Gourmet Dining, LLC v. Union Township

 

(NOTE: The status of this decision is .)

                                       SYLLABUS

This syllabus is not part of the Court’s opinion. 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
Court. In the interest of brevity, portions of an opinion may not have been summarized.

             Gourmet Dining, LLC v. Union Township (A-8-19) (083146)

Argued March 17, 2020 -- Decided June 30, 2020

LaVECCHIA, J., writing for the Court.

       The issue in this appeal is whether a high-end restaurant operated by a for-profit
entity but housed in a building on the Kean University campus qualifies for exemption
from local property taxation.

       Under the State Constitution, all real property within New Jersey is subject to
taxation unless it qualifies for a statutory exemption.  N.J.S.A. 54:4-3.3 exempts from
taxation property belonging to the State, counties, or municipalities, or their agencies and
authorities, that is used for a public purpose.  N.J.S.A. 54:4-3.6, in turn, exempts certain
property of various non-profit organizations, including: “all buildings actually used for
colleges, schools, academies or seminaries, provided that if any portion of such buildings
are leased to profit-making organizations or otherwise used for purposes which are not
themselves exempt from taxation, said portion shall be subject to taxation.”

       The Legislature has also created limitations on the otherwise exempt status of
property.  N.J.S.A. 54:4-2.3 provides that real property entitled to tax exemption loses its
exemption when leased to a person or entity whose property is not exempt. And, under
 N.J.S.A. 54:4-1.10, an arrangement that is not technically a lease but operates as one is
subject to taxation, just as a leasehold estate would be under  N.J.S.A. 54:4-2.3.

       Gourmet Dining, LLC, owned and operated a fine dining restaurant named Ursino
in a Kean University building. In October 2011, the Kean University Foundation, Inc.,
and Gourmet Dining entered into a Management Subcontract Agreement (MSA), which
conferred on Gourmet Dining the exclusive right to operate, manage, and control Ursino.
Gourmet Dining agreed to pay the Foundation an annual “management fee” and a
percentage of Ursino’s gross revenue.

       The restaurant began operation in late October 2011. In August 2012, Union
Township issued a letter notifying Gourmet Dining that it would receive a tax bill for the
last two months of the 2011 tax year and the entirety of the 2012 tax year. Gourmet
Dining did not challenge those initial assessments but did challenge the 2013 and 2014
tax assessments. It ultimately appealed to the Tax Court.
                                             1
       The Tax Court granted summary judgment in favor of Union Township.  30 N.J.
Tax 381, 391 (Tax 2018). The court first held that  N.J.S.A. 54:4-3.3 applied because the
University is a State governmental entity and the building constitutes governmental
property. Id. at 402. Concluding that Gourmet Dining had not established that the
subject property is used for a public purpose pursuant to  N.J.S.A. 54:4-3.3, or that its
actual use of the property was for “colleges, schools, academies or seminaries” as
required by  N.J.S.A 54:4-3.6, the court held that Gourmet Dining was not entitled to tax
exemption under either provision. Id. at 410-13. And reasoning that the “rights, powers,
and obligations conferred” through the MSA demonstrate that that agreement -- even if
not denominated a lease by the parties -- is “a lease for legal purposes,” the Tax Court
found the property taxable under  N.J.S.A. 54:4-2.3 and  N.J.S.A. 54:4-1.10. Id. at 424-26.

        The Appellate Division reversed, relying on a holistic view of the following facts:
the restaurant is located on-campus; University students and their parents regularly dine
there; the restaurant provides students and members of the University community “an
alternative dining experience”; Gourmet Dining’s annual management fees are used for
scholarships; the University’s Board determined “that having a critically acclaimed,
upscale restaurant on campus enhances the public’s perception of the University as a
forward-looking institution, and thereby serves as an important recruiting tool”; many of
the restaurant’s employees are students; and the restaurant uses produce grown on the
University grounds and provides the University with compostable waste.  459 N.J. Super. 323, 327, 334-35 (App. Div. 2019). The panel also rejected the Tax Court’s conclusion
that Gourmet Dining is “the 'functional’ equivalent” of a lessee. Id. at 337.

       The Court granted the Township’s petition for certification.  239 N.J. 521 (2019).

HELD: The arrangement by which Gourmet Dining operates Ursino is taxable as a lease
or lease-like interest. The public-benefit-oriented exemption provisions in issue were not
intended to exempt the for-profit operator of a high-end, regionally renowned restaurant
situated on a college campus, when the overriding purpose of this commercial endeavor
is focused on profitmaking. Gourmet Dining, as the exclusive operator and manager of
this restaurant establishment, must bear its fair share of the local real property tax burden.

1. Both the Tax Court and the Appellate Division recognized that the subject property is
on State property and, as such, falls within the purview of  N.J.S.A. 54:4-3.3. (p. 21)

2. The Court rejects the argument, based on the punctuation of  N.J.S.A. 54:4-3.3, that
demonstration of a “public purpose” is unnecessary here. The State Constitution
prohibits the donation of state property for private interests, and the Court has established
a two-part test for determining whether a donation to a private entity violates the
Constitution because it does not serve a public purpose. A court must first determine
whether the provision of land or financial aid is for a public purpose, and second, whether
the means to accomplish that public purpose are consonant with it. The latter
                                              2
examination is understood as having two parts: whether the transaction is contractual and
involves some obligation on the part of the private entity that is intimately tied to
fulfilling the public purpose, and whether the accomplishment of the public purpose is the
paramount factor in the contract with any private advantage being merely incidental or
subordinate. Because an obligation of public purpose use already exists for State
property, there was no need to mention the requirement in section 3.3’s first clause.
Further, the public purpose assessment would remain integral to the determination of
whether tax exemption would apply under  N.J.S.A. 54:4-2.3 or -1.10. (pp. 21-25)

