**NOT FOR PUBLICATION WITHOUT APPROVAL OF THE TAX COURT COMMITTEE ON OPINIONS** 

**------------------------------------------------------x GALLOWAY EDUCATION, LLC**  **, : :**  **TAX COURT OF NEW JERSEY**

**Plaintiff, :**  **DOCKET NO: 005841** 

**- 2020**  **: 011744** 

**- 2021** 

**v. :**  **: TOWNSHIP OF GALLOWAY**  **, : :** 

**Defendant. :**  **: ------------------------------------------------------x** 

**Decided: June**  **24 , 2022.**  **Michael E. Sullivan**  **for plaintiff ( Parker McCay P.A.**  **, attorney**  **s; Michael**  **J. Coskey and Matthew S. Oorbeck**  **, on the brief ).**  **Thomas G. Smith for defendant (**  **Law Offices of Thomas G. Smith ,**  **attorney)**

**.**
**CIMINO, J.T.C.** INTRODUCTION. **Plaintiff, taxpayer Galloway Education, LLC (taxpayer) is the named landlord of**  **a property leased**  **to the Atla ntic Community Charter School**  **, Inc. (ACCS)** 

**. Taxpayer now seeks exemption from property taxes**  **as a not -for-**  **profit entity**

**. However,**  **the for-**  **profit representative of**  **the various bondholders which financed**  **the purchase of the property has the essential powers of a landlord by virtue of the** **-2-**

**terms of the lease and other governing documents. With the bondholder**  **representative as the de facto landlord, the motion for summary judgment as to the**  **exemption is denied.** STATEMENT OF FACTS. **The Atlantic Community Charter School, Inc. (ACCS)**  **, a New Jersey not**

**- for** 

**** **profit corporation, has been**  **issued a charter by the New Jersey Department of Education**  **since 2014 to operate a charter scho**  **ol pursuant to the Charter School**  **Program Act of 1995**

**. See**  **N.J.S.A. 18A:36A -1**  **to**
**- 18**  **. Under the Act, a**  **school receives payment from the sending districts**  **it serves, in this case, the City of Atlantic City, City of Absecon, Township of Egg Harbor, Township of Galloway, and the**  **City of Pleasantville. This payment consists of a per pupil amount as determined by a formula that takes into account the cost to educate students from the sending**  **districts. N.J.S.A. 18A:36A** 

**- 12.**  **A CCS**  **receives approximately $1 6**  **,00 0**  **per student enrolled.**  **To operate the school, ACCS has a contract with CSMI, LLC, a Pennsylvania limited liability company.**  **When the school initially opened in September of 20 1**  **4, it was located in**  **Atlantic City. The facilities consisted of mob ile**  **trailers used as temporary classrooms which**  **limited the number of students that could be enrolled. At the start of the 2016**  **to 2017 academic year, A**  **CCS moved**  **to the property in Galloway** ---**-3-**

**Township which is the subject of this appeal. The property was formerly used by**  **another charter school. A**  **CCS did not own the land, but rather leased the facility.**  **With expanding enrollment, A CCS**  **sought to expand the school facilities. Comprehensive Recovery S**  **ervices , In**  **c., a nonprofit corporation of the State of Colorado, established Galloway Education, LLC, a Delaware**  **l imited**  **l iability** 

**c ompany.**  **The l**  **imited l**  **iability c**  **ompany a**  **greement of Galloway Education, L LC**  **, indicates that it is a “[company] organized and operated exclusively for religious,**  **educational, benevolent, fraternal, charitable ,**  **and reformatory purposes and not for pecuniary profit.”**  **Th e sole member**  **which has**  **all the interest in Galloway Education is Comprehensive Recovery Services.**  **To fund the expansion project**  **, bonds which totaled**  **$11,165,000 were sold**  **by Galloway Education**  **to investors of Haml in Capital Management, L**  **LC , a for** 

**- profit**  **investment firm located in New York. Hamlin is designated the B**  **ondholder R**  **epresentative so long as the majority of the outstanding bonds are owned by persons for whom Hamlin serves as an investment advisor.**  **The proceeds of the bond**  **s were u**  **tilized by Galloway Education**  **to purchase the land and construct an addition to the school.**  **Wilmington Trust is designated**  **as the trustee and**  **handle d**  **the disbursements during construction as well as collecting the payments on the bond**

