THE KIMBERLEY SCHOOL, PROSECUTOR, v. TOWN OF MONTCLAIR ET AL., DEFENDANTS

Supreme Court of New Jersey1948-07-16

137 N.J.L. 402

Summary · law.co

Holding. The Division of Tax Appeals properly disallowed the tax exemption for The Kimberley School's property because the school's purposes and operations were not fundamentally charitable or philanthropic, and therefore did not serve the public purpose required for tax exemption. The writ of certiorari is dismissed.

The Kimberley School, a nonprofit corporation formed in 1941, sought a property tax exemption for its school building, land, and furnishings. The school was established as a private educational institution operating on a day-school basis, with the majority of its $60,000 annual income derived from tuition fees paid by families who could afford the school's services. Although the school was organized as a nonprofit entity and operated without seeking pecuniary profit, the court found that its fundamental purpose and character were not charitable or philanthropic in nature.

The court applied established precedent requiring that tax-exempt status serve a genuine public purpose. It determined that The Kimberley School functioned as an exclusive private school serving families able to pay tuition rather than providing education freely or charitably to the broader community. The financial structure—where tuition revenues fully covered operational costs with a modest surplus—and the absence of meaningful charitable work demonstrated that the school did not qualify for the statutory exemption despite its nonprofit incorporation status.

Summary generated by law.co from the public-domain opinion. The opinion text itself is public domain.

Key issues

Whether a nonprofit educational institution qualifies for property tax exemption under state law
Whether tuition-dependent private schools serve a sufficiently public charitable purpose to justify tax exemption
The meaning of 'charitable' and 'philanthropic' purposes in the context of educational institutions

Procedural posture

The Kimberley School sought review by writ of certiorari of a Division of Tax Appeals decision that had disallowed a property tax exemption previously granted by the Essex County Board of Taxation.

Authorities cited

No cited authorities resolved to law.co cases yet.

Opinion · public domain

majority opinion

The opinion of the court was delivered by

Donges, J.

This writ of certiorari was allowed to review a judgment of the Division of Tax Appeals in the State Department of Taxation and Finance and the question presented is whether or not the property, real and personal, of the prosecutor, The Kimberley School, is by statute exempt from taxation. The Division of Tax Appeals disallowed the exemption which had theretofore been granted by the Essex County Board of Taxation. The statute in question, R. 8. 54:4-3.6 (as amended Pamph. L. 1941, ch. 243), provides:

“The following property shall be exempt from taxation under this chapter: All buildings actually used for colleges, schools, academies or seminaries; * * * the land whereon any of the buildings hereinbefore mentioned are erected, and which may be necessary for the fair enjoyment thereof, and which is devoted to the purposes above-mentioned and to no other purpose and does not exceed five acres in extent; the furniture and personal property in said buildings if used in and devoted to the purposes above-mentioned; provided, in case of all the foregoing, the buildings, or the lands on which they stand, or the associations, corporations or institutions using and occupying them as aforesaid, are not conducted for profit, except that the exemption of the buildings and lands used for charitable, benevolent or religious purposes shall extend to cases where the charitable, benevolent ox religions work carried on is supported partly by fees and charges received from cr on behalf of beneficiaries using or occupying the building; provided, the building is wholly controlled by and the entire income therefrom is used for said charitable, benevolent or religions purposes. The foregoing exemptions shall apply only where the association, corporation or institution claiming the exemption owns the property in question and is incorporated or organized under the laws of this state and authorized to carry out the purposes on account of which the exemption is claimed

The Kimberley School was established in 1906 by Miss Mary K. Waring and operated by her and by Miss Mary A. Jordan for many years as a private school. In 1941 the prosecutor corporation was formed as a corporation not for pecuniary profit, under the appropriate statute. This corporation operated a school on the premises under a lease from the Misses Waring and Jordan for about two years. In 1943 the owners sold all the property, real and personal, used in the. operation of the school to the prosecutor corporation for a consideration of $50,395. The purchase price was paid by assuming two existing mortgages in the amount of $10,395, by paying Miss Waring and Miss Jordan approximately $1,000 each, and by giving each of them a bond in the sum of $19,000; which bonds were secured by a purchase-money mortgage upon which interest was paid and which were to be amortized at a rate which would be accelerated in event of the tuition receipts exceeding a certain figure.

For the year 1943 (and it is stipulated that the judgment for that year should control the other years) the income from all sources was slightly in excess of $60,000, most of which, more than $56,000, was in the form of payments for tuition fees. Income from endowments, $103.30, and from gifts, $758.41, formed but a small portion of the total income. Total expenditures for the year were $57,522.86, leaving a surplus of $2,801.08. Since the prosecutor took over the operation of the school it has been conducted as theretofore, although the salaries of teachers and the tuition fees have both been increased. The students have the benefit of bus transportation, small classes (twelve students to a teacher) and hot "luncheons; in other words, the usual facilities of a high grade private school. Although there have been some scholarships granted, the sums charged patrons have been sufficient to cover the cost of operation and the project cannot be said to be one of a charitable nature. The certificate of incorporation of the school provided that in the event of the cessation of operation of the school the assets of the corporation should be devoted to such other educational institution as the trustees might select, and in default of such selection within a reasonable time to such educational institution as might be designated by the Chancellor.

We think the factual situation in this case is so close to that presented in the case of Dwight School, &c., v. State Board of Tax Appeals, 114 N. J. L. 594; affirmed,, 117 Id. 113, as to require that, under the holding of that case, the exemption from taxation must be denied. It was said in the Dwight School case, “The test is whether the purposes and objects of the school claiming the exemption are ‘fundamentally charitable or philanthropic. Carteret Academy v. State Board of Taxes, &c., 102 Id. 525; affirmed, 104 Id. 165.” It was further held, “Here the claimant operates what is essentially an exclusive boarding school.” The same must be said of The Kimberley School, except that it is not a boarding school but a day school. In that case it was also said:

“Equality is the basic principle of taxation. Exemption therefrom can be justty sustained only upon the principle that the ‘concession is due as quid pro quo for the performance of a service essentially public, and which the state thereby is relieved pro lanío from the necessity of performing, such as works of charity and education, freely and charitably bestowed, as evidenced by the legislation under consideration. Without, that concurring prerequisite, an exemption becomes essentially a gift of public funds at the expense of the taxpayer, and indefensibie both under onr public policy of equal taxation and our constitutional safeguard against illegal taxation. Carteret Academy v. State Board of Taxes and Assessments, supra. The exemption, to be valid, must of necessity clearly serve a public purpose contemplated by the statute/’

Testing the factual situation of the present case in the light of the principles laid down in the Dwight School case and others on the subject, Carteret Academy v. State Board, 102 N. J. L. 525; affirmed, 104 Id. 165; Trenton v. State Board of Tax Appeals, 127 Id. 105; affirmed, 128 Id. 320; Dana College v. State Board of Tax Appeals, 14 N. J. Mis. R. 308, the determination of the Division of Tax Appeals was proper and should be affirmed. Prosecutor relies upon the decision of this court in Princeton v. State Board of Taxes, 96 N. J. L. 334. The factual situation in that case could be distinguished in some respects from the present one, but in any event, to the extent that the holding of that case may he in conflict with the cases above cited, particularly those of the court of last resort, the, latter are controlling here.

The writ is dismissed, with costs.