Day cares in Camden losing tax exemptions

For the first time, Camden is billing nonprofit day-care centers for property taxes, but the centers are fighting back, saying they can't afford to pay.

The day cares are among at least 58 percent of properties in the city that did not pay property taxes in 2010.

"It was wrong, and we should correct it," said Camden County tax administrator Kelly Heppe.

The taxes would benefit the cash-strapped city, county, and schools.

But after decades of not paying property taxes, these centers are not going down without a fight. Several of them have teamed up, saying the city and county have given them the runaround, and they are seeking legal assistance.

The city and county "did not explain why," said a frustrated Diana L. Walker, executive director of Martin Luther King Jr. Day Care in South Camden. "It feels like a game is being played."

To make matters worse, she says, a few nonprofit day cares did not have their tax exemptions revoked. The inconsistencies do not make sense, she said.

Martin Luther King Jr. Day Care, which was assessed at $165,000 in 2010, is running with a slight deficit, Walker said, so it cannot afford to pay $7,500 in property taxes.

Year after year, Walker's business has been certified as a nonprofit by the IRS, she said. The fees she collects are minimal; about 90 percent of her clientele are low-income parents, who are not charged market rate.

"The underlying assumption is that we make a profit, but we don't," Walker said.

Then there's the education component. Some of Camden's nonprofit day cares say they operate just like a school with a curriculum and lesson plans, and, like schools, they should be not be taxed.

"The line between a day care and preschool is somewhat muddy," said Saul Wolfe, a Livingston lawyer in real property valuation litigation and a former tax assessor in Newark. "At what point is it educational?"

State statutes allow tax exemptions for schools but do not "spell out what constitutes a school," he said.

While the city was undergoing a full property revaluation over the last couple of years, the Camden County Board of Taxation helped sort through records and found what could be considered a costly mistake. Various Camden day cares, with a combined assessed property value of close to $3 million, including more than six day-care centers owned by Respond Inc., were listed as tax-exempt.

That does not include vacant lots that many of the day cares own and also were not taxed.

The county tax administrator's interpretation was that if the day care is not operating within or as part of a church, it should pay taxes. And she added: "Vacant land should always be taxed."

City officials did not respond to repeated requests for an interview with tax assessor Frank Librizzi to comment on the policy.

"In the past . . . an assumption was made that they were tax-exempt," city attorney Marc Riondino said.

Letters were sent out to the day cares in December and January notifying them about the revocation of their tax-exempt status.

Many of the day-care directors interviewed for this article said they have 501(c)(3) certification as "nonprofit" from the IRS. However, Heppe said that nonprofit certification has "nothing to do with" municipal property taxes.

To be exempt from property taxes, an organization must fill out an "initial statement" form prescribed by the state Division of Taxation and return it to the municipal tax assessor's office.

El Centro Comunal Borincano day-care executive director Sonia Plaza, like several other directors, said she has always filled out the form. A 2006 letter signed by Librizzi states that El Centro is "tax exempt as of the 2005 taxing year."

Initial statements are to be filed every three years. Plaza said she sent her most recent form in October.

In that application, which specifically says that federal 501(c)(3) status is "not controlling with respect to New Jersey property tax exemptions," the organization must attempt to prove it falls into a tax-exempt statute, which includes educational, religious, and charitable organizations.

Then, when considering nonprofit day cares as educational or charitable organizations, the assessor would look at the fees collected.

"Follow the money trail, where is it ending," said Cherry Hill tax assessor Michael Raio.

The assessor, following state regulations and case law, ultimately has the discretion of approving or denying tax-exempt status, Raio said.

"There's not one broad blanket," he said.

Although the assessor makes that initial decision on tax exemption, the decision can be appealed to the County Board of Taxation. Camden City officials went as far as to say they encouraged the day cares to appeal.

Martha McRae, executive director of the Broadway Family Center in the Central Waterfront neighborhood, said she shouldn't have to appeal.

"That's not fair to the agencies that are taking care of their kids," McRae said, predicting that if the property taxes are enforced, a lot of the day cares will have to close.

"We're flabbergasted," she said.

McRae said her day care, which has served many city employees' children for more than 30 years, has 93 children enrolled. With the property valued at $257,600 in 2010, taxes would amount to close to $12,000.

"We don't want to overly burden them. They do provide a service to the city," Riondino said. "They are going to have their due process."

One day-care owner already lost her first appeal to the county tax board.

In January 2010, El Centro Comunal Borincano was one of the first day cares to receive a tax-exempt revocation letter at its building on Martin Luther King Boulevard in downtown Camden.

"I said, 'Wait a minute, it must be a mistake because we're tax-exempt,' " executive director Plaza said.

Since then, Plaza has been trying to fight against her new "for-profit" status, which entailed a $28,900 tax bill for 2010. She will soon receive her 2011 tax bill.

"We don't have that kind of money," she said. "I went through so much to have this building built, and now they are giving me a hard time." The building was completed in 2007.

She is filing a taxpayer complaint against the city.

The process could take a long time, says a day-care operator who experienced a similar tax fight several years ago in Burlington County.

After six years of making donations in lieu of taxes to Maple Shade, Wee Love Inc. decided it needed the money for programs. That's when the township sent the nonprofit with before- and after-school care its first property- tax bill for its $500,000 building.

The Appellate Division of the Superior Court of New Jersey ruled in the day care's favor in 2008.

"We are a school. That was our argument," executive director Carol Morrell said. "We are not babysitting."

The court found that if the predominant use of the property is for an exempt purpose, the entire property should be exempt.

Plaza is hoping to use Wee Love's example to her advantage with her new $630,000 facility.

The irony is that the El Centro Day Care's original location on Second Street, which has been in existence since 1972, did not receive a notification.

Inconsistencies in who received a letter and who didn't have led to a lot of confusion.

Mary H. Thomas Nursery Home, on Eighth Street in the Liberty Park area, has not received any notification. Director Chanace Gideon said her day care, which has been around for about 80 years, has always been tax exempt.

Most of the day cares that received a letter revoking their tax-exempt status say they have not heard of nonprofits other than day cares receiving such notice.

City attorney Riondino said he had not seen the "complete list" of nonprofits that are losing their tax-exempt status.

In the next week or so, the city plans to host an informational meeting for nonprofits that have concerns about property taxes, city spokesman Robert Corrales said.

"We're going to help them out," he said.

However, with many municipalities across the state facing budget deficits and cuts to state aid, Wolfe says, it only makes sense that city and county officials are zooming in on tax-exempt properties to find potential revenue.

"Municipalities are taking a careful look at properties that have been tax exempt and realizing maybe they shouldn't have been exempt," Wolfe said. "The fact that you had [tax exemption] before does not entitle you."