**a nd**  **forwarding those**  **payments to the bondholders. -4-** 

**There is a lease agreement**  **between Galloway Education and ACCS.**  **A review of the lease reveals that the**  **B ondholder**  **R epresentative is mentioned some**  **120 times. However, a close**  **r review of the lease agreement rev**  **eals that the**  **Bondholder Representative exercises significant control as would a landlord** 

**. Upon**  **default of ACCS , the Bondholder Representative may “elect to terminate th**  **is Lease**  **. . .” Lease Agreement between Galloway Education**  **and ACCS (Lease)**  **¶ 29(B)(iii) (Feb** 

**. 21, 2019)** 

**. Also,**  **“[ t**  **]he Bondholder Representative may sue for and collect Rent, Additional Rent and any other charges due hereunder . . .” Lease ¶ 29(B)**  **( last**  **paragraph prior to ¶ 29(C))** 

**. And**  **, the “Bondholder Representative may enter and expel [ACCS] .**  **. . and remove the effects . . . (using such force for such purposes as may be lawful and necessary) without being liable for prosecution . . .” Lease ¶**  **29(B)(iv). The “Bondholder Representative, acting for the Landlord, may**  **, without**  **any further demand or notice to [ACCS], . . .enter the Property and market the Property for sale . . .” Lease ¶ 29(B) (at end after (xi)). In addition, the Bondholder**  **representative may “employ a consultant, at [ACCS’] expense, to make recommendations with respect to**  **the o**  **perations of [ACCS], which recommendations [ACCS] is obligated to follow.”**  **Ibid. Even outside default, the Bondholder Representative has**  **significant control**  **over the property. The Bondholder Representative must consent to any change in use of the property. Lease ¶ 8(A). ACCS**  **“ shall not assign th**  **is Lease or sublet the**  ---**-5-**

**Leased Property in whole or in part without the consent of**

**. . . the Bondholder**  **Representative .” Lease ¶ 9(A). “**  **Any and all trade fixtures appliances, furniture and other**  **moveable furnishings and equipment constituting personal property in the School Facility which are or have been paid**  **for or financed by Landlord ( . . .) . . .**  **may not be removed from the School Facility by [ACCS]**  **at any time**

**. . . without the**  **prior written consent of** 

**. . . the Bondholder Representative, unless**  **contemporaneously replaced with similar property of comparable or better quality**  **.” Lease ¶ 11.**  **Moreover, [ACCS]**  **has indemnified the Bondholder Representative as to any environmental claims. Lease ¶**  **13(E). Except for minor work, m**  **odifications and additions cannot be made to the property without the consent of the Bondholder**  **Representative. Lease ¶ 20(A). Repairs of any damages require the Bondhold er**  **Representative’s consent as well. Lease ¶ 15(A)**

**. A**  **ny change in the lease is required to have the written consent of the Bondholder Representative.**  **Lease ¶ 35**

**. This is evidenced by the amendments to**  **the lease which reveal a sign**

**- off from the Bondholder Representative** 

**. See**  **First Amendment to Lease Agr**  **eement (Mar** 

**. 1, 2019**  **) and**  **Second Amendment to Lease Agreement**  **( June 1, 2020**  **)**

**. In the event that**  **ACCS violates any easements,**  **development agreements, and such, that govern and regulate the development of the leased property,**  **ACCS agrees to indemnify the Bondholder Representative of any** **-6-**

**failure to comply. Lease ¶ 22(D). The Bondholder Representative can**  **also dictate certain**  **insurance requirements of ACCS. Lease ¶ 16(A). T**  **he Bondholder Representative is also empowered to inspect the property. Lease ¶ 30.**  **“If [ACCS] has not exercised the applicable option to extend this Lease,**  **. . . the Bondholder Representative . . . shall thereafter have the right to enter the**  **Leased Property at all reasonable times for the**  **purpose of exhibiting the Leased Property to others** 

