Originally published on Forbes.com May 28th, 2014
Dietrich Mateschitz, who comes in at #141 on Forbes Billionaire list, owns a major league soccer team that he named after his energy drink Red Bull. The team is called The New York Red Bulls even though it is located in New Jersey. The folks in Harrison, NJ, which is barely a hop skip and a jump from the Hudson River probably are not too troubled by that disrespect. Having the team not pay property taxes on its stadium is another matter entirely. Harrison, New Jersey is a small town, not much over a mile square with a population just under 15,000. It is across the Passaic River from Newark.
The Red Bulls thought that they did not have to pay property taxes. The town thought otherwise. The appellate division of the New Jersey Appellate Court has ruled in favor of the town.
The Red Bulls did have a reasonable basis for not paying. That was the deal they had made with the town’s Redeveopment Authority, which leased them the land on which they built the stadium.. They kind of slipped up though, because somebody forgot to talk to the assessor.
With respect to real property taxes, the lease provided as follows:
It is the understanding of the Parties that the and any Leasehold Interest of in the or Premises by or pursuant to this Lease or the Redeveloper Agreement shall not be subject to real property taxation. In the event that such tax exempt status is contested, the Parties agree to jointly defend such tax exempt status. If the or the Leasehold Interest of is found to be subject to property taxation, shall pay all of such taxes.
The Town’s tax assessor certified that based on the lease and sublease, the Agency owned the land and RedBull owned the stadium. He stated that although the parties believed the land and stadium would be exempt from real property taxes, the lease nevertheless provided that RedBull would pay property taxes if it was determined the property was not exempt. He also stated that the parties never consulted him about an exemption, and that “no parcel has been granted any type of total real property tax exemption and no abatement agreement exist for the stadium.”
Oops.
Even though the land is owned by a governmental entity, it must have a public use to be tax-exempt.
We recognize that the Authorities Law authorizes the Authority to operate public facilities for public recreation and entertainment; however, RedBull operates the stadium privately for its own economic benefit, not for recreation or activities freely open to the general public. Notwithstanding the Town’s right to use the stadium for four civic events per year, or the Agency’s ability to use the stadium for events open to the general public, those uses are subordinate to RedBull’s rights and do not convert the stadium to a public use as contemplated by the Authorities Law and Redevelopment Law.
Unquestionably, attracting a major league soccer team was a major part of the redevelopment plan. Nevertheless, RedBull’s actual operation of the stadium exceeds the Authority’s and Agency’s statutory mandates. Accordingly, because the property is not used for a statutorily authorized public purpose, it is not tax exempt.
But There’s More
I at least look at every federal decision concerning taxation and then go trolling through the states in alphabetical order. Property tax cases like this are one of the things that I follow. Something I’ve noticed is the tension between enterprises that might arguably provide a benefit to a broad area, but will not provide enough local benefit to influence assessors to be generous in granting exemptions. On the other hand interesting as I find this case, it had already gotten quite a bit of coverage by the time I got to it, so I might have passed on it, but I do have a little more to offer.
Exempting real property from a town’s tax base has a pretty direct effect forcing the town to either cut expenses or raise everybody else’s rate. There was nearly $3 Million dollars at stake, which is an awful lot of money for a town with a population under 15,000. Of course, if the Red Bulls had a lot of local goodwill that might have swayed the assessors to look at things a little differently. That is where I can give you a little additional perspective.
It happens that one of my relatives is a rabid soccer fan and not coincidentally a resident of Harrison NJ. So I ask my cousin Chris Dwyer, Red Bulls season ticket holder, although fan of some other unnamed team, for his take on the situation.
Harrison, NJ is too small a town to support a top-level sports team. But they’re here. As long as they’re here, they really ought to be good citizens – but they’re not. They do nothing with the town, nothing with the West Hudson region, and barely anything with their home state. I’d be very surprised if Dietrich Mateschitz could find Harrison, NJ on a map.
In terms of economic impact, I rarely see any Red Bulls jerseys north of I-280 on game day. I’m pretty sure the QuikChek on Bergen gets a little bump, as well as the Dunkin’ Donuts in the same strip mall. But because that ballpark is separated from most of the town by 280, folks just don’t get to the local businesses. And because the Harrison PATH station isn’t big enough to handle gameday crowds, many people just walk through the Ironbound to Penn Station. I know the Supporters Groups do their pre-game activities in Newark.
So, while it would be good of them, given their net-negative impact on the town, to be good, visible neighbors, by not paying their taxes they’ve created a further strain on town resources. Paying their taxes is the absolute least they could do, and they don’t.
I love soccer – probably more than is healthy. I moved to Harrison because there’s a soccer stadium there (OK, so that’s one tick-mark on the plus side for RBNY). I’m a season ticket holder, even though I’m a fan of a different team in the league (no need to mention which team). But the way the Red Bulls treat the town of Harrison NJ is scandalous.
What could they do? Sponsor one of the many parades that go down Frank E Rogers. Hold a meet-and-greet at the soccer courts on Frank E Rodgers. “Free hotdogs for West Hudson residents” night. Have one of their big Season Ticket Holder events at Tops in East Newark (site of the first USA international, by the way!) instead of the city. Host the Kearny-Harrison HS soccer games, and help with the advertising. Anything.
Well, at least it looks like the team will be paying taxes now.
You can follow me on twitter @peterreillycpa.
Afternote
Chris is the author of a soon to be released novel Thirty Days Across America, which is, believe it or not, about a couple of soccer fans living their passion for the sport.