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Paper Mill Playhouse v. Millburn Township

Decided: March 15, 1984.

PAPER MILL PLAYHOUSE, PLAINTIFF-APPELLANT,
v.
MILLBURN TOWNSHIP, DEFENDANT-RESPONDENT



On certification to the Superior Court, Appellate Division, whose opinion is reported at 188 N.J. Super. 18 (1982)

For reversal -- Chief Justice Wilentz and Justices Handler, Pollock, O'Hern and Garibaldi. For affirmance -- Justices Clifford and Schreiber. The opinion of the Court was delivered by Garibaldi, J. Clifford and Schreiber, JJ., dissenting.

Garibaldi

The issue is whether Paper Mill Playhouse (Paper Mill), a nonprofit corporation, is entitled to an exemption from local property taxes under N.J.S.A. 54:4-3.6. The property is located in Millburn, New Jersey, and consists of three adjacent lots on which the theater and its parking lot are located.*fn1 In 1978 the property was assessed at a value of $404,600. It is the only property located within Cultural C Zone, defined in the Township of Millburn (Millburn) zoning ordinance as "an area devoted to cultural activities intended to enhance the quality of life in the region."

The Essex County Board of Taxation denied Paper Mill's request for an exemption from local property taxes. The Tax Court reversed the County Board and granted the exemption.

On appeal the Appellate Division 188 N.J. Super. 18 reversed the Tax Court and denied Paper Mill the exemption. We granted certification, 93 N.J. 309 (1983),*fn2 and now reverse.

I

Since 1913, New Jersey's policy has been to exempt from local property taxes property actually and exclusively used by nonprofit corporations for the moral and mental improvement of men, women and children. N.J.S.A. 54:4-3.6, which governs these exemptions, 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 * * * provided, in case of all the foregoing, the buildings, or the lands upon which they stand * * * are not conducted for profit * * *.

To secure an exemption for its real property, a corporation must meet the following three criteria:

(1) it must be organized exclusively for the moral and mental improvement of men, women and children;

(2) its property must be actually and exclusively used for the tax-exempt purpose; and

(3) its operation and use of its property must not be conducted for profit.

The issue here is whether Paper Mill meets these criteria and is therefore entitled to exemption from local property taxes. For the reasons given below, we are satisfied that Paper Mill meets each of the three statutory criteria for exemption under N.J.S.A. 54:4-3.6. In making this judgment, we recognize that statutes granting exemptions from taxation are to be strictly

construed against those seeking exemption, "but that principle does not justify distorting the language or the legislative intent." Boys' Club of Clifton, Inc. v. Jefferson, 72 N.J. 389, 398 (1977). As Justice (then Judge) Sullivan in interpreting the words "actually and exclusively used" which appear in N.J.S.A. 54:4-3.6 wrote in Princeton v. Tenacre Found., 69 N.J. Super. 559, 563 (App.Div.1961):

However, the basic inquiry always is the legislative intent as expressed in the statute. To that end the construction, while strict, must always be reasonable, and words are not to be given a rigid scholastic interpretation when it appears that they were used in another sense. The rule of strict construction must never be allowed to defeat the evident legislative design.

See Deubel v. Kervick, 33 N.J. 568, 574 (1960).

II

In 1934 Paper Mill was incorporated as a nonprofit corporation under N.J.S.A. Title 15. Its purposes as set forth in its Certificate of Incorporation are to promote "a greater interest in and a greater appreciation of art, music, drama, history, literature, education and the theater [in New Jersey]." The same purposes are set forth in Paper Mill's bylaws, with the additional requirement that in order to accomplish such purposes, "concerts, dramas, ballet and musical performances [should be presented] at the theatre owned by the corporation * * * in Millburn, New Jersey * * *."

Paper Mill presents a wide variety of events, including its own major productions of musical and dramatic plays; special, "On School Time," and Saturday programs to introduce children to the theater; and productions of various musicals, ballets, and plays in conjunction with other cultural groups such as the New Jersey Ballet Company and the Newark Boys' Choir. All of these events are presented live at Paper Mill.

Paper Mill is governed by a Board of Trustees who serve without compensation. Daily management responsibilities are handled by a paid professional staff that includes an executive producer, a manager, ushers, clerical workers, and maintenance workers.