**. . . .”**  **Lease ¶ 32(A). In addition, if the lease is not renewed, the Bondholder Representative, can place “for sale” and “for rent”**  **signs on the property. Ibid.**  **The Bondholder Representative also has a**  **say over the operations of the school.**  **ACCS is requ**  **ired to employ CSMI as m**  **anager unless another manager is approved by the Bondholder Representative. Lease ¶ 2(**  **A ) (definition of**  **“manager”). The borrowing of ACCS is limited without consent of the Bondholder**  **Representative. Lease ¶ 11. The organizationa l structure of ACCS cannot change**  **without approval of the Bondholder Representative. Lease ¶ 28(S). ACCS**  **i s to** 

**“ deliver to** 

**. . . the Bondholder Representative** 

**. . . audited financial statements of**  **income, retained earnings and cash flows . . . .” Lease**  **¶ 38(A). In addition, “the Bondholder Representative . . . shall have the right . . . to audit, examine, and make**  **excerpts or transcripts of or from the records of [ACCS].” Lease ¶ 38(C).**  ---**-7-**

**The “annual fixed rent” specified in the lease coincides with t he bond debt**  **servicing amounts. Compare**  **Lease Exhibit C with**  **Limited Offering Memorandum 5 (**  **Feb. 20, 2019**  **) . In fact, Exhibit C of the unamended Lease breaks out the principal**  **and interest portions of the “annual fixed rent.” Lease Exhibit C. “Annual Fixed Rent** 

**. . . shall be paid** 

**. . . by** 

**. . . [ACCS]**  **directly to the Trustee, as the assignee of the Landlord, for**  **deposit in accordance with the Indenture. ” Lease ¶ 6(K).**  **See also Indenture of**  **Trust § 7.01(a) (Feb. 1, 2019)** 

**. The Trustee would th**  **en remit payment to the bondholders.**  **Indenture of Trust § 3.02(b).**  **ACCS also remits an “administrative fee” of $62,500 directly to Galloway**  **Education each year**  **as additional rent**  **. Lease ¶**  **6(J) ($62,500 fee), 6(K) (directly to Galloway Education**  **). As s**  **et forth in the organizational document for Galloway Education**  **, Comprehensive Recovery Services has the ability to transfer or assign**  **its interest in Galloway Education.**  **Limited Liability Company Agreement of Galloway Education §14 (Nov. 19, 2018). To secure the sale of bonds utilized for the**  **project, the Bondholder Representative required that**  **Comprehensive Recovery Services pledge its interest in Galloway Education.**  **Pledge Agreement Introduction (Feb. 1,**  **20 19)**  **. In the event of a default, the Bondholder Representative has the right to exercise all voting rights Comprehensive Recovery Solutions**  **has as to Galloway Education** 

**. Pledge Agreement**  **Article VI (last paragraph). In other words, a for**

  ** profit entity** **, the Bondholder Representative, would be in effect**  **ive control of the** **-8-**

**not**
**- for** 

**- profit**  **Galloway Education**

**. Also,**  **upon default, the Bondholder Representative can direct the Trustee to name a successo**  **r sole member of Gallow ay**  **Education. Pledge Agreement**  **§ 7.2(e)** 

**. This matter comes before the court on motion for summary judgment. On**  **summary judgment, the court must assess "whether the competent evidential materials presented, when viewed in the light most favorable to the non** 

**- moving**  **party, are sufficient to permit a rational factfinder to resolve the alleged disputed**  **issue in favor of the non**

**- moving party." Brill v. Guardian Life Ins. Co. of Am.**  **, 142 N.J. 520, 540 (1995).**  LEGAL CONCLUSIONS. **As explained by our Supreme Court on a number of occasions: The fundamen**  **tal approach of our tax statutes is that ordinarily all property shall bear its just and equal share of**  **the public burden of taxation. Statutes granting exemption from taxation represent a departure and consequently they**  **are most strongly construed against those claiming exemption.**  **[ Int**  **’ l Sch**  **s. Serv**  **s. v.**  **Township of West Windsor**  **, 207 N.J. 3, 15 (2011)**  **(citing Princeton Univ. Press v. Borough of**  **Princeton , 35 N.J. 209, 214 (1961).]**  **Many of the exemptions for property not owned by a governmental entity are addressed in**  **N.J.S.A. 54:4**

