Residents Join Suit Challenging Princeton's Tax Exemption

About two dozen homeowners in Princeton, New Jersey, have joined a five-year-old lawsuit challenging Princeton University's property tax exemption, saying it increases their property tax burden, Bloomberg reports.

With a $22.7 billion endowment, Princeton is the country's fourth-richest university; in court papers the plaintiffs argue that between 2005 and 2012, the school earned $524 million in licensing income. Princeton currently pays its hometown about $8 million in annual levies and voluntarily kicks in another $3 million to support emergency services and public works. According to attorney Bruce Afran, who represents the plaintiffs, the university's annual tax bill should be as much as $40 million a year, which would reduce homeowners' tax burden — approximately $17,700, or twice the state average — by about a third. "The so-called benefits the university gives are not real economic benefits that help the average person," Afran told Bloomberg.

Since the suit was first filed in 2011, Princeton has filed seven motions to dismiss it, all of which have been denied. In January, an appeals court upheld a November 2015 decision issued by tax court judge Vito Bianco — who earlier ruled that Morristown Medical Center no longer qualified for a property tax exemption under state law — that the burden of proof falls on the university to demonstrate its eligibility for the tax exemption.

Similar discontent with the tax-exempt status of nonprofit institutions is roiling New Haven, Connecticut, where Yale University recently has been the target of two legislative bills — one to enable the state to tax the earnings on its $25.57 billion endowment, and another, which will soon be brought up for debate in the state senate, to allow New Haven to tax certain commercial properties at Yale.

As college costs rise inexorably, U.S. congressional committees are examining a variety of university investments and tax exemptions, and have asked fifty-six schools with assets of at least $1 billion how their endowments are managed and used and how donors of large gifts are rewarded. Among other things, the lawmakers are looking for assurances that the schools are using their endowment returns to help students and serve their nonprofit educational missions, the Wall Street Journal reports. If not satisfied by the answers they receive, lawmakers may propose a tax on endowment income or require that schools increase the amount they earmark for financial aid, a spokesperson for Rep. Peter Roskam (R-IL) told the Journal.

"They almost operate like a hedge fund that conducts classes," Leighton Newlin, one of the plaintiffs in the Princeton case, told Bloomberg. "They have some of the best real estate in all of Princeton. The fact is, those buildings do not pay their fair share of taxes."

Timothy W. Martin, Melissa Korn. "Is Taxing Harvard, Yale and Stanford the Answer to Rising College Costs?." Wall Street Journal 05/03/2016. Ellen Wexler. "Yale Fights Tax Bills." Insider Higher Ed 05/03/2016. Elise Young. "Princeton's Neighbors Say to Heck With Freebies — We Want Cash." Bloomberg 05/02/2016.