Court: Red Bulls must pay taxes

By Ron Leir
Observer Correspondent 


A key legal referee’s call has gone against the New York Red Bulls soccer team.

A state Appellate Court ruled May 12 that Harrison has the right to tax both the Red Bull Arena, the stadium where the professional soccer team plays its home games, and the land occupied by the stadium.

The team has 20 days from the time it was served with the court’s ruling to ask the state Supreme Court to consider hearing the case. That would give the Red Bulls until early next month to decide whether to call for a legal replay.

Red Bulls attorney Thomas Denitzio Jr. declined comment but team spokesman Brian Tsao said: “We respect the court’s decision and will discuss our legal options internally. As always, we look forward to continue being a partner for the Town of Harrison and its development for the many years to come.”

For the time being, the team has paid the town all real estate taxes that have come due to date, according to Tsao, while having reserved its right to contest whether they should be paying them at all.

Some background: In 1998, Harrison declared 250 acres of abandoned industrial property along its Passaic River waterfront a redevelopment area and created the Harrison Redevelopment Agency (HRA) and the Hudson County Improvement Authority (HCIA) partnered with Harrison to facilitate a redevelopment plan for that area.

At the time, Harrison planned to provide space within the redevelopment tract to create a soccer stadium as the possible future home for the MetroStars professional soccer team.

In 2003, the town adopted a revised redevelopment plan that proposed to reserve about 12 acres of land to accommodate a 25,000 seat multi-use sports and entertainment stadium , “envisioned to be the new home of the MetroStars” and home to concerts, graduations and local sporting events.

In 2005, the town sold $40 million in mostly tax-exempt general obligation bonds to the HCIA to finance the acquisition and preparation of the land and gave the proceeds to the HRA to acquire and prepare the land. And Red Bull (owner of the successor team) agreed to finance and build the stadium.

In May 2006, Red Bull, HRA and HCIA signed three agreements: a redeveloper agreement committing the Red Bulls to build a soccer/ entertainment stadium; a ground and stadium lease committing the HRA to lease the land to the HCIA for 30 years; and a ground and stadium sub-lease requiring the HCIA to sublet the land to the Red Bulls. Also, the team agreed to play its home games at the stadium for at least seven years.

Red Bull would receive all revenue generated by the stadium, including revenue from the sale of naming rights.

Red Bull was also granted “exclusive right to manage, operate and control [the land, stadium, parking lots and infrastructure],” including negotiating sponsor/signage/ vendor agreements, setting ticket prices for all events and making improvements/ alterations.

HRA and the town could use the stadium on a limited basis: the town, for example, was permitted four civic events a year, such as public ceremonies, high school/regional/ state sports championships and municipal fairs, but Red Bull would get 50% of the net revenues from these events.

The lease provided that the land, stadium, parking lots and infrastructure “shall not be subject to real property taxation” and that “in the event that such tax exempt status is contested, the Parties agree to jointly defend such tax exempt status.”

But then it went on to say that, “If the [land] or the leasehold interest of [Red Bulls] is found to be subject to property taxation, [Red Bulls] shall pay all of such taxes.”

The new stadium, named Red Bull Arena, opened in 2010 and the team played 24 home games there and 18 in 2011. The Arena also accommodated free viewing parties for the World Cup and Big East Championship soccer games, three international rugby games, three international soccer matches and a concert.

For 2010, Harrison sent Red Bull a tax bill of $215,863 for the land and $1.29 million for the stadium; in 2011, the town taxed the land at $119,482 and the stadium at $1.22 million.

Red Bull contested the town’s actions, citing state Redevelopment Law which says: “All properties of an authority are hereby declared to be public property of a political subdivision of the State and those properties, and all public facilities, whether or not owned by the authority, are devoted to an essential public and governmental function and purpose and shall be exempt from all taxes and special assessments of the State or any subdivision thereof.”

But, on June 13, 2012, state Tax Court Judge Christine Nugent dismissed the team’s challenge, concluding that the HRA owned the land, Red Bulls owned the stadium and neither the land nor the stadium were tax exempt because they were not used for a “public purpose.”

Appellate Judges Marie Simonelli, Douglas Fasciale and Michael Haas came to the same conclusion but from a somewhat different perspective.

“We conclude that the [HRA] owns the land and stadium, and the property is not tax exempt because it is not devoted to the public use contemplated by the exempting statutes,” they wrote in a unanimous opinion.

“Generally,” the judges said, “all real property in New Jersey is subject to taxation unless expressly exempt by the Legislature.”

As an example of that legislative intent, the judges pointed to the N.J. Highway Authority’s construction of the Garden State Arts Center (now PNC Bank Arts Center) amphitheater and reception center, both leased to private operators. The amphitheater was found to be tax-exempt because it “served the NJHA’s underlying statutory purpose” in creating revenue for the authority while the reception center was declared taxable “because it had no nexus to the Arts Center’s original purpose [“to promote the public health and welfare…”] and exceeded the NJHA’s statutory mandate.”

Analogously, the judges cited the case of the N.J. Sports & Exposition Authority (NJSEA) which was authorized by the Legislature to carry out a “public purpose” by building, operating, owning and managing, “either directly or indirectly through lessees … a project to be located in the Hackensack meadowlands … consisting of one or more stadiums ….racetrack [etc.] …” And, the judges noted, NJSEA “received all revenue generated by the sports complex, which is used to pay interest and principal on bonds and notes issued in connection with the project.”

By contrast, the judges said, the laws governing the operations of the HRA and HCIA provide only for the “acquiring and clearing” of land and “not the actual operation of a stadium or any other commercial establishment that [the town’s redevelopment plan] eventually attracted.”

“We recognize that the Authorities Law authorizes the [HCIA] to operate to operate public facilities for public recreation and entertainment; however, Red Bull operates the stadium privately for its own economic benefit, not for recreation or activities freely open to the general public,” the judges wrote.

And, they added, even though the town and HRA are permitted a limited public use of the Arena, “those uses are subordinate to Red Bull’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, Red Bull’s actual operation of the stadium exceeds the [HCIA’s] and [HRA’s] statutory mandates. Accordingly, because the property is not used for a statutorily authorized public purpose, it is not tax exempt.”

The message being delivered here, said Harrison Tax Assessor Al Cifelli, is that, “there is nothing in those statutes that empowers a government agency to be in the private sports business by leasing [a stadium] to a private entity that is making all the decisions [about its operation] and, when you accept that and overlay the general laws of taxation, you can’t exempt a property unless it has a clear ‘public purpose.’ ’’

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