On certification to the Superior Court, Appellate Division.
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
In this appeal, the Court must determine whether the Commissioner of the Department of Environmental Protection may deny certification to University Cottage Club as a tax-exempt historic site based on standards adopted after its petition for tax-exempt status was perfected. Cottage, a not-for-profit corporation, is a private eating club that is not officially part of Princeton University but is affiliated with its students. It has operated at its current location in Princeton Borough since 1906. The Cottage building was designed by the renowned architect Charles Follen McKim and is considered architecturally significant. The DEP's Office of Historic Preservation administers the tax-exempt historic-site certification process.
In 1998, Cottage applied for a property tax exemption as an historic site. In response, the DEP sent a letter to Cottage advising, among other things, that in order to qualify for tax-exempt status Cottage would have to provide public access to the property. The letter stated that in determining what it means to be open to the public, a "good guide for the minimum" was to be found in the National Park Service's materials, which were enclosed with the letter, and which provided that the property must be open to the public at least twelve times per year. Cottage passed a resolution stating that the club would be open to the public for visitation on no less than twelve days, and submitted evidence to the DEP of its efforts in that regard. After multiple communications over the ensuing years regarding the extent of public access provided by Cottage, in October of 2003, the Commissioner denied the application, stating that he intended to promulgate regulations that would require more extensive public access in order to qualify for tax-exempt status as an historic site. Although no regulations were adopted, effective December 2004, the Legislature enacted a law establishing more rigorous requirements for those seeking tax-exempt status for an historic site, including public access for at least ninety days per year. The amendments require cancellation of historic site certification if a non-profit corporation that owns the building certified after the effective date fails to comply with the provisions. Cottage appealed the Commissioner's denial, and the Appellate Division affirmed. The Court granted certification.
HELD: Public access is an essential component of historic-site tax exemption. However, because Cottage satisfied all of the relevant standards in effect when it perfected its petition for tax-exempt status, Cottage was entitled to certification as a tax-exempt historic site.
1. Generally, courts afford substantial deference to an agency's interpretation of a statute that it is charged with enforcing, although such deference is not extended for the agency's interpretation of a strictly legal issue. (pp. 13-14)
2. The amendment to N.J.S.A. 54:4 to require more substantial public access applies by its own terms only when tax-exempt certification occurs after the Act's effective date of December 22, 2004. The new amendments therefore apply only to applications after the effective date. The Court must address whether the Commissioner's October 2003 denial of Cottage's application was valid. If not, Cottage is entitled to have its application evaluated under the standards in effect at the time of the administrative adjudication. (pp. 14-15)
3. The long-standing administrative interpretation of N.J.S.A. 54:4-3.53 recognized a public-access requirement as a prerequisite to tax-exempt status, an interpretation that is entitled to considerable weight. Moreover, public access is implicit in the historic designation for tax-exempt purposes, since the sole beneficiary of historic preservation is the public, and the reduction in tax revenues could not be justified without public access. (pp. 15-18)
4. The Court examines its decision in Town of Morristown v. Woman's Club of Morristown and Attorney General of New Jersey, 124 N.J. 605 (1991), which held that a property did not have to be used in a particular way to qualify for the historic site tax exemption; it did not, however, eliminate the public access condition of the historic site tax exemption. Use and public access are distinct concepts. The Legislature intended public access to be a fundamental aspect of an historic site tax exemption. (pp. 19-20)
5. Cottage argues that the Commissioner's decision to jettison the prior public access standards and apply new ones was invalid because it was administrative rulemaking that required notice and an opportunity to comment. In Metromedia, Inc. v. Director, Division of Taxation, 97 N.J. 313 (1984) the Court enumerated six factors to determine whether an agency determination constitutes rulemaking. (pp. 20-22)
6. Here, the Commissioner's decision to reject what he had previously declared to be the applicable twelve-day public access standard pending promulgation of his new and more stringent access requirement and to deny all pending applications that did not meet undisclosed "objectively reasonable standards" has all the earmarks of rulemaking. The new scheme was intended to apply generally and uniformly to all similarly situated persons. Moreover, it was intended as a statement of a new administrative position that differed materially the agency's prior, clear position. It was, in effect, a decision on a regulatory policy, and therefore constitutes administrative rulemaking. (pp. 22-23)
7. The Commissioner's decision here does not satisfy the exceptions from formal rulemaking requirements announced in prior Court decisions. (pp. 23-28)
8. Cottage was entitled to adjudication based on the regulations and standards the DEP had imposed upon it and that Cottage had satisfied. The DEP's denial of Cottage's application was arbitrary, and cannot stand. (p. 28)
The judgment of the Appellate Division is REVERSED, and the matter is REMANDED.
