Girls Friendly Society of Pennsylvania v. City of Cape May, No. 009803-2011; Tax Court; opinion by Brennan, J.T.C.; decided October 26, 2012. DDS No. 35-5-8116 [25 pp.]

Plaintiff Girls Friendly Society of Pennsylvania (GFSPA), a nonprofit corporation, is part of an international organization that has been in existence for more than 100 years that strives to foster fellowship among young girls and women under the guidance and tutelage of the Episcopal Church. GFSPA appeals the denial of an exemption from local property taxes pursuant to N.J.S.A. 54:4-3.6 relating to its property known as “Holiday House.” Holiday House is located in Cape May, approximately two blocks from the beach and near the local Episcopal Church. It is available for use by Girls Friendly Society members. The combined property value assessment in 2011 was $2,023,600.

Holiday House is occupied seasonally from May until September. During the initial weeks, those in residence are GFSPA adult members who prepare the house for the summer season. Two weeks in the season are dedicated to Girls Friendly Society clubs to provide retreats for girls ages 8 through 13. These retreats are an opportunity for young girls from the various Girls Friendly Society local groups to join together in fellowship, worship and community service. An additional two weeks are designated for use by the adult Girls Friendly Society members to advance the local and national purposes of the organization and plan for the year ahead.

For the remainder of the summer weeks, Holiday House is intermittently occupied by individuals and groups who pay a fee for a room and meals and who are known to GFSPA, either through the GFSPA organization or through the Episcopal Church. The facility is not open to the general public and occupants are only permitted by referral. The fees (referred to by GFSPA as donations) offset the cost of food, utilities and operating expenses.

GFSPA asserts that this supplemental occupancy of Holiday House by non-GFSPA individuals and groups is necessary to advance the educational goal and purpose of GFSPA in providing the GFSPA teenage girls with an initiation to employment, independence and responsibility within the safe, spiritually structured and closely supervised environment of GFSPA. GFSPA argues that the property serves as an integral part of the operation of its religious and charitable nonprofit organization and use of the residence is reasonably necessary for its proper and efficient operation.

The municipality argues that the use of the property is nonexempt because the predominant purpose of Holiday House is to give members, their guests and nonmembers a summer vacation at the shore. The conflict apparently arose primarily from advertisements and website information being generated by GFSPA, which give the impression that Holiday House is not just a retreat house but rather a very affordable bed-and-breakfast open to the general public.

Held: The taxpayer’s use of a Christian retreat house was reasonably necessary to achieve the charitable and religious purposes of the organization and the actual and dominant use of the property was for the benefit of the young female members. Occasional simultaneous use of portions of the property by restricted individuals and entities for a fee does not destroy the exemption.

GFSPA, while clearly having a religious foundation as a result of its affiliation with the Episcopal Church, is truly a hybrid organization that also seeks to attend to the moral and mental improvement of the girls and women that it serves. Therefore, in order to secure an exemption for its real property, GFSPA must demonstrate that it meets the following three criteria: (1) it must be organized exclusively for its exempt purpose; (2) the property must be actually used for the tax-exempt purpose; and (3) the operation and use of the property must not be conducted for profit.

The court finds the first prong of the test is satisfied because GFSPA is organized exclusively for an exempt purpose within the meaning of N.J.S.A. 54:4-3.6. The services provided by GFSPA help improve the quality of life in society and provide a direct benefit of moral and mental improvement to the girls, their families and to future employers.

The court further finds that GFSPA has satisfied the second prong of the test in that Holiday House is reasonably necessary for the advancement of the tax-exempt use of GFSPA and that it is actually used for that purpose.

The third prong requires a determination as to whether the use of the property by non-GFSPA occupants substantially detracts from the actual use of the property in furtherance of the GFSPA purpose. The court finds that it does not and that the predominant use of the house is for the advancement of GFSPA. GFSPA’s rental of rooms to restricted users who were affiliated with religious groups in the Episcopalian Church and to individual GFSPA members and their families was not conducted for profit and did not result in profit.

The municipality was correct in questioning the use of the property given the advertisements and website materials distributed by GFSPA. Unfortunately, a well-intentioned but misguided effort to assist in the financial welfare of Holiday House led to public perception of a nonexempt use. Ultimately, though, it is actual use and not advertised or perceived use that is the test for whether a property is tax exempt under N.J.S.A. 54:4-3.6.

The court concludes that Holiday House is exempt from local property taxation because it is the central location that pulls together and facilitates all of the stated purposes, religious and charitable, of GFSPA. The receipt of fees on behalf of the charitable beneficiaries does not destroy the otherwise charitable purpose. Holiday House is not simply a “vacation house” for the GFSPA members. Holiday House is entitled to exemption from local property taxes in accordance with N.J.S.A. 54:4-3.6.

For plaintiff — Louis C. Dwyer Jr. For defendant — Andrew D. Catanese (Monzo Catanese).