Princeton shirks its tax obligations, says lawsuit

Robby Soave | Reporter

Should Princeton University, a not-for-profit institution, have to pay taxes? Residents of Princeton, N.J., think so.

“They are one of the wealthiest entities of humankind and they are refusing to pay their property taxes,” said Bruce Afran, a lawyer representing residents of the town in their lawsuit against the university, in a statement.

Recently, a tax court judge refused the university’s request to dismiss the case, saying that the stakes are too important. If the residents win, it could have a major impact on how universities structure their property and finances.

The residents have argued that Princeton uses some of its buildings for explicitly commercial purposes, and should pay taxes on them. The university swore to address this issue, if the court felt it necessary.

“I think if there are going to be any discussions, it would be about whether or not there are any specific buildings to make an adjustment to,” said Princeton Vice President Bob Durkee in a statement. “And if there are any at all, it will be quite modest.”

But another aspect of the suit — and one with potentially far-reaching consequences — holds that the university is now a commercial enterprise, since it shares a portion of its profits on pharmaceutical research with faculty members.

“If they wanted to act like a traditional university they would put the patent into the public domain, and let everyone benefit from it equally,” said Afran. “Once they choose the route of commercializing their patent, they are now a commercial entity and need to pay their taxes like any other commercial entity. The university can’t have it both ways.”

Since 2005, the university has shared $118 million in patent royalties with faculty. This pay structure resembles that of a pharmaceutical research company, not a tax-exempt university, the suit argues.

The corporatization of higher education is increasingly an issue of public concern. New York University attracted scrutiny recently for financing lavish vacation homes for its top administrators and faculty. And the salaries of university leaders nationwide trend ever upward, leading some observers to compare them to corporate CEOs.

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