**- 3.6.**  **Exemption to property taxes were first codified in 1851.**  **L. 1851, p. 27**  **2 , § 5**  **. The modern form of the statute first appeared in 1918 and was codified into the present form in 1937.**  **L. 1918,**  **c. 236**  **, § 202; R.S. 54:4**

**- -9-** 

**3.6 (1937). Since first appearing over one hundred fifty years ago, there have been**  **numerous amendments. The first sentence**  **of the statute is**  **now 859 words and**  **contains a myriad of exemption s**  **. On**  **e of th**  **e exemptions is**  **“for a ll buildi**  **ngs actually used for colleges, schools, academies or seminaries . . .**  **” N.J.S.A. 54:4** 

**- 3.6.**  **However, the statute has a second**  **sentence which requires that an exemption provided for in the first sentence**

**“ appl**  **[ies] only where the association, corporation o**  **r institution claiming the exemption owns the property in question . . . and authorized to carry out the purposes**  **on account of which the exemption is claimed . . .” Ibid.**  **1 Galloway Education is not authorized to**  **operate a school. The limited**  **offering memorandum issued by Galloway Education**  **confirms that “Galloway [Education]**  **is a single purpose entity and is not a school.” Rather, ACCS is the holder of the State charter to**  **operate a school. There must be a confluence of ownership and**  **use for an exemption to be applicable.**  **Mega Care, Inc. v. Township of Union**  **, 15 N.J. Tax 566, 573 (Tax 1996)**  **, aff’d. o.b.**  **, 22 N.J. Tax 604 (App. Div. 2004)** 

**. Since Galloway**  **Education and not**  **ACCS is the owner of the property, the**

**1 The**  **s tatute also provided that the association, corporation or institution is**  **incorporated or organized under the laws of this State. However, that provision was found to be unconstitutional.**  **WHYY, Inc. v. Glassboro , 393 U.S. 117**  **(1968) (rev’g 50 N.J. 6 (1967)**  **) . -**  **10 -** 

**school exemption does not apply. Correctly recognizing this provision, Galloway**  **Education has not sought the exemption under the school**  **provision. Rather, Galloway Education seeks the exemption**  **under a**  **1931 amendment exempting properties utilized for the moral and mental improvement of men, women**  **and children that are owned by a holding company**  **. This exemption applies to**  **:**

**. . . a ll buildings owned or held by an association or**  **corporation created for the purpose of holding the title to**  **such buildings as are actually and exclusively used in the work of two or more associations or corporations**  **organized exclusively for the moral and mental improvement of men, women and children** 

**. . . [N.J.S.A. 54:4** 

**- 3.6** 

**. Se**  **e also L.**  **1931, c.**  **372.] There is also another similar provision enacted in 1949 dealing with a not**  **-for profit entity leasing property to a religious or charitable entity whi**  **ch provides:**

**. . . a ll buildings owned by a corporation created under or**  **otherwi se subject to the provisions**  **of Title 15 of the**  **R evised**  **S tatutes or Title 15A of the New Jersey Statutes**  **and actually and exclusively used in the work of one or more associations or corporation**  **s organized exclusively**  **for charitable or religious purposes, which associations or corporations may or may not pay rent for the use of the**  **pr emises**  **or the portions**  **of the premises used by them . . . [N.J.S.A. 54:4** 

**- 3.6.**  **See also L.**  **1949, c.**  **85.] In evaluating the exemptions provided by N.J.S.A. 54:**  **4- 3.6, t**  **he c**  **ourts have applied**  **a 3- part test to determine**  **eligibility for a**  **local property tax exemption. This**  **3- part test requires that the owner of the property must show that (1) it is organized** **- 11**  **-**

**exclusively for the tax**

**- exempt purpose; (2) its property must actually be used for the**  **tax**
**- exempt purpose; and (3) its operation and use of the property must not be**  **conducted for profit. Int’l Schs. Servs., 207 N.J at 16 (citing Paper Mill Playhouse**  **v. Township of Millburn , 95 N.J. 503, 506 (1984));**  **Advance Housing , Inc. v** 

