Princeton University lost a bid to dismiss a lawsuit seeking to rescind its New Jersey property-tax exemption for 2014, a ruling that could cost the school millions of dollars and jeopardize the tax status of all nonprofit colleges.
Tax Court Judge Vito Bianco ruled Thursday that a lawsuit by four residents of the town of Princeton will go forward, lawyers said. They sued to revoke the school’s tax exemption, in part because it shares royalties with faculty, mostly from a patent that Eli Lilly & Co. turned into the cancer drug Alimta. The judge didn’t rule on the merits of the case while rejecting the university’s claim that the case should turn on whether its “dominant motive” is to make a profit.
“He’s making it clear that the test for losing tax-exemption status is whether these institutions engage in significant commercial conduct,” Bruce Afran, an attorney for the residents, said in a telephone interview. “This case will ultimately affect the tax-exempt status of many universities.”
Princeton, the fifth-richest U.S. university and among the most selective, said it will immediately appeal. The oral ruling by Bianco wasn’t immediately available in court records.
Arguments by the residents “potentially jeopardize” all nonprofit institutions, including schools, hospitals, charities and houses of worship, the university’s general counsel, Ramona Romero, said in a statement.
Princeton patented a compound by a chemistry professor that Lilly used to create Alimta. The school reaped $524 million in license income from 2005 to 2012, mostly from Lilly, according to court records. It used part of the money to build a new chemistry building and pay $118 million to faculty through 2011 beyond their salaries.
The town of Princeton is also a defendant in the case and has taken no position on the litigation, Afran said.
The case is Fields v. Trustees of Princeton University, 5904-14, Tax Court of New Jersey (Morristown).
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