On appeal from the Tax Court of New Jersey, Docket No. 001064-2000.
The opinion of the court was delivered by: Payne, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Cuff, Payne and Miniman.
Plaintiff, Hunterdon Medical Center (HMC), appeals from a decision of Tax Court Judge Kuskin, reported at 24 N.J. Tax 421 (Tax 2009), denying it an exemption, pursuant to N.J.S.A. 54:4-3.6, from local property taxes imposed for the years 2000, 2001 and 2002*fn1 by defendant, the Township of Readington, on a physical therapy service (PT Service) operated by HMC at an off-site facility approximately nine and one-half miles from the hospital in Whitehouse Station. The facility houses a physical fitness center, known as the Hunterdon Health and Wellness Center (Wellness Center), a cardio-pulmonary rehabilitation service (CP Rehab Service), the PT Service, and a hospital-owned pediatric practice.
In an initial decision by Judge Kuskin, he denied tax-exempt status to all facilities except the CP Rehab Service. Hunterdon Med. Ctr. v. Readington Twp., 22 N.J. Tax 302, 339-40 (Tax 2005) (HMC I). In doing so, the judge developed a methodology for determining whether the various components of the hospital-owned facility were "actually used" for a permitted exempted use, set forth in the governing statute as "hospital purposes." Id. at 332-33. We affirmed Judge Kuskin's methodology and conclusions. Hunterdon Med. Ctr. v. Twp. of Readington, 391 N.J. Super. 434, 23 N.J. Tax 536 (App. Div. 2007) (HMC II). Certification was granted solely with respect to the tax status of the PT Service. Hunterdon Med. Ctr. v. Twp. of Readington, 192 N.J. 72 (2007). On appeal, the Supreme Court clarified the standards to be employed in determining tax-exempt status in this context, modifying to some extent the methodology adopted by Judge Kuskin and affirmed by us. Hunterdon Med. Ctr. v. Twp. of Readington, 195 N.J. 549, 573-74 (2008) (HMC III). Because the Court was uncertain whether Judge Kuskin would reach the same conclusion regarding the PT Service under its revised methodology, it remanded the matter to him for his reconsideration. Id. at 574. After supplementation of the record by HMC with a certification regarding a regulatory approval granted to the PT Service in 2007 and hospital accreditations that included the PT Service, the judge reexamined the record in light of the Supreme Court's opinion and reached the same conclusion that he had reached initially - that the PT Service was not tax exempt. Hunterdon Med. Ctr., supra, 24 N.J. Tax 421 (HMC IV). HMC has appealed.
Our evaluation of Judge Kuskin's opinion requires an extended discussion of the applicable tax exemption statute and the Supreme Court's construction of it in the present context. N.J.S.A. 54:4-3.6 governs tax exemptions for enumerated non- profit entities, providing in connection with non-profit hospitals:
The following property shall be exempt from taxation under this chapter: . . . all buildings actually used in the work of associations and corporations organized exclusively for hospital purposes, provided that if any portion of a building used for hospital purposes is leased to profit-making organizations or otherwise used for purposes which are not themselves exempt from taxation, that portion shall be subject to taxation and the remaining portion only shall be exempt . . . .
In its decision in HMC III, the Supreme Court noted its prior recognition that N.J.S.A. 54:4-3.6 requires that three criteria be met in order for property to be exempted from taxation: "'(1) [the owner of the property] must be organized exclusively for the [exempt purpose]; (2) the property must be actually . . . used for the tax-exempt purpose; and (3) its operation and use of its property must not be conducted for profit.'" 195 N.J. at 561 (quoting Paper Mill Playhouse v. Millburn Twp., 95 N.J. 503, 506 (1984)). The Court then stated that, because there was no longer a dispute that HMC met the first and third Paper Mill criteria, the dispute as presented to it focused on "whether the hospital's operation of a PT Service in this off-site building constitutes hospital-owned property that is 'actually used' for the permitted exempt purpose, which N.J.S.A. 54:4-3.6 identifies only as 'hospital purposes.'" Id. at 562.
The Court recognized that, commencing with our decision in Township of Princeton v. Tenacre Foundation, 69 N.J. Super. 559, 564 (App. Div. 1961), New Jersey courts had utilized a "reasonably necessary" test in determining whether a particular facility or use met Paper Mill's second criterion in a hospital, ancillary use context, the issue turning on whether a facility was reasonably necessary for the accomplishment of hospital purposes. Id. at 562-69. However, the Court found, as had Judge Kuskin, that "[t]he reasonably necessary test does not assist in the determination of whether a hospital, in embarking on a medically oriented task, has exceeded permissible 'hospital purposes' because the test itself does not define 'hospital purposes.'" Id. at 567 (citing HMC I, supra, 22 N.J. Tax at 326). The Court concluded that "[t]he key is to infuse meaning into the concept of 'hospital purposes' so that the statutory exemption can be consistently applied." Id. at 568.
In defining "hospital purposes," the Court observed:
In our view, any effort to encapsulate what a hospital must provide for its patient population reasonably would include any service, medical and diagnostic, required by its patients. Such required services necessarily would include services needed both pre- and post-admission to the hospital, whether as an in-patient or out-patient. [Id. at 569.]
Looking for guidance to regulations governing hospital services, the Court noted that N.J.A.C. 8:43G-2.12, a regulation listing professional departments, services, facilities and functions that a general hospital must provide, required the existence of a physical therapy department. Id. at 569-70. Further the Court noted that regulatory authorities recognized "the precious nature of space within the confines of a hospital's main facility," id. at 570, and had permitted certain types of medical operations to be placed on non-adjoining property while still recognizing them "as sufficiently integrated with the main hospital to be classified as hospital-based, and not free-standing." Ibid. (citing N.J.A.C. 8:43G-2.11(c)). But the Court noted:
It cannot be overlooked, however, that to remain "hospital-based" in a regulator's eyes, a distant hospital-operated medical service is required to show incorporation with hospital departments, supervision by hospital administrators, and adherence to common policies and procedures for administrative matters including admission of patients without regard to ability to pay, in order to keep such distant ...