3. The Appellate Division’s holistic approach to the public purpose inquiry was
mistaken. The accomplishment of the public purpose must be the paramount factor in an
arrangement with a private entity’s use of public property. For a tax exemption to apply,
any private advantage must be incidental or subordinate. Here, that is not so. The Court
stresses that it is not assessing the University’s exercise of its authority, but rather
determining whether the legislative purpose in crafting the exemption from taxation in
 N.J.S.A. 54:4-3.3 anticipated the circumstances here -- the University contracting out the
establishment and operation of an upscale for-profit commercial restaurant to compete
with other local commercial restaurants that pay their fair share of local property taxes.
The Court agrees with the Tax Court that Gourmet Dining’s interest in the property is not
tax exempt under that provision. (pp. 25-29)

4. The Court rejects Gourmet Dining’s claim that it is merely a manager and operator of
the restaurant facility, not a tenant or lessee. Because  N.J.S.A. 54:4-1.10 so clearly
intends to cover user arrangements such as these, the Court relies on the Tax Court’s
analysis of that statute’s applicability here. Ursino is taxable under  N.J.S.A. 54:4-1.10,
through which the Legislature indicated that it did not wish for the public at large to
underwrite the local tax obligation of the private operator of a for-profit commercial
establishment on public property. (pp. 30-31)

5. Nor is Gourmet Dining exempt from taxation under  N.J.S.A. 54:4-3.6. Gourmet
Dining is a for-profit entity, and the restaurant, as contemplated by the MSA, is intended
to make a profit. Gourmet Dining receives the gross revenue and, from that, it pays
operating expenses -- which notably expressly reference payment of local taxes -- and
fees to the Foundation. As the Tax Court reasoned, the profit, after all expenses are paid,
goes to Gourmet Dining. Thus, Gourmet Dining’s use of the subject property does not
constitute a use for the “college” but rather for itself. (pp. 31-32)

      The judgment of the Appellate Division is REVERSED and the judgment of
the Tax Court is REINSTATED.

CHIEF JUSTICE RABNER and JUSTICES ALBIN, PATTERSON,
FERNANDEZ-VINA, and SOLOMON join in JUSTICE LaVECCHIA’s opinion.
JUSTICE TIMPONE did not participate.
                                             3
       SUPREME COURT OF NEW JERSEY
             A-
8 September Term 2019
                       083146


               Gourmet Dining, LLC,

                Plaintiff-Respondent,

                          v.

                  Union Township,

                Defendant-Appellant,

                         and

               New Jersey Educational
                Facilities Authority,

                     Defendant,

                         and

                  Kean University,

               Defendant-Respondent.

       On certification to the Superior Court,
   Appellate Division, whose opinion is reported at
        459 N.J. Super. 323 (App. Div. 2019).

      Argued                        Decided
   March 17, 2020                 June 30, 2020


Robert F. Renaud argued the cause on behalf of
appellant (Renaud DeAppolonio, attorneys; Robert F.
Renaud and Adam J. Colicchio, on the briefs).

                          1
            David B. Wolfe argued the cause on behalf of
            respondents (Skoloff & Wolfe, attorneys; David B.
            Wolfe, Robert F. Giancaterino, and Rebecca L.
            Hutcheon, on the brief).

            Richard F. Ricci argued the cause on behalf of amici
            curiae, Rutgers, The State University of New Jersey,
            Montclair State University, Rowan University,
            Stockton University, The College of New Jersey, and
            New Jersey Institute of Technology (Lowenstein
            Sandler, attorneys; Richard F. Ricci and Zachary L.
            Berliner, on the brief).


          JUSTICE LaVECCHIA delivered the opinion of the Court.


      The issue in this appeal is whether a high-end restaurant operated by a

for-profit entity but housed in a building on the Kean University campus

qualifies for exemption from local property taxation.

      When the restaurant became operational, the operator, Gourmet Dining,

LLC (Gourmet Dining), was named as the taxpayer by Union Township, which

issued a tax assessment on the belief Gourmet Dining had a taxable leasehold

interest. Gourmet Dining contested the assessment, claiming exemption from

taxation under  N.J.S.A. 54:4-3.3 (addressing State and other public property

used for public purposes), and  N.J.S.A. 54:4-3.6 (exempting property of

colleges and other nonprofit organizations), among other bases no longer

pertinent to this appeal. Bolstered by Kean University (the University),


                                       2
Gourmet Dining also advanced public purpose arguments emphasizing the

University’s interest in having the restaurant on its campus. The Tax Court

rejected those arguments, but the Appellate Division found accumulated in

them a basis to permit the exemption.

      In this appeal, we are asked to evaluate whether the assertions by

Gourmet Dining and the University satisfy the statutory standards for

exemption from local property taxation for the operator of the facility. For the

reasons expressed, we reverse the Appellate Division and reinstate the

judgment of the Tax Court, which found the arrangement taxable as a lease or

lease-like interest. We further hold that the public-benefit-oriented exemption

provisions in issue were not intended to exempt the for-profit operator of a

high-end, regionally renowned restaurant situated on a college campus, when

the overriding purpose of this commercial endeavor is focused on

profitmaking. The Tax Court properly held that Gourmet Dining, as the

exclusive operator and manager of this restaurant establishment, must bear its

fair share of the local real property tax burden.

                                        I.

      Certain tax statutes provide the framework for understanding this

dispute.




                                         3
        Under our State Constitution, all real property within New Jersey is

subject to taxation unless it qualifies for a statutory exemption. N.J. Const.

art. VIII, § 1, ¶¶ 1(a) and 2; see also  N.J.S.A. 54:4-1 (“All property real and

personal within the jurisdiction of this State not expressly exempted from

taxation or expressly excluded from the operation of this chapter shall be

subject to taxation annually under this chapter.”).

        The Legislature has created numerous exemptions from local taxation,

and the two that are pertinent to this appeal are found in  N.J.S.A. 54:4-3.3 and

-3.6.