**. Township of Teaneck**  **, 215 N.J. 549,**  **567**

**- 68 (2013) (citing**  **Paper Mill Playhouse , 95**  **N.J. at 50 6**  **.) The three prongs of the test are commonly referred to the**  **“organization,” “use,” and “profit” prongs. Borough of Hamburg v. Trustees of**  **Presbytery of Newton, 28 N.J. Tax 311, 318 (Tax 2015).**  **The burden rests on the claimant to prove entitlement to a local property tax exemption.**  **N.J. Carpenters Apprentice Training & Educ. Fund v. Borough of Kenilworth**  **, 147 N.J. 171, 178 (1996) ;**  **Advance Housing , 215 N.J.**  **at 566 ;**  **Int’l Schs. Servs.**  **, 207 N.J. at 15. Exemptions from taxation are to be strictly construed against**  **those invoking the exemption. Advance Housing , 215 N.J. at 566;**  **I nt’l Schs. Servs.**  **, 207 N.J. at 15. N.J. Carpenters, 147 N.J. at 177. These principles foster the**  **“well**

  ** established policy that** **‘ the public tax burden is to be borne fairly and equitably**  **.’ ”**  **A dvance Housing**  **, 215 N.J. at 566; (**  **quoting I**  **nt’l Schs. Servs. ,**  **207 N.J. at 15 ).**  **In applying the statutory dictates of N.J.S.A. 54:4**

**- 3.6, the common thread**  **which runs through the controlling case law is not to elevate form over substance. To this end, the Supreme Court has repeatedly stated that a fact specific**  **analysis is required.**  **Presbyterian Homes of Synod of N.J.**  **v. Division of Tax Appeals, 55 N.J. -**  **12 -** 

**275, 286**  **(1970) ;**  **Advance Housing , 215 N.J.**  **at 572;**  **Int ’l**  **Sch s. Servs.**  **, 207 N.J. at**  **22. Coupled with this requirement of a fact specific analysis is the application of**

**common sense. I**  **nt ’**  **l Schs . Servs.**  **, 207 N.J. at 20; Paper**  **M ill Playhouse**  **, 95 N.J. at 521.**  **The required common**

**- sense fact** 

**- based approach requires more than merely**  **looking at the books of the organization and tallying up its profit and loss. Int**  **’ l Sch**  **s. Serv**  **s. , 207 N.J. at**  **20; Paper Mill Playhouse**  **, 95 N.J. at 521. Whether holding property used for a school meets the use prong per**  **1) the**  **1931 amendment pertaining to holding property for the moral and mental improvement of men, women and children, or**  **2) the 1949 amendment pertaining to**  **a not**
**- for** 

**- profit leasing property to a charitable purpose, turns out to be an**  **examination which may not be as straightforward as it seems. However, the court need not decide this exact issue since the organizational and profit prongs are not**  **met. Since the prongs are interrelated, it is helpful at times to review the prongs in**  **tandem. See**  **Int ’l**  **Sch s. S**  **ervs. , 207 N.J. at 17**  **(since prongs are interwoven, Court evaluated use and profit prongs in tandem)** 

**. Here, the court will examine the**  **organization and profit prongs in tandem. M**  **erely creating a non**

**- profit does not automatically satisfy**  **t he**  **organizational prong**  **. Decisions span back over 100 years in which the subterfuge of a “corporate dress” was found insufficient to confer non** 

**- profit status** 

**. Town of Montclair v. State** **- 13**  **-**

**Bd. of Equalization of Taxes , 86 N.J.L. 497, 497** 

**- 98 (Sup. Ct. 1914),**  **aff’d , 88 N.J.L.**  **374 (E. & A. 1915); s**  **ee also Carteret Acad. v. State Bd. of Taxes & Assessment**  **, 102 N.J.L. 525**  **, 529 (Sup. Ct. 1926), aff’d**  **, 104 N.J.L. 165 (E. & A. 1927).**  **In other words, a practical approach in necessary.**  **For example, back i n the 19**  **1 0s, our courts**  **held that changing the status of school from a for**