CHIEF JUSTICE ZAZZALI and JUSTICES LaVECCHIA, ALBIN, WALLACE, RIVERA-SOTO and HOENS join in JUSTICE LONG's opinion.
The opinion of the court was delivered by: Justice Long
The University Cottage Club of Princeton (Cottage) here challenges a final decision by the Commissioner of the Department of Environmental Protection (Commissioner) denying its petition for certification as a tax-exempt historic site. The Commissioner based his decision on an intention to promulgate more stringent rules governing public access to such sites and, in the interim, determined to deny all applications that did not meet "objectively reasonable standards of public accessibility." Cottage appealed, claiming among other things that public access is not a requirement for historic-site tax exemption. The Appellate Division affirmed. We hold that public access is an essential component of historic-site tax exemption but that the Commissioner acted arbitrarily in the denial of Cottage's application. Because Cottage satisfied all of the relevant standards in effect when its petition was perfected, it was entitled to tax-exempt certification. We therefore reverse.
Cottage, a not-for-profit corporation under I.R.C. § 501 (c)(3), is one of eleven private eating clubs.*fn1 Although not officially part of Princeton University, the eating clubs have traditionally been affiliated with Princeton's students. Cottage has operated at its current location in Princeton Borough (the Borough) since 1906. According to its constitution, "this privately owned and operated club is entirely for the use of its members and their accompanied guests, and is not open to non-members or the public."
The Cottage building, completed in 1906, is considered architecturally significant. Designed by the renowned, early twentieth century architect Charles Follen McKim, it is an example of the "club" style of architecture of the late-Victorian era.
In 1998, Cottage decided to apply for a property tax exemption as an historic site pursuant to N.J.S.A. 54:4-3.52. It initiated the process by letter to the Department of Environmental Protection (DEP), Office of Historic Preservation (OHP), which administers the tax-exempt historic-site certification process. In a return letter dated January 13, 1999, the OHP agreed that Cottage "is a key contributing building within the Princeton Historic District" and is "architecturally significant." It also informed Cottage that additional information was needed regarding its status as a nonprofit organization, its commitment to the preservation of the building, its policy of non-discrimination, and its accessibility by the public.
In terms of public access, the OHP letter stated:
2. Open to the public, The property is not currently open to the public. This needs to be addressed. I am attaching a copy of one of the more recent "open to public notices" and copies of National Park Service "guidance" on what it means to be open to the public[,] required when federal funds go into restoring a historic property, but serves as a good guide for the minimum.
The included guidance material was a portion of the National Park Service's Historic Preservation Fund Grants Manual, which addressed the need for public access when federal funds are invested in an historic property:*fn2
"Public Access" means that the general public can see the results of the HPF [Historic Preservation Fund] investment of public funds.
1) As long as all the HPF-assisted work is clearly visible from a public right-of-way, public access to the property is not required. Public access is also not required when interior development work (such as electrical or plumbing repairs) would not be visible if general access to the property were to be provided. (However, the interior of a property acquired with grant assistance must be open to the public at least 12 days a year if the interior has any architecturally or historically significant features.)
In closing, the OHP explained "[o]nce these items have been addressed, and the municipality has been given an opportunity to comment on your petition, the Historic Preservation Office will process your request for certified historic site (tax exempt) status to the Commissioner of New Jersey Department of Environmental Protection for final deliberation."
In April 1999, the Board of Governors of Cottage passed a resolution "to confirm certain facts in order to facilitate said historic site designation." The resolution stated that "the club is committed to the preservation of the Clubhouse as a historic site"; "strictly adheres to a policy that does not tolerate illegal discrimination or harassment"; and "shall be open to the public for visitation on no less than twelve days, to be specified during each calendar year. Those days shall be published in a local newspaper each year." Cottage also submitted evidence of its non-profit status.
In September 1999, Cottage was listed in the New Jersey Register of Historic Places, and, in November 1999, in the National Register of Historic Places.*fn3 Over two years after Cottage had supplied all of the information sought by the OHP, the OHP wrote again to Cottage in June 2001:
Under provisions of the Laws of New Jersey (1962, Chapter 92, as amended 1964, Chapter 61), the Commissioner of the Department of Environmental Protection can make historic properties tax exempt from local property taxes if the property meets the following conditions:
1. Listed in the New Jersey Register of Historic Places.
2. Owned by a non-profit corporation; with a specific provision to ...