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NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE
TAX COURT COMMITTEE ON OPINIONS
TAX COURT OF NEW JERSEY
DOCKET NO. 004829-93
Morris County Municipal Utility :
Authority
:
Plaintiff, :
v. :
Morris Township :
:
Defendant, :
Decided: April 26, 1994
Susan A. Feeney, Esq. for plaintiff (McCarter
& English, attorneys).
John M. Mills, III, Esq. for defendant (Mills
& Mills, attorneys).
LASSER, P.J.T.C.
Morris County Municipal Utility Authority (MUA) seeks
exemption from 1993 local property tax for a 671.21 acre parcel of
land on Washington Valley Road in Morris Township, shown on the tax
map as Block 313, Lot 1, on the ground that it is property of a
municipal utilities authority exempt from local property tax
pursuant to N.J.S.A. 40:14B-63. The subject property is assessed
as property used for the purpose and for the protection of the
public water supply under N.J.S.A. 54:4-3.3.
The 1993 local property tax assessment in issue is:
Land $6,500,000
Improvements -
Total $6,500,000
MUA does not dispute the amount of assessment. Property tax
exemption only is sought. The issue is before the court on cross
motions for summary judgment.
I
The undisputed facts are: MUA was created on September 24,
1958, under the provisions of the Municipal and County Utilities
Authorities Law, N.J.S.A. 40:14B-1 et seq. The resolution creating
the authority (the Resolution) stated the purposes of the authority
as follows:
(1) the provision and distribution of an
adequate supply of water for the public and
private uses of the inhabitants of the County
and (2) the relief of waters in and bordering
the State from pollution arising from causes
within the County and the relief of waters in,
bordering or entering the County from
pollution or threatened pollution, and the
consequent improvement of conditions affecting
the public health, which Municipal Utilities
Authority shall be authorized to investigate
and study the means and methods whereby the
existing inadequate supply of water and
polluted conditions may be abated and
thereafter to acquire, lease, construct,
maintain, operate and use such reservoirs,
basins, dams, canals, aqueducts, standpipes,
conduits, pipelines, mains, pumping and
ventilating stations, treatment, purification
and filtration plants or works, trunk,
intercepting and outlet severs, water
distribution systems, waterworks, sources of
water supply and wells, for the providing of
and distribution of an adequate supply of
water, and for the collection, treatment,
purification or disposal of sewage and other
wastes[.]
The purposes described in the Resolution are within those
authorized in N.J.S.A. 40:14B-19(a).
MUA acquired the subject property between 1967 and 1984. On
September 14, 1992, MUA granted an open space easement over the
subject property to Morris County. The Deed of Easement (the
Easement) states "[MUA] acquired the [subject] Property for the
future development thereof in connection with the provision of
potable water pursuant to N.J.S.A. 40:14B-1 et seq." Under the
terms of the Easement, MUA reserved the right to "extract, remove,
pump and store" water in, upon and throughout the property and to
install and operate "such works, wells, pipelines and other
facilities, as shall be useful and convenient in the development of
its Water System, as defined in N.J.S. 40:14B-3(8)."
MUA has drilled fifteen exploratory wells on the subject
property to identify potential subsurface water supply. The
Executive Director of MUA states, in his affidavit, "[t]he
identified water resources in regard to the subject property are
being held in reserve for potential use sometime in the future."
As of the October 1, 1992 assessing date, MUA did not have a water
allocation permit for the subject property from the New Jersey
Department of Environmental Protection and Energy and, without this
permit, is unable to develop the property's water resources for
distribution. MUA cannot obtain such a permit until it can
demonstrate there is sufficient customer demand for water.
On October 28, 1992, MUA filed an "Initial Statement" with the
Morris Township assessor seeking property tax exemption for the
subject property. By letter of December 3, 1992, the tax assessor
denied the requested exemption.
MUA contends that the subject property is vacant land which
has not been put to any use. It states that MUA has considered the
subject property as a potential location for a reservoir or other
water production and storage facilities, but has not implemented
any of these alternatives. MUA maintains that the subject property
is exempt under N.J.S.A. 40:14B-63 which provides:
Every utility system and all other property of
a municipal authority are hereby declared to
be public property of a political subdivision
of the State and devoted to an essential
public and governmental function and purpose
and, other than lands subject to assessment
and taxation pursuant to Revised Statutes
54:4-3.3, shall be exempt from all taxes and
special assessments of the State or any
subdivision thereof.
Morris Township contends that the property is subject to
taxation under N.J.S.A. 54:4-3.3 because it is used for the
protection of a public water supply. N.J.S.A. 54:4-3.3 in
pertinent part states:
The lands of counties, municipalities, and
other municipal and public agencies of this
State used for the purpose and for the
protection of a public water supply shall be
subject to taxation by the respective taxing
districts where situated, at the taxable value
thereof, without regard to any buildings or
other improvements thereon, in the same manner
and to the same extent as the lands of private
persons, but all other property so used shall
be exempt from taxation. (emphasis added).
II
Tax exemptions are based on the property's use and not the
personal status of the owner. N.J. Turnpike Authority v.