         N.J.S.A. 54:4-3.3 addresses the exemption for public property. It

provides in pertinent part that

              the property of the State of New Jersey; and the
              property of the respective counties and municipalities,
              and their agencies and authorities, school districts, and
              other taxing districts used for public purposes, which
              public purposes include the use for stadiums and
              arenas, or for the preservation or exhibit of historical
              data, records or property; school district property which
              is leased to a nonprofit organization which is exempt
              from taxation under  N.J.S.A. 54:4-3.6, for use by that
              organization in its exempt functions; school district
              property which is leased to another board of education
              or governmental agency; and property acquired by any
              municipality through tax title foreclosure or by deed in
              lieu of foreclosure, if not used for private purpose, shall
              be exempt from taxation under this chapter . . . .

              [N.J.S.A. 54:4-3.3.]

                                          4
       N.J.S.A. 54:4-3.6, in turn, exempts certain property of various non-profit

organizations, including:

            all buildings actually used for colleges, schools,
            academies or seminaries, provided that if any portion of
            such buildings are leased to profit-making
            organizations or otherwise used for purposes which are
            not themselves exempt from taxation, said portion shall
            be subject to taxation and the remaining portion only
            shall be exempt.

      The Legislature has also created limitations on the otherwise exempt

status of property. In that respect,  N.J.S.A. 54:4-2.3 and  N.J.S.A. 54:4-1.10

are relevant in this appeal.

       N.J.S.A. 54:4-2.3 provides that real property entitled to tax exemption

loses its exemption when leased to a person or entity whose property is not

exempt. Under that statute,

            [w]hen real estate exempt from taxation is leased to
            another whose property is not exempt, and the leasing
            of which does not make the real estate taxable, the
            leasehold estate and the appurtenances shall be listed as
            the property of the lessee thereof, or his assignee, and
            assessed as real estate.

            [N.J.S.A. 54:4-2.3.]

      With the subsequent enactment of a related provision, codified at

 N.J.S.A. 54:4-1.10, the Legislature eliminated for tax exemption purposes “the

artificial distinction between leased property and property used under a non-

lease arrangement.” Dep’t of Envtl. Prot. v. Township of Upper Freehold, 31
                                        5 N.J. Tax 230, 240 (Tax 2019) (quoting N.J. Highway Auth. v. Town of

Bloomfield,  8 N.J. Tax 637, 642 (Tax 1987)).  N.J.S.A. 54:4-1.10 provides:

            When real property which is exempt from taxation is
            used by a private party in connection with an activity
            conducted for profit, and the use does not render the
            real property taxable pursuant to section 1 of L. 1949,
            c. 177 ( N.J.S.A. 54:4-2.3) or otherwise, the real
            property shall be assessed and taxed as real property of
            the private party. The private party is subject to
            liability for taxation to the same extent as though he
            owned the property or any portion thereof, unless the
            owner consents to the taxation thereof. For purposes of
            this act, “use” means the right or license, express or
            implied, to possess and enjoy the benefits from any real
            property, whether or not that right or license is actually
            exercised.

Thus, according to New Jersey’s statutory plan addressing tax exemptions for

real property, an arrangement that is not technically a lease but operates as one

is subject to taxation pursuant to  N.J.S.A. 54:4-1.10, just as a leasehold estate

would be subject to taxation under  N.J.S.A. 54:4-2.3. See State v. Eatontown

Borough,  366 N.J. Super. 626, 632-33 (App. Div. 2004) (“[T]ax liability is

imposed on the lessee ( N.J.S.A. 54:4-2.3) or the 'private party’ user of the

premises (N.J.S.A. 54:4-1.10).”).

      We now turn to the circumstances that gave rise to this appeal.




                                        6
                                       II.

                                       A.

      In resolving this matter on a summary judgment basis, the Tax Court

summarized the steps that led to the establishment of the restaurant at the heart

of this dispute. We draw extensively from that explication of the financial and

other arrangements between the parties.

      Gourmet Dining is “a restaurant, food service, dining operator, and

manager,” that, during the tax years in issue, owned and operated a fine dining

restaurant named Ursino (the subject property or the property). Gourmet

Dining, LLC v. Union Township,  30 N.J. Tax 381, 391 (Tax 2018). The

subject property takes up approximately 6.4% of the University’s 110,000

square foot New Jersey Center for Science, Technology, and Mathematics

Building (STM Building).1 Ibid. Construction of that educational facility was

financed through tax-exempt bonds issued by the New Jersey Educational

Facilities Authority (NJEFA), a State “instrumentality[] authorized to borrow

money and issue bonds” to finance construction projects for educational

institutions within the state. Id. at 391-92; see also  N.J.S.A. 18A:72A-3



1
 Kean University is the owner of Block 101, Lot 4.0103 on the tax map of
Union Township, commonly known as 1075 Morris Avenue. See Gourmet
Dining,  30 N.J. Tax at 391. The STM Building is located on that property.

                                        7
(defining “Educational facility” for purposes of meeting the definition of

“project” eligible for NJEFA financing). As this record reveals, the NJEFA

owns the STM Building and leases it to the University pursuant to a Lease

Agreement dated December 1, 2005.2 Gourmet Dining,  30 N.J. Tax at 392.

      On June 28, 2010, the University’s Board of Trustees adopted a

Resolution by which the University determined to grant to the Kean University

Foundation, Inc. 3 (Foundation), the right to launch a restaurant in a portion of

the STM building and to “engage a restauranteur” for the project. Ibid. That

Resolution required that “a minimum of 10 percent of the restaurant’s gross

revenues annually be allocated for scholarship purposes within the

Foundation.” Ibid.

      More than a year later, on October 19, 2011, the University and the

Foundation entered into their contractual arrangement regarding this restaurant

project, executing an agreement (the Management Agreement) granting the

Foundation “the 'exclusive right to operate, manage and control’ the subject


2
  Although the University and NJEFA entered into the Lease Agreement on
December 1, 2005, the University did not transfer title for the land on which
the building is located to the NJEFA until 2015. Gourmet Dining,  30 N.J. Tax
at 392 n.1.
3
  The Foundation is described in the record as “a non-profit, 501(c)(3)
organization that receives, invests and administers private support for Kean
University.” The Foundation also manages and awards scholarships for
students to attend the University.
                                        8
property.” Ibid. The Management Agreement also allowed the Foundation to

subcontract its management rights “to a manager with extensive experience

and expertise in the management and operation of various restaurant and

catering businesses, with [the] University’s written consent.” Ibid.