The Executive Producer and his staff decide what productions will be performed. Their policy is to present the best theater Paper Mill is capable of producing. The major productions include musicals and dramas representative of the theater presented in New York and London. According to the unchallenged testimony of the Executive Producer, the productions are not chosen to make a profit. Indeed, Paper Mill does not limit its losses by closing financially unsuccessful productions before their scheduled runs and, in fact, more than one-half of the productions result in a loss.

Paper Mill, under the direction of its Executive Producer, stages most of its own productions, negotiates directly with the playwrights to obtain copyrighted material, and locates its own actors and actresses through its permanent casting office in New York City. To present the high quality theatrical productions, it sometimes engages established stars to appear in its productions. Because of Paper Mill's well-known reputation, sometimes the stars are willing to take lower than a competitive salary when appearing. Occasionally these stars receive a percentage of net receipts, in addition to a salary. The remaining actors and actresses are members of Actors Equity and are paid union wages.

Paper Mill also engages, on a part-time basis, a press agent, set designers, hairdressers, stage hands, and musicians. Its advertising is not extensive and consists primarily of advertising in newspapers. It does not advertise on radio or television or by posters in cabs or buses.

Paper Mill's audience is drawn primarily from Northern New Jersey. The uncontroverted testimony is that it does not compete with commercial New York theater, but with regional theaters such as McCarter Theater in Princeton, The Whole Theater in Montclair, and George St. Playhouse in New Brunswick. Paper Mill's policy is to set its ticket prices as near cost as possible. Accordingly, the ticket charges for major productions

in 1977 ranged from $5.00 to $11.00, or approximately one-half of the price charged by New York commercial theaters.

In 1977 the major productions presented at Paper Mill were:

"The Belle of Amherst" starring Julie Harris;

"The Mousetrap;"

"The Fatal Weakness;"

"Jesus Christ Superstar;"

"My Fair Lady;"

"The Ginger Rogers Show;"

"Good News;"

"Grease;"

"Shenandoah;"

"The Nutcracker" with The New Jersey Ballet;

"New Year's Eve Special" with Victor Borge.

The theater season in 1977 (as in other years) lasted 44 to 46 weeks; and a total of approximately 200,000 people attended the major productions.

In addition to its major productions, Paper Mill produces programs to introduce children to, and to interest them in, professional theater and the dramatic arts. Their "On School Time" program is operated in conjunction with various school districts throughout New Jersey, which bring students to the theater during school hours. In 1977 there were 53 performances of 19 productions attended by a total of approximately 50,000 children. Paper Mill purchases most of these productions, which include such shows as "Snow White," "Hansel and Gretel," "Babes in Toyland," and "A Christmas Carol," as well as "Amahl and the Night Visitors" by the Newark Boys Chorus and "Nutcracker Suite" by the New Jersey Ballet Company. The ticket charges for such performances range from $1.50 to $2.25. In addition, Paper Mill provides these same shows to other children in special Saturday performances. Approximately 19,000 children attended such programs in 1977 at an average admission charge of $2.25. Of Paper Mill's total attendees in 1977, over 25% were children who attended the special children's programs.

Paper Mill has a special relationship with the New Jersey Ballet Company, a tax-exempt organization promoting ballet in New Jersey. The Ballet is considered "in residence" at Paper Mill and stages Tchaikovsky's "Nutcracker Suite" there for two weeks each year. In addition, in 1977 the Ballet presented Monday evening ballet performances at Paper Mill. The proceeds of these productions, if any, are shared with Paper Mill. Paper Mill also produced, in conjunction with the Newark Boys Chorus, a tax-exempt organization, several performances of "Amahl and the Night Visitors." There were no profits from these performances.

To allow those who otherwise could not afford the theater the opportunity to enjoy it, Paper Mill in 1977 offered a 25% discount to senior citizens and students. Paper Mill also offered free tickets to various charitable organizations. The New Jersey State Council on the Arts gave special recognition to these programs by contributing a matching grant of $15,000.

Paper Mill receives approximately 94% of its gross income from ticket sales. In addition to its theater activities, Paper Mill maintains a parking lot and a refreshment concession, publishes a theater program with advertising, and operates a small art gallery in the upper lobby of the theater for the exhibition and sale of works by local artists. These ancillary operations produce either a small ...


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