Washington Tp.,
16 N.J. 38, 44-45 (1954), (quoting Tippett v.
McGrath,
70 N.J.L. 110, 113 (Sup. Ct. 1903), affirmed
71 N.J.L. 338
(E. & A. 1904)) (citations omitted). Exemption under N.J.S.A.
40:14B-63 requires both public ownership and use for a public
purpose. Chief Justice Vanderbilt in N.J. Turnpike Authority
stated:
The permanent taking of private property can be justified
only if in the public interest and for the purposes
specified in the enabling act. Were the rule otherwise,
in these days of expanding governmental activities the
amount of property remaining in private hands would be
uselessly diminished, adversely affecting the taxing
power of the State, which necessarily depends in large
measure on the amount of private property available for
taxation.....A fortiori vacant land, as here, not now in
the public use or presently intended for public use is
taxable even when owned by bodies having a right to tax
exemption with respect to property used for an
appropriate purpose. 16 N.J. at 43-44.
The exemption for utility system property under N.J.S.A.
40:14B-63 is limited to property used for a public purpose and does
not extend to property that MUA contends is not put to any use.
This statute requires the land to be "devoted to an essential
public and governmental function and purpose". If the statute
granted exemption solely on the basis of ownership it would be
violative of Article VIII, Sec. I., par. 1 of the New Jersey
Constitution. N.J. Turnpike Authority, supra, 16 N.J. at 44-45.
N.J.S.A. 40:14B-63 does not grant exemption to MUA by reason of its
ownership of property if that property is not put to any use by
MUA. Therefore, MUA is not entitled to exemption under N.J.S.A.
40:14B-63 solely by reason of its ownership of the property.
III
Watershed land subject to taxation under N.J.S.A. 54:4-3.3 is
excepted from the N.J.S.A. 40:14B-63 exemption. Exemption is
denied under N.J.S.A. 54:4-3.3 if the land is "used for the purpose
and for the protection of a public water supply." MUA is
authorized to acquire and hold property for public water supply
purposes. The subject property was acquired for this purpose and
is being held in reserve for potential public water supply use in
the future.
MUA has been granted the power, under N.J.S.A. 40:14B-20(5),
to acquire real property "necessary or useful and convenient for
the purposes of the municipal authority...and to use the same, and
to dispose of property so acquired no longer necessary for the
purposes of the municipal authority". The Resolution coupled with
the powers granted under N.J.S.A. 40:14B-20, does not grant MUA the
authority to purchase land for any purpose other than the public
water supply or for collection, treatment and disposal of sewage.
There is no evidence that the subject property was acquired or is
held for sewage purposes. Therefore, the purpose of the subject
property is either for the protection of public water supply, and
thus not exempt pursuant to N.J.S.A. 54:4-3.3, or is for a purpose
which is an unauthorized use, and is thus denied exemption pursuant
to N.J. Turnpike Authority v. Washington Tp., supra, and Moonachie
v. Port of N.Y. Authority,
38 N.J 414, 425-27 (1962).
MUA argues that Hanover Township v. Morristown Town, 4 N.J.
Super, 22 (App. Div. 1949) requires a ruling that the subject
property is exempt. MUA's reliance on Hanover Township v.
Morristown Town is misplaced. That case held that land owned by
Morristown, at Morristown Airport, was not subject to tax because
it was land used for a public purpose, a municipal airport. The
court found that "no part of the airport land is used or is useable
for water purposes either as a protection against pollution or as
a source of water," even though the tract of land was adjacent to
land used for that purpose. Id. at 25.
In this case, MUA purchased the subject property for future
development as a water supply and is holding it for this use
pursuant to its statutory authority to acquire land for protection
and development of the public water supply. MUA expressed this
intent in the Easement stating that "[MUA] acquired the [subject]
Property for the future development thereof in connection with the
provision of potable water." MUA argues that the subject only has
a potential use as land held for the purpose or protection of the
public water supply, not an actual use. Given the wording of the
Easement, MUA's water testing activities and the limited authority
of MUA to hold lands for the purpose of protection of the public
water supply, I find that the actual use, not potential use, of the
subject property is for the purpose and for the protection of a
public water supply.
Morris Township argues, and I agree, that the Municipal and
County Utilities Authorities Law is not so broad as to authorize
municipal authorities to act as a land bank holding land for any
purpose.
Exemptions favoring public entities should be construed
liberally. City of Newark v. Essex County Bd. of Taxation, 103
N.J. Super 41, 53-54 (Law Div. 1968), modified on other grounds
54 N.J. 171, cert. denied
90 S.Ct. 483,
396 U.S. 987,
24 L.Ed.2d 452.
A liberal construction of N.J.S.A. 40:14B-63 and N.J.S.A. 54:4-3.3
cannot overcome the fact that MUA's authority to acquire and hold
land must be for an authorized purpose. In this case, the
authorized purpose is to hold and protect the subject property for
future development as a water supply, a use which is taxable under
N.J.S.A. 54:4-3.3.
I find the subject property is land held pursuant to N.J.S.A.
54:4-3.3 and thus is not entitled to exemption from local property
tax. The motion of Morris Township is granted and the motion of
MUA is denied. Judgment will be entered affirming the 1993 local
property tax assessment.
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