      On the same day in October 2011, the Foundation and Gourmet Dining

entered into a Management Subcontract Agreement (MSA); notably, the MSA

conferred on Gourmet Dining the exclusive right to operate, manage, and

control Ursino -- the restaurant to be located within the STM Building. Id. at

392-93. Gourmet Dining thus became the exclusive manager of the restaurant,

responsible for all management and operational services. Id. at 393. Gourmet

Dining agreed to pay the Foundation an annual “management fee” of $250,000

per year for nine years and $500,000 in the tenth year. Ibid. Gourmet Dining

also agreed to pay the Foundation 12.5% of Ursino’s gross revenue , designated

as an operations fee to be paid quarterly. Ibid.

      Once outfitted, furnished, and staffed, the restaurant began operation in

late October 2011. In August 2012, Union Township issued a letter notifying

Gourmet Dining that it would receive a tax bill for the Ursino restaurant

facility, citing  N.J.S.A. 54:4-2.3, based on the Township’s view that Gourmet




                                        9
Dining was a lessee.4 Ibid. The assessment was imposed for the last two

months of the 2011 tax year and the entirety of the 2012 tax year. Ibid.

      Gourmet Dining did not challenge those initial assessments. However, it

brought a challenge to the 2013 and 2014 tax assessments before the Union

County Board of Taxation. Id. at 394. After those proved unsuccessful in

securing relief, Gourmet Dining appealed to the Tax Court. Ibid.

      Defendant Union Township filed a summary judgment motion seeking

dismissal of the action, and Gourmet Dining filed a cross-motion for judgment.

Ibid. Thereafter, by order of the Tax Court, the NJEFA and the University

were joined as necessary parties. Ibid.

                                       B.

      In a detailed opinion, the Tax Court granted the Township’s summary

judgment motion and denied Gourmet Dining’s and the University’s cross-

motions. Id. at 391.

      The Tax Court concluded that the subject property falls within the

jurisdiction of  N.J.S.A. 54:4-3.3 because the University is a State

governmental entity and the STM Building constitutes governmental property.


4
  Based on the estimated true market value of the restaurant portion of the
building and applying the Township’s ratio of assessed to true value, the local
property assessment for the 2012 tax year was $300,800. Gourmet Dining,  30 N.J. Tax at 393-94. The land was valued at $50,000 and improvements at
$250,800. Id. at 394.
                                       10 Id. at 402. On the other hand, however, the court noted that “it is undisputed

that Gourmet Dining is a for-profit corporation, and its operation and

management of Ursino are conducted for-profit.” Ibid. The court then

analyzed whether “Gourmet Dining’s use, possession, and occupancy of the

subject property as a restaurant fulfills a statutory purpose afforded to [the

University].” Ibid. Because it concluded that Gourmet Dining had not

established that the subject property is used for a public purpose pursuant to

 N.J.S.A. 54:4-3.3, the court held that Gourmet Dining was not entitled to local

property tax exemption under that provision. Id. at 410.

      The court explained Ursino is a for-profit business that, during the tax

years in issue, did not operate as a dining hall to serve the University’s

ancillary function of providing food to its student body, faculty, or

administrators. Id. at 406-07. As the court put it,

            Gourmet Dining conceded that during the 2013 and
            2014 tax years, Ursino did not participate in, and was
            not part of, any meal plan offered by Kean to its
            students, faculty, or administrators. Additionally,
            Ursino was not identified by Kean’s Office of
            Residence Life as one of the six “dining service
            locations” available to students or other members of the
            Kean community. Significantly, Ursino did not accept
            the students’ “Cougar Dollars” or “Flex Dollars”
            (Kean’s student-dining currencies, which offer flexible
            dining options to students outside of the traditional
            meal plans), or offer discounts to Kean faculty,
            administrators, or students. While none of these factors
            individually are dispositive, they support Union
                                        11
            Township’s assertion that Ursino was no different from
            any other restaurant, bar, or tavern in Union Township.

            [Id. at 403.]

      The court took into consideration the Resolution between the University

and the Foundation, which calls for at least ten percent of the restaurant’s

gross revenues to be annually allocated for student scholarships; however, the

court observed that “the Management Agreement between [the University] and

the Foundation contains no such provision, and imposes no such obligation or

requirement.” Id. at 407. Therefore, while the University may have initially

expressed an intent to fund scholarships with proceeds from the restauran t, the

court did not find that intent “manifested in any contractual provision under

either the MSA or the Management Agreement.” Ibid.

      More fundamentally, the court was not persuaded that tax exemption

under  N.J.S.A. 54:4-3.3 was envisioned for a private, for-profit entity “simply

because part of its gross revenue stream is remitted to a public entity and then

allegedly allocated to further the public entity’s purpose.” Ibid.

      To the extent that Gourmet Dining and the University claimed that a

public purpose was met because it was the University’s decision to have a

renowned, high-end eating establishment on campus to raise the public profile

of the institution, the court rejected the argument. Id. at 408. The court did

not agree that finding the University’s decision an inadequate predicate for a
                                       12
tax exemption was tantamount to “interfering with the policy-making and

administrative purposes of [a] college.” Ibid. (alteration in original). The

court stressed that it was not evaluating the validity of the University’s internal

or administrative processes but was simply determining whether the operation

of a for-profit restaurant met the public purpose test for tax exemption

purposes. Ibid.

      The court also rejected a bevy of arguments advanced to show that the

relationship between the Ursino restaurant and the University supported the

finding of a public purpose to support tax exemption. The court rejected the

claim that a public function is served because Ursino employs students, id. at

408-09, noting that to allow a for-profit business a tax exemption merely for

employing students “would eviscerate the current system of local property tax

assessments and exemptions,” id. at 409. The court also rejected the argument

that the restaurant’s provision of compostable material to the University and

purchase of some produce from a University-operated farm constitute use of

the property for a public purpose. Id. at 409-10. The court described this

asserted environmental stewardship program as “at best an indirect benefit of

arms-length transactions between Gourmet Dining and [the University] for

services necessary for the operation of Ursino.” Ibid.