**- profit corporation to a not** 

**- for** 

**** **profit corporation was not enough to confer the local property tax exemption**

**. Town**  **of Montclair , 86 N.J.L. at 497** 

**- 98.**  **See also Cateret Acad.**  **, 102 N.J.L. at 529 (similar facts from the 1920s).**  **Later in the 1980 s**  **, this court held that reorganizing a family**  **medical practice from profit making partnership to a non**

**- profit was found**  **i nsufficient to confer the exemption.**  **Township of Weymouth v. Mem**  **’ l Park Fam** 

**. Prac**  **. Ctr. , Inc.**  **, 7 N.J. Tax 589 , 595** 

**- 96, 605**  **(Tax 1985). Just as having the proper corporate documents does not guarantee an**  **exemption, solely relying upon the corporate documents for disqualification has been**  **rejected by the Appellate Division. Int’**  **l Sch s.**  **Servs**

**. , Inc. v.**  **Township of West**  **Windsor , 381 N.J. Super. 383, 385**  **(App. Div. 2005). Specifically, the Appellate**  **Division indicated that “courts are not barred from considering extrinsic information**  **if relevant to ascertaining the meaning of the corporate documents.” Ibid** 

**. With that**  **said, the lease agreeme**  **nt and the pledge agreement are key documents to**  **understanding the financial arrangement in this case. Evaluating how these** **- 14**  **-**

**organizational documents impact the profit of the for**

**- profit bondholders is key to**  **discerning whether an exemption is appropriate under the law. As**  **to the profit prong, Galloway Education is nominally established as a non**

  ** profit and is the owner of the property. Galloway Education has entered into a lease** **with ACCS, which at first glance is**  **not much different than any lease which a**  **commercial landlord would enter into with a tenant. However, a review of the lease reveals that it is not Galloway Education that is calling the shots**  **i n this arrangement.**  **Rather, it is the Bondholder Representative that has been granted extensive powe rs**  **under the lease . In addition, there is a**  **separate pledge agreement which**  **empowers the Bondholder Representative to take over**  **the membership and ownership of Galloway Education.**  **Overall, the**  **activities and existence of Galloway Education** 

**are at the mercy of the for** 

**- profit Bondholder Representative.**  **As to the lease, the Bondholder Representative is mentioned over 120 times throughout the document.**  **A review of the Lease plainly reveals that the Bondholder Representative is the de facto landlor**  **d in this matter**

**. The Bondholder**  **Representative is not merely a passive investor cutting and cashing t he bond**  **coupons. 2**  **The Bondholder Representative can upon default of ACCS, cancel the**

**2 Back in the day, bonds came printed with coupons printed on them. To receive an**  **interest payment, the bondholder would clip off a coupon when it came due and redeem it for cash.**  **Ken Belson, Coupon Clipping, the Old** 

**- Fashioned Way**  **, N.Y.**  **Times , Feb. 12, 2006, at B5** 

**. -**  **15 -** 

**lease, enter and expel ACCS and sue for the rents. Certainly, the se are powers of a**  **landlord. The powers of the Bondholder Representative are vast and extend to not only**  **default, but also the day**

**- to** 
**- day operation of the property such as ACCS’ use of th**  **e property, subletting, removal of**  **furniture by ACCS,**  **environmenta l issues,**  **repairs and**  **modification to the premises by ACCS and ACCS’ insurance coverage. The Bondholder Representative also has access to the property for**  **inspection and marketing and sale and can place a for** 

**- sale sign on the property.**  **The reach of the B ondholder Representative extends**  **beyond operation of the**  **physical plant, to**  **how ACCS conducts the business of operating a school. For example, the Bondholder Representative must approve the management company**  **that operates the school on behalf of ACCS, has set limits on the amounts which ACCS can borrow, and restricts ACCS from changing its organizational structure.**  **The Bondholder Representative has the right to financial statements of ACCS as well as the right to conduct an audit of ACCS.**  **T he court rec**  **ognize s**  **that private investors**  **loaning money to a not -for-**  **profit are not required to forgo their profit. However, this situation**  **is not w**  **here investors** 

