On appeal from the Tax Court of New Jersey, Docket No. 7403-2005, whose opinion is reported at 23 N.J. Tax 528 (Tax 2007).
The opinion of the court was delivered by: Messano, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued September 28, 2010 - Decided
Before Judges Carchman, Graves*fn1 and Messano.
The opinion of the court was delivered by MESSANO, J.A.D.
Plaintiff, Society of the Holy Child Jesus, appeals from a final order of the Tax Court affirming the revocation of a longstanding tax exemption on property plaintiff owned in the City of Summit (Summit). In a published opinion, the trial judge denied plaintiff's summary judgment motion, determining that "the use of the property in violation of the zoning ordinance . . . result[ed] in a denial of its tax exemption." Soc'y of the Holy Child Jesus v. Summit City, 23 N.J. Tax 528, 530 (Tax 2007). The final judgment we review was entered on September 22, 2009, incorporated the broad outlines of the parties' ultimate settlement and further "determined that the property was not entitled to exemption."
The sole issue presented on appeal is whether a municipality may revoke an exemption provided by N.J.S.A. 54:4-3.6 (the Statute) because the property, although otherwise qualified, is used in a manner not permitted by the municipal zoning ordinance. We conclude that if the taxpayer complies with the requirements of the Statute, it is entitled to the exemption from real property taxes even if the use of the property does not comply with the municipal zoning ordinance. We therefore reverse the judgment of the Tax Court.
We provide some factual and procedural background that is largely not disputed, some of which is set forth in the Tax Court's opinion.
Plaintiff was incorporated in New Jersey in 1898 as a nonprofit entity affiliated with the Holy Roman Catholic Church and organized "for the moral and mental improvement of women, [and] for religious, charitable and literary purposes." It owns and operates the Oak Knoll School of the Holy Child, a Catholic institution that provides an education for both boys and girls from kindergarten through the sixth grade, and for girls from the seventh through twelfth grades. The property on which the main school buildings are situated -- Lots 3 and 4 in Block 3103 on the Summit tax map -- are indisputably exempt from taxation and not the subject of this appeal.
Plaintiff also owns adjacent property designated as Lot 1 in the same block (the property), upon which a two and one-half story home is situated. Originally purchased by plaintiff in 1943, and used prior thereto as a single-family residence, the building was used as a residence for nuns until sometime in 2000. The property was exempt from real estate taxes during this time.
Sometime in 2000, plaintiff discontinued the use of the property as a residence but continued to use the building for school purposes, including meetings of the school's board of trustees, parties and assemblies and as office space for the school's facilities director. Apparently prompted by complaints from neighbors that the property was actually vacant, Summit's tax assessor investigated the premises and concluded it was not in use. Summit revoked the property's exemption effective July 1, 2004, and issued an assessment of $924,400. Plaintiff filed a complaint in the Tax Court challenging the assessment, though it voluntarily dismissed the complaint soon thereafter when the exemption was restored.
In October 2005, Summit sent plaintiff an "added assessment tax bill for [the] property . . . for the following quarters: November 1, 2005, February 1 & May 1, 2006." The property was again assessed at $924,400. Plaintiff filed another complaint in the Tax Court seeking to restore the exemption, or alternatively, a reduction in the assessment for year 2005. When Summit served plaintiff with a notice of assessment for year 2006, plaintiff filed another complaint requesting similar relief for tax year 2006. Plaintiff successfully enjoined the sale of the property for unpaid taxes, and, in May 2006, moved for summary judgment on its complaint for tax year 2005.
On October 24, 2006, while plaintiff's motion was pending, Summit's zoning officer, Christa Anderson, notified plaintiff in writing that the "us[e] [of] the . . . property in conjunction with school operations . . . [was] contrary to the provisions" of the municipal zoning ordinance. Anderson further explained that the property was "located in a single[-]family residential zone wherein educational institutions are a permitted conditional use." She advised that "[i]n order to properly and legally conduct a conditional use on the site, it [wa]s necessary for the school to obtain an approval from the Zoning Board of Adjustment." Anderson also certified that she had orally advised plaintiff on more than one occasion in the prior two years of the need to seek a conditional use variance. See N.J.S.A. 40:55D-70(d)(3).
On October 25, in a letter to the trial judge, Summit's counsel summarized an argument he intended to advance in opposition to plaintiff's summary judgment motion:
[T]he City will contend that the [plaintiff's] use [of the property] is illegal and that[,] therefore, [plaintiff] does not qualify for an exemption from taxation, although if the use were a permitted use, it would otherwise qualify.
Plaintiff then filed a second motion, denominated as one seeking "declaratory relief," asking the Tax Court to declare that it was entitled to an exemption for tax years 2005 and 2006. Oral argument on the motions occurred in January 2007 and the trial judge issued his written opinion on September 12.
The judge noted that the issue was one of "first impression in New Jersey." Soc'y of the Holy Child Jesus, supra, 23 N.J. Tax at 532. However, he analogized the situation "to the failure to meet local land use requirements when farmland assessment is sought." Ibid. The judge concluded that "[f]or preferential farmland assessment under N.J.S.A. 54:4-23.1 to -23.23 ('The Farmland Assessment Act'), 'property used in violation of a municipality's zoning ordinance cannot qualify . . . .'" Ibid. (quoting Cheyenne Corp. v. Twp. of Byram, 248 N.J. Super. 588, 595 (App. Div. 1991), certif. denied, 137 N.J. 312 (1994)). The judge concluded:
I find no basis for distinguishing the rule as to disqualification for preferential farmland taxation because of non-permitted use under a municipal zoning ordinance from the disqualification of school use (or other uses set forth in N.J.S.A. 54:4-3.6) for preferential exemption from taxation because of non-permitted use under municipal zoning ordinances. [Soc'y of the Holy Child Jesus, supra, 23 N.J. Tax at 532.]
The judge consequently denied plaintiff's motions but without prejudice to its right to proceed to trial on the issue of whether its use of the property complied with the zoning ordinance.
However, the matter did not proceed to trial. We are advised that plaintiff, after an unsuccessful challenge to the zoning officer's determination before the Board of Adjustment, applied for and was granted necessary variances for the property to meet the requirements for a conditional use under Summit's ordinance. The property's tax exemption was restored in 2010.
The parties ultimately settled their dispute for all tax years subsequent to 2005. Additionally, as part of the settlement, plaintiff and Summit entered into a "high-low" agreement for tax year 2005, employing two assessment values, one of which would be applied depending upon which party prevailed in this appeal.*fn2
The judge's decision was purely a legal one to which we owe no deference. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). Issues of statutory interpretation are reviewed de novo. Twp. of Holmdel v. N.J. Highway Auth., 190 N.J. 74, 88 (2007).
Plaintiff contends that it was entitled to a property tax exemption because: 1) it qualified under the clear and unambiguous provisions of the Statute; 2) any violation of Summit's zoning ordinance cannot serve as a basis to revoke the exemption; 3) the judge erred in utilizing precedent decided under the Farmland Assessment Act (the FAA) because the policy supporting that legislation differs significantly from the public policy supporting the Statute; and 4) the use of zoning powers to deny exemptions would foster "unscrupulous municipal action" and subvert those public policy goals.
Summit counters by arguing that any illegal use of the property prohibits eligibility for the tax exemption because there is "a vital nexus between zoning and taxation in New Jersey." Summit also contends that plaintiff seeks relief from a "self-induced harm caused by its failure to turn ...