Update on Tax Assessments for Day Care and After School Programs

Recently, the Appellate Division of the Superior Court of New Jersey affirmed a Tax Court decision finding that a day care center a with before- and after-care program was exempt from paying real property taxes under New Jersey law. Wee Love, Inc. v. Township of Maple Shade, Docket No. A-0290-07T2 (July 7, 2008). This case not only reaffirms a series of prior rulings decided when such facilities were referred to as nursery schools, but also discusses how before – and after – care programs impact the exemption analysis.

Wee Love is a New Jersey non-profit corporation licensed by the New Jersey Department of Human Services, Division of Youth and Family Services, as a child care center. The facility is opened between 6:30 a.m. and 6:30 p.m., and includes a before- and after-care program. Wee Love provides structured educational services suitable to the age of the children enrolled in the center, including singing, crafts and story time. However, the before- and after-school program “lacked any indicia of being educational and was purely child care” raising a question over the entitlement to an educational exemption.

Under New Jersey, if a portion of property is not used for exempt purposes, that portion of the property can be assessed. In this case, since there was such an overlap in the use of the property, the court decided to use the “predominant use” test to determine if an apportionment of the tax assessment was feasible. Under this test, if the predominant use of the property is for the exempt purpose (ie., school use), the entire property will be exempt. The court ultimately found that virtually all of the building was being used by the pre- school children, and although at times some portion was occupied by the before- and after-school participants, the predominate use of the building was as a school. As a result, the entire property was exempt from real property taxes.

Day care centers which conduct educational programs should be exempt from paying property taxes, providing the predominate use of the property is for educational programs. The fact that the day care also provides some services that may be considered “mere baby sitting” should not jeopardize the exemption. This assumes that all other requirements for exemption are in place (ie., certificate of incorporation properly identifies the purpose). In order to maintain the exempt status, it is advisable for day care centers to prepare formal lesson plans (albeit basic) in order to document what educational activities are being conducted at the center.