                                        13
      The Tax Court also addressed the application of  N.J.S.A. 54:4-3.6 and

concluded that Gourmet Dining failed to demonstrate that its “actual use of the

subject property constituted a use for 'colleges, schools, academies or

seminaries.’” Id. at 413. The court was unconvinced that this profit-making

arrangement met the intendment of that statute, noting that the intent behind

operating the restaurant is to generate profit, which generates revenue for

Gourmet Dining. Id. at 412. According to the court, “[i]f profit comprises the

revenue that remains after all expenses of Ursino’s operations are paid,

[including the fees it is required to pay the Foundation,] then it must be said

that, here, all profit belongs to Gourmet Dining.” Id. at 413. Therefore, the

court held that Gourmet Dining was not entitled to tax exemption pursuant to

 N.J.S.A. 54:4-3.6.5 Ibid.

      According to the Tax Court, Gourmet Dining has in essence a leasehold

interest in the subject property, and as such, the property is subject to taxation

under  N.J.S.A. 54:4-2.3. Id. at 424. The court reasoned that the “rights,


5
  The Tax Court also rejected an argument that Gourmet Dining is entitled to
tax exemption pursuant to  N.J.S.A. 18A:72A-18 as an agent of the NJEFA.
Gourmet Dining,  30 N.J. Tax at 420. The court reasoned that the University
and the Foundation are not agents of the NJEFA, and, therefore do not qualify
for an exemption under that provision, which affords an exemption to a
“project or any property . . . used by the authority or its agent.” Ibid.
(omission in original) (quoting  N.J.S.A. 18A:72A-18). This argument is not
advanced before our Court.

                                        14
powers, and obligations conferred on the parties” through the MSA

demonstrate that that agreement -- even if not denominated a lease by the

parties -- is “a lease for legal purposes.” Ibid. The court further held that

“because Gourmet Dining’s use of the subject property failed to satisfy the

necessary public purpose requirements, its use of the subject property is

subject to taxation under N.J.S.A. 54:4-1.10.” Id. at 425-26. In sum, the court

found that the relevant “statutes do not sanction the grant of tax exemptions

where tax-exempt property is leased by public institutions to private entities

for a commercial, profit-generating purpose that is unrelated to the

institution’s tax-exempt mission.” Id. at 425.

      The Tax Court thereafter denied a motion for reconsideration that

focused on the court’s finding that the University and Gourmet Dining were

not agents of the NJEFA.

                                        C.

      An appeal was taken, and the Appellate Division reversed the Tax

Court’s judgment. Gourmet Dining, LLC v. Union Township,  459 N.J. Super.
 323, 327 (App. Div. 2019).

      The Appellate Division determined that the subject property was exempt

under  N.J.S.A. 54:4-3.3, stating “when all of the relationships between the

restaurant and the University are considered, they warrant the conclusion that

                                        15
the subject property is being used for a public purpose.” Id. at 335. The

Appellate Division relied on a holistic view of the following facts in reaching

its determination, while conceding that no single one standing alone would

demonstrate a public purpose: the restaurant is located on-campus; University

students and their parents regularly dine at the restaurant; the restaurant

provides students and members of the University community “an alternative

dining experience”; Gourmet Dining’s annual management fees are used for

University scholarships; the University’s Board determined “that having a

critically acclaimed, upscale restaurant on campus enhances the public’s

perception of the University as a forward-looking institution, and thereby

serves as an important recruiting tool”; many of the restaurant’s employees are

students; and the restaurant uses produce grown on the University grounds and

“will provide compostable waste for the University’s science program, where

it will be used for research by faculty and students.” Id. at 334-35.

      For similar reasons, the Appellate Division also concluded that Gourmet

Dining was not subject to local taxation for the restaurant under  N.J.S.A. 54:4-

3.6. Id. at 338. And the panel rejected the Tax Court’s conclusion that

Gourmet Dining is “the 'functional’ equivalent” of a lessee of the subject

property, reasoning that the provision in the MSA between the Foundation and

Gourmet Dining for payment of annual management fees and not rent

                                        16
demonstrates “that the parties intended the agreement to be one for the

management and operation of the restaurant, rather than a lease of the

property.” 6 Id. at 337.

      The Township filed a petition for certification from the Appellate

Division’s judgment, which we granted.  239 N.J. 521 (2019). We also

granted amicus curiae status to a joint group of public institutions of higher

education that includes Rutgers, The State University of New Jersey;

Montclair State University; Rowan University; Stockton University; The

College of New Jersey; and New Jersey Institute of Technology.

                                        III.

      The Township argues that the Tax Court properly applied the tax

exemption statutes in concluding that the subject property is not exempt and

that the Appellate Division erred in stretching the statutes to apply in these

circumstances, while ignoring  N.J.S.A. 54:4-1.10. The Township emphasizes

that this property is being used to generate profit for a private entity and

asserts that the University’s belief that having an “upscale” and “critically-




6
  The Appellate Division agreed with the Tax Court that there was no agency
relationship between Gourmet Dining and the NJEFA and that the subject
property is therefore not exempt from local property taxation under  N.J.S.A.
18A:72A-18. Gourmet Dining,  459 N.J. Super. at 338-39. That issue is not
pursued before our Court.
                                      17
acclaimed” restaurant on campus will enhance its image does not transform

this for-profit restaurant into a public use.

      Gourmet Dining and the University contend that the concept of “public

purpose” is broad and dynamic and that tax exemptions for state property are

liberally construed. In arguing for affirmance of the Appellate Division’s

judgment, they contend that the subject property’s use falls within the

University’s broad statutory authority and constitutes a public purpose,

regardless of whether the property is operated by a for-profit entity.

      Gourmet Dining and the University also continue to maintain that the

MSA is not a lease or the functional equivalent of a lease. Moreover, they

claim neither  N.J.S.A. 54:4-2.3 nor  N.J.S.A. 54:4-1.10 applies when the

property is utilized for the purpose of the exempt entity.