**are merely holding a mortgage on lands owned by a school. Here the school is**  **a mere tenant of the property**  **under a lease and pledge agreement**  **in which the Bondholder Representative has extensive control** 

**. The taxpayer selects the form of** **- 16**  **-**

**business operation, and the taxpayer has to deal with the consequences of its**  **selection. General Trading Co. v. Dir., Div. of Tax’n, 83 N.J. 122, 136 (1980).**  **If the school defaults on its lease, it**  **cannot effectively look to**  **Galloway Education**  **for re lief or some sort of work** 

**- out.**  **Certainly, Galloway Education ,**  **as a**
**non -**  **profit ,**  **should not be worried about profit, but rather**  **fostering good works, albeit indirectly, by**  **enabling t his school project. Even assuming Galloway**  **Education would want to help, it would be powerless**  **sinc e the structure of the deal places the**  **real power of a**  **landlord with the Bondholder Representative. T**  **he school is at the mercy of the**  **B ondholder**  **R epresentative wh**  **o is**  **primarily interested in the timeliness and thus profitability of th**  **e lease payments.**  **At best, Galloway Education functions as a property manager under the control of the Bondholder Representative. Per the**  **lease, the fixed rent payments are paid to the bondholders through the T**  **rustee without even passing through Galloway**  **Education . These**  **payments correlate with the principal and interest due on the bonds. For its services, Galloway Education**  **gets a n**  **administrative fee of $62,50 0**  **per year from ACCS as additional rent**

**. “[A]n exemption should not be granted when profit can be traced**  **‘ into**  **someone’s personal pocket .’**  **” International Schools**  **, 207 N.J. at 24 (quoting**  **Paper Mill Playhouse, 95 N.J. at 522**  **) . Here, the**  **powers co**  **nferred to the Bondholder**  **Represent ati**  **ve ensure the**  **flow of revenues**  **from the school to the bondholders.**  **The**

**c ourt**  **finds this situation is not much different than a for**

**- profit entity**  **dire c**  **tly leasing** **- 17**  **-**

**its property to the school. In such a circumstance, it is plain to see that property tax would be due and owing.**  **Likewise, in this case, with the actual powers of a land lord**  **in the hands of the Bondholder R**  **epresentative ensuring a profit is made, the exemption is denied.**  **There is a second basis for this court to not allow a property tax exemption. Galloway Education is**  **established under Delaware law as a**  **limited liabil ity**  **company .**  **Comprehensive Recovery Services, a**  **Colorado no t-**  **for**

**- profit corporation**  **is the sole member of Galloway Education . As part of th**  **e bond financing deal,**  **the Bondholder Representative required that Comprehensive Recovery Services**  **pledge its inter**  **est in Galloway Education.**  **I n the event of a default**  **, the B**  **ondholder Representative**  **can exercise all voting rights or direct that a s uccessor sole member**  **be named. With the powers**  **conferred by the pledge agreement ,**  **the ownership of Galloway Education is**  **precarious because the Bondholder Representative**  **can seize**  **control of a nominally not -for-**  **profit entity in order to protect the profits of the**  **bondholders . Certainly, the law**  **s of this State do not contemplate that not** 

**- for** 

**- profit**  **entities are controlled or owned, or subject to be controlled or owned**  **, by for** 

**- profit**  **entities. Even if the law s**  **of Delaware or Colorado (where Galloway**  **Education and Comprehensive**  **Recovery Services ar**  **e organized) contemplate such a result, our laws do not contemplate such control by a for** 

**- profit would allow eligibility for a tax** **- 18**  **-**

**exemption. It is one thing for a lender or a Bondholder Representative to have a mortgage on a property owned by a non** 

**- profi**  **t, it is quite another thing for a profit**

  ** making entity to** **have the ability to seize and obtain full and unfettered control of**  **the not** 
**- for** 

**- profit entity**  **for its own purposes. Our courts have previously dealt with properties used for seemingly not**  **-for profit activit**  **ies that**  **do not qualify for**  **an exemption**  **because the propert ies**  **benefit for-**  **profit enterprise s**  **. I n**  **N ew Jersey**  **Carpenters , a training facility was established**  **by contractors and the union to train apprentices.**  **Id. , 147 N.J. at 173, 175.**  **While the training facility itself**  **is not established to generate a profit, it was created to**  **primarily benefit a specific for**

