August 12, 2019Client Alert

Gourmet Dining: Not A Typical Tax-Exempt Use

The Ursino Steakhouse and Tavern in Union, New Jersey is an upscale restaurant serving prime steaks, lobster bisque, and an entire wine room full of spectacular selections. The New Jersey Court of Appeals recently held that the Restaurant is also completely exempt from local property taxes. See Gourmet Dining, LLC v. Union Twp., 2019 N.J. Super. LEXIS 75, 2019 WL 2306701. The ruling, however, is unlikely to affect the price of its petite filet mignon.

The operator of the Ursino Steakhouse was able to convince an appellate court of its tax-exempt status because it is located on the campus of Kean University, a public university in Union Township, New Jersey, and within a recently constructed new building housing the University’s qualified science and mathematics teachers and researchers. The Restaurant is operated by Gourmet Dining, LLC under a 10-year management agreement with the University requiring a $250,000 payment by Gourmet Dining to the University annually and $500,000 in the tenth year.

Originally, the Township and the New Jersey Tax Court denied an exemption for the Restaurant on the grounds that the Steakhouse was not used for “public purposes,” as required for exempt status under the New Jersey Statutes. See Gourmet Dining, LLC v. Union Township, 30 N.J. Tax 381 (Tax Ct. 2018). The Tax Court concluded that the Restaurant was used for private purposes as a high-end restaurant and not for the public purposes of the University. The New Jersey Appellate Division disagreed, concluding that the Tax Court had taken too narrow a view of the facts and held that the Restaurant should be exempt because it is located on the campus of a public university, it serves the students and parents of students, and it is used by the University as an important recruiting tool for both students and faculty. The appellate court was also persuaded by the fact that some of the revenue from the Restaurant went to scholarships and approximately 85% of the Restaurant’s employees were University students.

Although this decision is not controlling in Wisconsin, Illinois, or any state outside New Jersey, the decision is encouraging for colleges and universities because it takes a broad, realistic view of how a modern university operates, and rejects the idea that a university has abandoned its public purpose simply because it determines that a seemingly nontraditional facility such as an upscale restaurant happens to serve and advance the university’s specific goals and objectives.

Michael Best can help your business or institution create a structure to best enable it to achieve any possible tax exempt status or lower its property tax valuation. For more information contact Nick Boerke or Robert Gordon.

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