Newark, N.J. — The Newark archdiocese in recent years quietly entered the headstone and mausoleum business, a lucrative venture for which the archdiocese acknowledges it must pay a particular state tax.
Yet over the past eight years, it hasn't paid a penny.
According to court records and the plaintiffs in a legal fight that could reshape New Jersey's funeral industry, the archdiocese owes the state tens of thousands of dollars -- if not more than $100,000 -- in so-called use taxes, which are based on the wholesale prices of monuments and private mausoleums.
The disclosure could create new public relations difficulties for Archbishop John J. Myers, who has faced a torrent of criticism from inside and outside the archdiocese since The Star-Ledger revealed last month he is building a lavish extension on his future retirement home in Hunterdon County.
Legal papers connected to the case also show how the archdiocese has transformed its burial grounds into a source of enormous income, with millions of dollars flowing into the Newark chancery each year, possibly in violation of a state law that restricts the use of cemetery revenue.
In a December 2012 email exchange between Andrew Schafer, the cemeteries' executive director, and Msgr. Michael Andreano, the chancellor, Schafer says the new headstone business should bring in $500,000 a year, allowing him to increase the cemeteries' annual assessment -- or tribute to the archdiocese -- to $3 million from $2.8 million.
"Full speed ahead on this Andy!" Andreano responds. "Great news and potential. Do let me know if you sense the beginnings of any 'negative p.r.' However, no need to let it change your plan and approach."
The failure to pay the tax and the existence of the annual assessment emerged during the discovery phase of a lawsuit brought against the archdiocese by two headstone dealers and their trade association, the Monument Builders of New Jersey.
On April 1, the plaintiffs will ask a Superior Court judge in New Brunswick for an injunction barring the archdiocese from continuing its headstone and private mausoleum business. They contend the cemeteries are using sleight of hand to sidestep a state law prohibiting cemeteries from selling the objects. New Jersey is one of only a handful of states with such a ban.
The dispute does not involve large communal mausoleums, which sometimes hold thousands of bodies in individual crypts.
The archdiocese is the first New Jersey cemetery operator -- religious or nonsectarian -- to profit from monuments and private mausoleums beyond installing foundations, according to interviews with cemetery executives, headstone dealers, funeral directors and representatives of the other dioceses.
Though religious organizations are largely tax-exempt, the archdiocese is subject to the use tax because it is purchasing monuments and private mausoleums to turn a profit in direct competition with private companies, the plaintiffs contend. Lawyers for the archdiocese, without citing a reason, agreed in legal papers the tax applied.
"The archdiocese is subject to the New Jersey use tax on its purchase of a monument or private mausoleum," attorney Donald F. Miceli wrote in his response to the Monument Builders' motion for an injunction.
The monument vendors say the archdiocese has an unfair competitive advantage because its cemeteries are often the first and last point of contact for families. If the monument business is allowed to continue, they argue, it will bankrupt them.
"Here's what's going to happen," said John Burns Jr., president of the Monument Builders. "As time goes on, they're going to perfect this. Their sales force is going to be better educated. They will monopolize the industry. And we will cease to exist."
Ralph Rullis, a third-generation monument dealer, said that if the archdiocese continues to market monuments, he expects to lose 75 to 80 percent of his sales at McHugh-Tully Memorials in East Hanover.
"After doing this for 40 years, I would say it's a certainty we would go out of business," said Rullis, 65, of Parsippany.
Others in the funeral industry say that if the archdiocese prevails in court, it could open the door for all of New Jersey's cemeteries, religious or not, to market monuments and mausoleums.
One question is whether the expansion would stop at monuments and private mausoleums.
Cemetery executives in Newark have taken a novel approach to monuments and mausoleums.
The executives, along with lawyers for the archdiocese, say in court papers they aren't, in fact, selling any physical objects. When the archdiocese buys a private family mausoleum -- typically large enough for two to eight people -- it owns the structure in perpetuity. What's sold is the right to use the space, akin to an eternal lease.
Similarly, the archdiocese owns the headstones it buys. Instead of reselling those monuments to the public, it sells "inscription rights" on them, allowing buyers to personalize them with words and symbols.
The prices for inscription and entombment rights are about the same as what one would pay to buy a headstone or mausoleum outright, the monument dealers say.
The legal briefs filed by the archdiocese make no mention of the tax liability on headstones and mausoleums.
Since 2006, the archdiocese has sold entombment rights in dozens of private mausoleums priced as high as $329,000, according to records turned over to the plaintiffs. The headstone program began last June, with inscription rights selling for as little as $900 and as much as $4,288, the records show.
Burns, the Monument Builders president, said he counted at least 55 private mausoleums installed by the archdiocese.
The use tax requires that 7 percent of the wholesale price of a monument or mausoleum be paid to the state. Returns are typically filed quarterly.
The incomplete records provided to Burns' attorney show the archdiocese has spent just over $1 million to buy private mausoleums, meaning the state is owed at least $70,000. That figure is certain to increase as mausoleums at other cemeteries are factored in.
It's not clear how many inscription rights the archdiocese has sold for headstones.
"I think it's atrocious that they cheat the government out of money," Burns said. "If we didn't pay our taxes, they would have come in and padlocked our doors by now. But the people at the archdiocese think they can get away with anything."