**- profit sector of the economy.**  **Id. at 184, 185.**  **As a result, t**  **he Supreme Court rejected the exemption. Id.**  **at 189. In addition, in Textile**  **Research Institute**  **v. Township of**  **Princeton , 35 N.J. 218**  **(1961) ,**  **a not**
**- for** 

**- profit**  **institute also had the objective of benefitting a profit**

**- making segment of society.**  **Id. at 223** 

**. As a result, the Court rejected its claim to an exemption.**  **I bid** 

**. These**  **decisions comport with the Supreme Court’s repeated instruction to apply a common sense fact** 

**- based approach which requires more than merely looking at the books of**  **the organization and tallying up its profit and loss.**  **Int’ l Sch**  **s. Serv s.**  **, 207 N.J. at 20; Paper Mill Playhouse, 95 N.J. at 521.**  **Here ,**  **the structure of deal is plainly for the benefit of the bondholders represented by the Bondholder Representative.**  **Control of the nominally**  **not**
**- for** 

**- -**  **19 -** 

**profit Galloway Education**  **can be transferred at the demand of the Bondholder R**  **epresentative to a for**

**- profit to protect the profits of the bondholders.**  **T he not** 

**- for** 

**** **profit in this case exists to benefit a for**

**- profit endeavor**  **. This provide**  **s further basis to deny the exemption.**  **Finally, there is a third basis to deny the exemption. The distinction between**  **profit**

**- making and**  **not**
**- for** 

**- profit activities must be “evident, readily ascertainable,**  **and separately accountable for taxing purposes” and “presumes an ability to identify**  **it, segregate it, and measure it for local taxing purposes.” Int’**  **l Sch s. Serv., 207 N.J.**  **at 23. “Otherwise, to permit a nonprofit entity to claim a property tax exemption when it has become inseparably entangled with for** 

**- profit entities would allow**  **indirect taxpayer subsidization of those entities. In other words, a competitive advantage would be conferred on those for** 

**- profit entities at the expense of the**  **taxpaying public.” I**  **bid**

**. T**  **here is a**  **“duty [for a not**  **-for- profit]**  **to conduct its affairs in such a fashion as to allow local taxing authorities to readily determine its**  **eligibility for exemption.” Id.**  **at 24. Failing this duty leads to a “quagmire of**  **entanglement” which necessitates denial of the**  **exemption**

**. Id.**  **at 24**

**- 25.**  **T here is nothing sinister or wrong with the Bondholder Represe**  **ntative**

**e nsuring that a profit is made. The court realizes that the avenues for financing**  **would be limited without the potential for a**  **profit. However, a tax exemptio**  **n here**  **would allow “indirect taxpayer subsidization” of the b**  **ondholder s**  **. See**  **Id. at 23.** **- 20**  **-**

**This would confer**  **a competitive advantage upon the bondholders at the expense of**  **the other taxpayers in the municipality**

**. I**  **bid. Th**  **e layers of entities and lengthy agreements**  **obfuscate that the f or**  **- profit**  **entities in this case have essential control over the operation of a seemingly not** 

**- for** 

**** **profit en deavor** 

**. A local tax a**  **ssessor should not be forced to peel off complex layers of c**  **or p**  **or ate and organizational structure to determine who is really in control**  **, or who really profits**  **. The taxpayer here has failed to conduct its affairs in such a way for the local assessor to readily determine eligibility.**  **A ssessor**  **s must always be**  **vigilant as**  **to for-**  **profit entities using the façade of n ot**  **-for- profit entities to gain the**  **competitive advantage of reduced taxation. Here, the entanglement of the for**

**- profit**  **and not -for-**  **profit interests necessitates denial of the exemption.**

CONCLUSION. **For the foregoing reasons, plaintiff’s**  **motion for summary judgment is**  **DENIED.**