      Amici support Gourmet Dining and the University on their public

purpose arguments and also highlight that the plain language and punctuation

of  N.J.S.A. 54:4-3.3 supports their argument that State property, such as that

held by the University, is exempt from local property taxation “regardless of

its purpose or use.” They point to the semicolon after the first clause, which

concludes with the words “New Jersey,” and contend that that punctuation




                                         18
signifies that the “public purpose” modifier later in the provision applies only

to the later clauses. 7

                                        IV.

       We begin with the constitutional directive that all real property is subject

to local property taxation unless its use has been legislatively exempted. N.J.

Const. art. VIII, § 1, ¶¶ 1, 2. As observed by Chief Justice Vanderbilt,

government needs taxes to function and “[a]ny impairment of the taxing power

affects the lifeblood of government.” N.J. Tpk. Auth. v. Washington

Township,  16 N.J. 38, 44 (1954). That is especially true for local

governments, which are particularly dependent on tax revenue. Borough of

Moonachie v. Port of N.Y. Auth.,  38 N.J. 414, 423 (1962).

       The Constitution’s authorization for the legislative creation of tax

exemptions contains some restrictions. Township of Holmdel v. N.J. Highway

Auth.,  190 N.J. 74, 87 (2007) (citing Robert F. Williams, The New Jersey

State Constitution 109-15 (1997)). Exemptions may be granted only through

“general laws.” N.J. Const. art. VIII, § 1, ¶ 2; see N.J. Const. art. IV, § 7, ¶

9(6) (prohibiting special laws on taxation). And our case law recognizes that



7
  This argument was advanced by Gourmet Dining and the University in their
brief to the Appellate Division; however, the court did not address it, going
directly to the public purpose debate and ruling in favor of Gourmet Dining
and the University on that basis.
                                       19
the exemption must be based on the property’s use, not on the property

owner’s identity. Township of Holmdel,  190 N.J. at 87. Within those

constrictions, the Legislature has created and refined laws allowing for

exemption of certain property from local taxation. Several such laws are the

focus of this appeal.

      When courts are called on to interpret tax exemption statutes, the general

standards for statutory interpretation are followed. Ibid. (citing Walter Reade,

Inc. v. Dennis,  36 N.J. 435, 440 (1962)). The paramount goal is to discern and

implement legislative intent. See DiProspero v. Penn,  183 N.J. 477, 492

(2005). In performing that task, we also adhere to the longstanding principle

that tax exemption statutes in favor of nongovernmental actors are subject to

strict construction. See, e.g., Int’l Sch. Servs., Inc. v. West Windsor

Township,  207 N.J. 3, 15 (2011); Highway Auth.,  190 N.J. at 88. And, that it

is the burden of the party seeking the exemption to prove that the bases for it

are established. Int’l Sch. Servs.,  207 N.J. at 15. Public policy calls for the

public tax burden “to be borne fairly and equitably.” Ibid.

      As this matter comes on appeal from summary judgment, that standard

guides this appeal. See R. 4:46-2; Brill v. Guardian Life Ins. Co. of Am.,  142 N.J. 520, 540 (1995). We turn, necessarily, to the application of the tax

exemption statutes to Gourmet Dining.

                                        20
                                          V.

        One of Gourmet Dining’s claims for tax exemption relies on  N.J.S.A.

54:4-3.3, which provides that

              the property of the State of New Jersey; and the
              property of the respective counties and municipalities,
              and their agencies and authorities, school districts, and
              other taxing districts used for public purposes . . . shall
              be exempt from taxation under this chapter . . . .

Both the Tax Court and the Appellate Division recognized that, whether the

underlying real estate was viewed as owned by the NJEFA or the University,

the subject property is on State property and, as such, “falls within the purview

of N.J.S.A. 54:4-3.3.” Gourmet Dining,  459 N.J. Super. at 332. The two

courts differed on whether Gourmet Dining, bolstered by the University,

satisfactorily demonstrated that the property was used for a public purpose.

Ibid.

        Before reviewing the competing arguments on public purpose in these

circumstances, we dispense with a legal argument that demonstration of a

“public purpose” is unnecessary here.

                                          A.

        The contention is that  N.J.S.A. 54:4-3.3 makes the consideration of

public purpose an irrelevant consideration for tax-exemption purposes because

Ursino is located on State property. To support that proposition, Gourmet

                                          21
Dining and the University, in their briefing to the Appellate Division,

amplified by amici, rely on the text and punctuation of the first quoted clause

of the statutory provision.

      As the argument goes, the semi-colon after “New Jersey” precludes

application of the second clause’s modifier about property being required to be

used for public purposes for exemption to be triggered. While the punctuation

reading has superficial attraction, the argument fails when considered in its

larger context.

      All property of the State is subject to use for public purposes by virtue of

the State Constitution’s prohibition against the donation of state property for

private interests. See N.J. Const. art. VIII, § 3, ¶ 3. Public property is to be

used for public purposes and, to cement that obligation, the Constitution

mandates that “[n]o donation of land or appropriation of money shall be made

by the State or any county or municipal corporation to or for the use of any

society, association or corporation whatever.” Ibid. The “provision was added

to the Constitution when it was amended in 1875 because of 'a number of

abusive practices that occurred during the nineteenth century when railroads

and other private corporations were provided direct public assistance to the

serious detriment of the taxpayers under the guise of “encouraging

development.”’” State Bar Ass’n v. State,  382 N.J. Super. 284, 318 (Ch. Div.

                                        22
2005) (quoting Davidson Bros., Inc. v. D. Katz & Sons, Inc.,  121 N.J. 196, 217

(1990) (quoting, in turn, Roe v. Kervick,  42 N.J. 191, 212 (1964))). Based

upon that provision, this Court recognizes as a “fundamental doctrine” that the

State is prohibited from lending, “directly or indirectly, or loaning, giving or

donating its money or property or that of its subdivisions to or for the use of an

individual, association or corporation for private purposes.” Roe,  42 N.J. at
 207 (emphasis added).

