amount equal to thirty-two per cent. of the net tuitions of the preceding school year in excess of $68,000 but not in excess of $78,000. The purchase price represented merely the value of the land and the physical plant, Miss Waring and Miss Jordan making an outright gift to the corporation of all of the equipment and personal property of an estimated worth of $10,000 as well as of its good will. Two special funds made up of donations from parents and alumnae aggregating more than $6,000 had earlier been turned over to the corporation by the former owners.
Following the sale, the school has functioned under the management of the prosecutor corporation as owner. No substantial changes in the operation of the school were made by the board of trustees of the corporation, who serve without remuneration and among whom are included Miss Waring, Miss Jordan, Mrs. Helen B. Mason, who is the headmistress of the school, and a number of prominent business and civic leaders of the community. Barring a slight increase in tuition fees and teaching salaries, it has been conducted in much the same fashion as it was under private management and ownership. And it is not disputed that, during the period of private ownership, Miss Waring and Miss Jordan drew salaries ranging between $1,200 and $2,500 apiece for many years, reaching a maximum of $3,600 each in 1929 and 1930.
In the school year ended June, 1943, which it has been stipulated shall control for the three tax years here in question, the total income of the school from all sources amounted to $60,323.94. Of this amount $56,062.17 was received from tuition charges. Three special endowment funds, aggregating slightly in excess of $5,000, produced $103.30 and gifts received that year amounted to $758.41. The balance of income of $3,400 was received mainly from registration fees
and the sale of books and lunches. Expenditures totaled $57,522.86, leaving an excess of income over expenses of $2,601.08, without any charge having been set up for depreciation of the physical assets. By far the largest item of expenditures was for teaching salaries, which it should be remarked in passing were very modest. Of a teaching staff numbering twenty-seven or twenty-eight, only three were receiving salaries exceeding $2,000 per annum and two of them held important administrative positions. Tuition charges, scaled from $150 in the lower grades to $450 in the upper grades, are average for comparable schools in the area. Some scholarships are granted, varying from eight per cent. to eleven per cent. of the income received from tuition. Although lunches and transportation to and from the school are available to those students desiring these services, they are furnished at additional cost to the students and are not covered by the tuition charges.
The claim for exemption in this cause is predicated upon the terms of R.S. 54:4-3.6, an omnibus section of the Tax Act dealing with a wide variety of institutions having a recognized public interest. To clarify its proper interpretation we quote the statute with the provisions relating to educational institutions italicized:
"The following property shall be exempt from taxation under this chapter: All buildings actually used for colleges, schools, academies or seminaries; all buildings actually used for historical societies, associations or exhibitions, when owned by the State, county or any political subdivision thereof; all buildings actually and exclusively used for public libraries, religious worship or asylum or schools for feeble-minded or idiotic persons and children; all buildings used exclusively by an association or corporation formed for the purpose and actually engaged in the work of preventing cruelty to animals; all buildings actually and exclusively used and owned by volunteer first-aid squads, which squads are or shall be incorporated as associations not for pecuniary profit; 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, or for one or more such purposes; all buildings owned or held by an association or corporation created for the purpose of holding the title to such buildings as are actually and exclusively used in the work of two or more associations or corporations organized exclusively for
the moral and mental improvement of men, women and children; the building actually occupied as a parsonage by the officiating clergymen of any religious corporation of this State, to an amount not exceeding five thousand dollars ($5,000.00): the land whereon any of the buildings hereinbefore mentioned are erected, and which may be necessary for the fair enjoyment thereof, and which is devoted to the purposes above-mentioned and to no other purpose and does not exceed five acres in extent; the furniture and personal property in said buildings if used in and devoted to the purpose above-mentioned; provided, in 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 where 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 ...