Princeton's Tax-Exempt Status Challenged By Neighbors' Lawsuit

Princeton University makes income from royalties and commercial ventures, so it should lose tax-exempt status, according to a lawsuit filed against the Ivy League school by neighboring residents. New Jersey Tax Judge Vito Bianco on Thursday ruled the suit could proceed, rejecting an attempt by the Princeton, N.J.-based university to dismiss it, The Times of Trenton reports.

The suit, filed by a handful of Princeton Borough residents represented by public interest lawyer Bruce Afran, says university properties host extensive commercial activities, including performances at the McCarter Theatre, retail food outlets at Frist Campus Center and health services at McCosh Health Center.

“In 2011, Princeton University received $118 million in patent royalties and distributed $30 million from the profits to faculty members,” Afran told Planet Princeton, an online local news site. "Under the law they are not even entitled to a tax exemption because they are engaged in commercial patent licensing, and the school give out a percentage of profits to faculty. Under the law in New Jersey, if a nonprofit gives out profits, it is not entitled to an exemption at all."

The university collected $127 million in FY 2012 from patent licensing, according to Princeton's annual research report, up from $115 million the year before. The institution has distributed $118.5 million in royalty profit to faculty since 2005, including $35 million in 2011 alone. In addition, the school collects about $250 million annually in federal research dollars.

University spokesman Martin A. Mbugua said the school welcomes the opportunity to address the issue in court.

"Princeton University’s mission is to serve the public good through programs of teaching and research, and the purpose of tax exemption is to allow the university to devote its resources to this mission, as we do," Mbugua told The Huffington Post in an email. "Our exempt properties are properties that support our educational mission. We have every confidence that the court will uphold our tax exemption."

Princeton is the fifth-richest U.S. college, according to the National Association of College and University Business Officers-Commonfund survey, with a fiscal 2012 endowment valued at $16.9 billion. The average U.S. college endowment was roughly $313.2 million.

If all the university's land was taxed, the school's annual property tax billwould be roughly $28 million, Princeton Borough Councilman Kevin Wilkes said in 2010.

Princeton Vice President Bob Durkee told The Times of Trenton that the university complies with the Bayh–Dole Act, which allows nonprofits to share ownership of intellectual property. He noted the university paid $7.7 million to the town of Princeton last year, plus a $2.48 million voluntary contribution.

Brown University makes similar voluntary payments to its hometown of Providence, R.I. The Ivy League university -- the town's largest employer -- agreed last year to pay Providence an additional $31.5 million over the next 11 years to help the town's financial woes.

City leaders elsewhere are pressuring universities to chip in more as state and local governments have struggled to balance their budgets.

Afran said this lawsuit against Princeton -- "one of the wealthiest entities of humankind" -- is the first of its type.

"This could completely revamp the tax structure,” Afran told The Times of Trenton. "People in Princeton pay at least one-third more in taxes because the university has been exempt all of these years."