      The seminal case of Roe articulated what passes for a public purpose: a

public purpose is “an activity which serves as a benefit to the community as a

whole, and which, at the same time is directly related to the functions of

government.” Ibid. In Roe, our Court established a two-part test for

determining whether a donation to a private entity violates the Constitution

because it does not serve a public purpose. Ibid.; Bryant v. City of Atlantic

City,  309 N.J. Super. 596, 612 (App. Div. 1998); State Bar Ass’n,  382 N.J.

Super. at 318. Stated simply, a court must first determine whether the

provision of land or financial aid is for a public purpose, and second, whether

the means to accomplish that public purpose are consonant with it. Bryant,

 309 N.J. Super. at 612 (citing Roe,  42 N.J. at 212). The latter examination is

understood as having two parts: “whether the transaction is contractual and

involves some obligation on the part of the private entity that is intimately tied

                                        23
to fulfilling the public purpose[, and] whether the accomplishment of the

public purpose is the paramount factor in the contract with any private

advantage being merely incidental or subordinate.” State Bar Ass’n,  382 N.J.

Super. at 318 (emphasis added).

      An obligation of public purpose use already exists for State property.

The argument that no public purpose examination is required under  N.J.S.A.

54:4-3.3 for State land under any circumstance flies in the face of the

fundamental doctrine recognized in Roe. The public purpose requirement is

carried forward when public property is turned over to private hands,

otherwise the State risks a Donation Clause violation. There was no need to

mention the requirement in section 3.3’s first clause.

      This textual argument that no public purpose showing is necessary,

which the Appellate Division did not address,8 is unpersuasive when viewed in

the larger picture, and it fails to assist in the question before the Court for this,

and a second, reason.

      The amici who emphasized this argument conceded, during oral

argument, that the point was inconclusive because if State property is leased,



8
  Indeed, we note that in addressing what the statute means when it imposed a
standard of “used for public purposes,” the Appellate Division here adverted to
the same Roe standard in connection with its public purpose assessment.
Gourmet Dining,  459 N.J. Super. at 331.
                                      24
or similarly allowed to be used by a private party, that triggers an analysis

under  N.J.S.A. 54:4-2.3 or -1.10. Thus, a public purpose assessment would

remain integral to the determination of whether tax exemption would apply. If

the public purpose test is not satisfied, the user of the property is taxed, as

provided by either of those statutes, not the State.

      We return then to the public purpose debate in this matter.

                                         B.

                                         1.

      Both the Tax Court and Appellate Division assessed the various bases

advanced by Gourmet Dining and the University to support their argument that

operation of Ursino serves a public purpose: (1) the restaurant is a pu blic

dining establishment that may be used by University students, their families,

faculty and administrators; (2) a portion of gross revenue from the restaurant’s

operations are paid to the Foundation, which will provide scholarships to

students; (3) the acclaimed restaurant raises the University’s profile; (4) the

restaurant employs students; and (5) the restaurant has an arrangement,

presumed by the Tax Court to be an arms-length transaction in the absence of

any countervailing showing, that involves its use of some produce grown on a

farm owned by the University and its provision of compostable waste to the




                                        25
University, thus promoting the University’s mission of environmental

stewardship.

      The Tax Court rejected those bases in finding that a public purpose was

not sufficiently supported on this record because, after engaging in detailed

comparisons of each proffered reason to factual settings and holding of prior

cases, all came up short. Gourmet Dining,  30 N.J. Tax at 403-10. The

Appellate Division then examined those considerations and rightfully

acknowledged that none individually met the “used for public purposes” test

that has been deployed in tax exemption cases before and which traces back to

Roe. Gourmet Dining,  459 N.J. Super. at 331-35.

      However, the Appellate Division found that, in considering the sum of

those factors, an overall public purpose is demonstrated. Id. at 335. In its

assessment, the court expressed the view that it is incumbent on courts not to

substitute their judgment for that of the University Board when it determined

that the best interests of the University were advanced by having a “critically

acclaimed, upscale restaurant on campus [to] enhance[] the public’s perception

of the University as a forward-looking institution,” which enhanced recruiting

of students and faculty. Ibid. The Appellate Division found persuasive the

fact that the University considered its STM Building a visual landmark and

that the restaurant housed in it would enhance the University’s public profile.

                                       26
The court also noted that the renowned, upscale restaurant would generate a

stream of income for scholarships. And, although the restaurant is not

associated with any meal plan or dining arrangement with the University, the

Appellate Division also took into account that students take advantage of the

restaurant’s lower cost bar fare, that parents patronize it, and that the

restaurant employed many students and helped promote the University’s

environmental stewardship mission.

      In our view, the Appellate Division’s approach was mistaken.

                                         2.

      Roe instructs that the accomplishment of the public purpose must be the

paramount factor in an arrangement with a private entity’s use of public

property. For a tax exemption to apply, any private advantage must be

incidental or subordinate. Here that is not so.

      The commercial success of this competitive high-end restaurant located

on the University’s campus is the paramount factor in this arrangement.

Providing food services for students, or even faculty or administrators, was not

its key purpose. Indeed, having this eating establishment was not even

promoted as a form of convenience for students and researchers at the STM

Building, or the University generally. Cf. Blair Acad. v. Blairstown

Township,  95 N.J. Super. 583, 590 (App. Div. 1967) (“The use of a catering

                                        27
system to feed the students and faculty of this boarding school cannot be

regarded as a commercial activity or business venture of the school[;] . . . [i]t

has been found expedient by the management of the school to have such a

private caterer, in lieu of providing its own personnel to furnish this necessary

service.”). Had the running of this restaurant been tied to the University’s

provision of dining services in some fashion (other than the happenstance of

students patronizing the venue on occasion, as might any member of the

public), then a better argument might have been advanced. But that is not the

record presented for the contested tax years.

