Appellate court rules against Cottage Club in tax lawsuit

Cottage Club's nine-year battle for tax-exempt status as a historical landmark received another setback this summer when the appellate division of the New Jersey Superior Court upheld a denial by state officials of the club's request to be exempted from paying local property taxes.

The club, which contended that its historical standing merits tax-exempt status, is open to the public several days per year for historic tours and has been fighting for tax-exemption for nearly a decade. However, the court ruled that Cottage should continue to pay taxes because it is not open to the public for 96 days out of the year - the standard for tax exemption as a historic site imposed by the most recent statutes governing the issue. Attorneys for the eating club argued that the continued denial of tax-exemption by the state was unjust because the more stringent 96-day requirement was imposed only after a 2007 New Jersey Supreme Court decision reversed an earlier appellate court ruling, granting tax-exempt status to Cottage under rules that were then more lenient.

Throughout the legal battle, Princeton Borough has expressed strong opposition to Cottage's request because of the loss in income that would result if the club was designated as a tax-exempt landmark. Town officials have argued that granting tax exemption to Cottage would be contrary to the spirit of the historic provision in the tax code and would effectively amount to town residents subsidizing a private dining facility.

"The court ruling is very helpful to the Borough finances because, had we lost, the Borough would have had to come up with $600,000 of taxpayer money, which we can ill-afford," Borough Councilman Roger Martindell said after the decision. "We're relieved of a potential $600,000 obligation and we're happy about the results."

Built in 1906, Cottage was added to both the New Jersey Register of Historic Places and the National Historic Register of Historic Places in 1999 due to the "architectural structure of the building, high degree of historic integrity, and significant cultural contributions to the community," according to the club's website. Among the club's notable architectural features is its wood-paneled library, a replica of the fourteenth-century library in Oxford University's Merton College and the place where Cottage member F. Scott Fitzgerald '17 began his novel "This Side of Paradise."

According to Martindell, Cottage's intermittent touring schedule - which includes 12 tour dates during the 2010-11 academic year - does not provide enough of a benefit to the community to offset the loss in revenue.

"I can't imagine that there were very many people in the Princeton Borough who were dying to tour Cottage Club on a regular basis," he said. "I'm sure, as with many other structures in Princeton, there is historical value in some of its features. But the historical value should not provide a guise for the institution to seek a free ride at public expense of its tax obligations."

Councilman Andrew Koontz said his main concern was that property tax exemption was geared at organizations which exhibited a "compelling public interest," such as hospitals, museums and educational institutions. "If the intent of that [law] was broadened to such an extent, an historic land to mean eating club, it was being stretched too broadly," he explained.

Koontz noted in an area like Princeton, which contains many historic sites such as homes inhabited by both President Woodrow Wilson and President Grover Cleveland, it is especially important to limit the broad application of tax-exemption laws which would inflict "a very serious impact on the property taxpayers of Princeton Borough" by taking up to 50 percent of local properties off the tax rolls.

"If Cottage Club wants to turn itself into a museum and be open to the public ... it's their choice to change their operations," Koontz added. "I have no question that what they were trying to do was subvert the intention of the legislation and get themselves off the tax roll without merit."

Cottage first filed for tax-exemption under that status in 2001 after it began offering occasional tours of its mansion to the public. At the time, the law required historic sites seeking tax exemption to be open to the public for 12 days per year. Cottage met the 12-day requirement, but its request was nonetheless denied in 2003 by the New Jersey Department of Environmental Protection, the state entity that, at the time, had the authority to consider tax-exemption petitions. The DEP cited the club's inaccessibility to the public as its grounds for refusal.

In 2004, state assemblyman Reed Gusciora (D) introduced legislation nicknamed the "Cottage Bill" after the club decided to appeal the DEP's decision. The law extended the public access requirement for tax exemption from 12 to 96 days and was strongly backed by the Borough, which stood to lose hundreds of thousands of dollars in revenue if Cottage were exempted from paying its taxes. Assemblyman Gusciora did not respond to a request for comment.

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On appeal, however, the Supreme Court ruled in 2007 that the new law did not clearly state the date on which it became enforceable and could not be applied to Cottage since its application for tax-exemption was then years-old. The court remanded the application to the DEP and granted Cottage its requested exemption, which meant that the Borough would owe Cottage more than $300,000 in property taxes paid by the club since it applied for certification in 2001.

Yet, just three weeks after the ruling, a new law was introduced in the state legislature that clarified the intent of the 2004 "Cottage Bill" and applied it to all sites designated as historic after July 1, 1999 - including Cottage. According to the 2004 amendments, only two property owners out of the more than 35,000 designated historic sites in the state applied for tax exemption after that date. The amendments also shifted jurisdiction over granting tax exemptions from the DEP to the Division of Taxation.

Neither Cottage president Chris Della Porta '11, Cottage graduate board chair Carlos Ferrer '76 nor Cottage attorney Thomas Olson responded to requests for comment. It is unclear whether Cottage intends to continue to pursue the legal battle.

Princeton Tower Club is currently the only eating club with tax-exempt status, which was granted in 1972 when the club argued that it provided space on its premises for University functions like precepts and seminars.