The Tax Man Cometh: Residents Go After Princeton’s Nonprofit Status

Princeton University campus (Commons).

Princeton University campus (Commons).

A handful of Princeton, New Jersey, residents filed a lawsuit against the university, claiming that the school’s income from royalties and commercial ventures makes it ineligible for its tax exempt status and that the university should pay its fair share.

“Under the law in New Jersey, if a nonprofit gives out profits, it is not entitled to an exemption at all,” Bruce Afran, a lawyer representing the plaintiffs, said to The Times of Trenton.

The suit argues that the Ivy League school’s commercial activities, such as performances at the McCarter Theatre, the retail food outlets at Frist Campus Center and the health services at McCosh Health Center, make it a business like any other. The school also made $127 million in patent licensing profits last year and has distributed $118.5 million in royalty profits to faculty since 2005.

“People in Princeton pay at least one-third more in taxes because the university has been exempt all of these years,” Lawyer Bruce Afran told The Times of Trenton. If all of the university’s land was taxed, the school’s annual property tax bill would be roughly $28 million, according to Princeton Borough Councilman Kevin Wilkes.

The school is also one of the richest in the nation, with a fiscal endowment of $16.9 billion, according to the National Association of College and University Business Officers-Common fund survey, while the average university has just $313.2 million

Princeton is determined to fight the lawsuit, asking a judge to dismiss the case last Thursday, but the court decided to proceed.

“[Princeton’s] exempt properties are properties that support [its] educational mission. We have every confidence that the court will uphold our tax exemption,” University spokesman Martin A. Mbugua insisted to the Huffington Post.

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.

Mr. Durkee added that the university paid $7.7 million to the town of Princeton last year, plus a $2.48 million voluntary contribution.