Why shouldn't Princeton pay taxes?

For the latest evidence of the town-gown divide, look no further than New Jersey, where earlier this summer residents of Princeton banded together to sue the prestigious school in their backyard. The residents argued that Princeton University, which boasts the largest endowment per student in the country, should no longer be entitled to its tax-exempt status because the school makes money—from its scientific patents, ticketed concerts, on-campus eateries and more. The Ivy League school is operating like a business, the plaintiffs say, so the tax code should treat it like one. …

In March the mayor of Pittsburgh, Luke Ravenstahl, sued the University of Pittsburgh Medical Center on grounds that the teaching hospital had a “profit motive” and therefore shouldn’t be tax exempt. The city sought to recover payroll as well as property taxes going back to 2007. The medical center filed a countersuit, claiming the city’s actions violated the due process and equal protection clauses of the Constitution because it singled out the hospital among all of Pittsburgh’s nonprofits. The city’s lawyers call this reasoning “bizarre,” and have filed a motion for it to be dismissed. …

As cities and towns struggle to pay for public services, it’s hard to blame public officials and taxpayers for wondering why well-off educational institutions aren’t sharing the load for police and fire departments, sanitation and road maintenance. The reason they don’t dates to 1917, when Congress decided that educational institutions, which then operated on a far more modest scale, should be exempt from federal income taxes.