      For the University, Ursino’s commercial success would spin off

incidental benefits, such as employment opportunities for students. Obviously,

that is a positive side effect -- but not one required by the contractual

arrangement. The University’s greater emphasis on the importance of the

restaurant’s acclaim in providing positive notoriety -- a form of visual

branding as the Township would describe it -- does not fulfill a public purpose.

The University is not running a culinary institute. And the restaurant’s

generation of certain revenue, some percentage of which the Foundation used

for scholarships, does not make an otherwise nonexempt purpose a public

purpose.




                                         28
      Finally, there is no doubt that Title 18A gives to public universities wide

latitude in the determination, delivery, and operation of their educational

programs and institutions. See  N.J.S.A. 18A:64-2. But that does not answer

the question whether a public purpose for tax exemption purposes is present.

      We are not asked to judge whether the University exceeded its statutory

authority in deciding to house a commercial restaurant in its NJEFA-funded

educational facility. See  N.J.S.A. 18A:72A-3 (defining “Project” and

“Educational facility”). We are determining whether the legislative purpose in

crafting the exemption from local taxation in  N.J.S.A. 54:4-3.3 anticipated the

circumstances here -- the University contracting out the establishment and

operation of an upscale for-profit commercial restaurant to compete with other

local commercial restaurants that pay their fair share of local property taxes.

To the extent that it did, the Legislature did not signal that a public purpose

exception would apply. Rather, it provided for the taxation of leases,

functional leases, and users of exempt public property for nonexempt purposes

under  N.J.S.A. 54:4-2.3 and -1.10.

      In our judgment, the Tax Court’s analysis properly examined the

arguments advanced for tax exemption under  N.J.S.A. 54:4-3.3 and found

them lacking. We agree and hold that Gourmet Dining’s interest in the subject

property is not tax exempt under that provision.

                                        29
                                        C.

      The Township assessed Gourmet Dining on its belief that it was a lessee

of the University’s otherwise exempt public property. Gourmet Dining claims

it is merely a manager and operator of the restaurant facility, not a tenant or

lessee.

      The Tax Court held that the contractual arrangement between Gourmet

Dining and the Foundation through the MSA rendered Gourmet Dining’s

interest subject to taxation, whether viewed under  N.J.S.A. 54:4-2.3 as the

functional equivalent of a lease 9 or under  N.J.S.A. 54:4-1.10.

      Because  N.J.S.A. 54:4-1.10 so clearly intends to cover user

arrangements such as these, whether or not capable of being denoted as the

functional equivalent of a lease, we rely on the Tax Court’s analysis of that

statute’s applicability here. Having already concluded that Gourmet Dining’s

use, operation, and management of Ursino failed the public purpose test, we

hold that it is taxable under  N.J.S.A. 54:4-1.10, as the Tax Court rightly held.




9
  The Tax Court found that the MSA satisfied the requirements of a lease in
being a contract, for a defined property, that delineates a set term (ten years),
and which requires Gourmet Dining to pay a fixed annual fee. Gourmet
Dining,  30 N.J. Tax at 422. On the final point of whether Gourmet Dining has
the right to exclusively occupy the subject property, the court found that the
MSA conferred the functional equivalent of exclusive use, enjoyment, and
possession. Ibid.
                                       30
      In concluding on this issue, we add that, in our view, legislative intent

seems clear. By enacting the loophole-closing provision of  N.J.S.A. 54:4-

1.10, the Legislature indicated that it did not wish for the public at large to

underwrite the local tax obligation of the private operator of a for-profit

commercial establishment on public property. See Eatontown Borough,  366 N.J. Super. at 633. Application of that intent leads to the conclusion that this

for-profit commercial dining establishment on public property, which is not

tied to providing dining hall or other student-oriented convenient sustenance,

is liable to local taxing authority for the assessment of its interest in the subject

property. Our holding does not affect taxation of the public entity.

                                         VI.

      To the extent that Gourmet Dining and the University also advance a

claim for tax exemption based on  N.J.S.A. 54:4-3.6, the preceding analyses

foreshadow our conclusion.

      To be eligible for exemption under that provision, property must be

actually used for the tax-exempt purpose, the provision allowing for

apportionment of space based on eligibility for exemption. In relevant part,

the exemption is for

             all buildings actually used for colleges . . . provided that
             if any portion of such buildings are leased to profit-
             making organizations or otherwise used for purposes
             which are not themselves exempt from taxation, said
                                         31
             portion shall be subject to taxation and the remaining
             portion only shall be exempt.

             [N.J.S.A. 54:4-3.6.]

      Gourmet Dining is a for-profit entity, and the restaurant, as contemplated

by the MSA, is intended to make a profit. Gourmet Dining receives the gross

revenue and, from that, it pays operating expenses, which notably expressly

reference payment of local taxes. The MSA also calls for payment of the fixed

fee and operations fee to the Foundation. As the Tax Court reasoned, the

profit, after all expenses are paid, goes to Gourmet Dining. Thus, Gourmet

Dining’s use of the subject property does not constitute a use for the “college”

but rather for itself.

      The Appellate Division reversed that compelling reasoning based on its

contrary view that public purpose had been demonstrated in these

circumstances. Because we have rejected that conclusion and find that a

public purpose has not been demonstrated, we reverse the Appellate Division

judgment as to N.J.S.A. 54:4-3.6’s application.

                                      VII.

      The application of the State’s tax exemption statutes calls for fact-

sensitive assessments in each circumstance, which we are satisfied was done

carefully, thoroughly, and persuasively by the Tax Court. Based on our review

of the circumstances presented herein, we agree with the Tax Court’s
                                       32
conclusions and accordingly reverse the judgment of the Appellate Division.

We reinstate the judgment of the Tax Court that the subject property is not tax

exempt under either  N.J.S.A. 54:4-3.3 or -3.6 and that it is subject to taxation

under  N.J.S.A. 54:4-1.10.



     CHIEF JUSTICE RABNER and JUSTICES ALBIN, PATTERSON,
FERNANDEZ-VINA, and SOLOMON join in JUSTICE LaVECCHIA’s opinion.
JUSTICE TIMPONE did not participate.




                                       33