Recent Developments in Illinois Regarding the Taxation of Church Property

An Illinois court ruled that a church’s parking lots, a storage building, and a former sanctuary that had been badly damaged in a fire, were all exempt from property taxation.

Church Law and Tax1999-11-01

Taxation-Church Property

Key point. The exemption of church property from property taxation extends to auxiliary buildings and parking lots that facilitate the accomplishment of the church’s exempt purposes.

An Illinois court ruled that a church’s parking lots, a storage building, and a former sanctuary that had been badly damaged in a fire, were all exempt from property taxation. In 1992, a church sought a religious-use property tax exemption for various parcels of real estate in Chicago. A state agency denied the application, and the church requested a formal hearing to determine whether the parcels warranted exemption. At the hearing, the church requested exemption for the following properties: (1) a burned church building; (2) a private school located directly east of the burned church; (3) a large storage building; and (4) various parking lots. The burned church building had been damaged by a fire a few years earlier. The fire resulted in the relocation of worship services and other church activities to the school building. A judge determined that the school was exempt, as were the parking lots associated with it. However, the judge concluded that the burned church was not exempt even though the congregation intended to rebuild it when they received the proceeds from an insurance policy, since its condition prevented it from being used for religious purposes. Further, the storage building was “in a dilapidated condition that rendered it unsuitable for regular use” and therefore was not exempt. The judge also noted that the church had failed to show how the storage facility furthered its exempt purpose and concluded that the storage building was not reasonably necessary to further the church’s exempt operations.

A state appeals court agreed that the school and associated parking lot were exempt, but it also ruled that the burned church building, the storage building, and the parking lots associated with these two buildings also were entitled to exemption. The court noted that Illinois law exempts from property taxation (1) “all property used exclusively for religious purposes, or used exclusively for school and religious purposes … and not leased or otherwise used with a view to profit” and (2) “parking areas, not leased or used for profit, when used as a part of a use for which an exemption is provided hereinbefore and owned by any … school or religious or charitable institution which meets the qualifications for exemption.”

The burned church building

The court noted that the church had the burden of proving that it owned the building and that the building was used exclusively for religious purposes and not leased or used with a view to profit. Since there was no question that the church owned the building, and did not lease it, the only remaining issue was whether the building was used exclusively for religious purposes. The court concluded that it was. It noted that “to the extent that the burned church was used, it was used exclusively for a religious purpose.” It referred to the testimony of a church leader who testified that “sometimes we would go there to pray.” This satisfied the court that the building was used exclusively for religious purposes. It concluded: “[W]here a property already is devoted to a religious purpose as the site of a place of worship, and has been so devoted for numerous years, an incidental interruption of its actual use for that religious purpose due to fire will not destroy the exemption. We conclude that to hold otherwise would be unreasonable and improper.” The court also noted that the church had established a building fund dedicated to rebuilding the burned church and was actively pursuing a legal remedy to obtain insurance proceeds following the fire.

Parking lots associated with the burned church

The trial judge had denied exemption to all of the church’s parking lots other than those associated directly with the school in which religious services were being conducted. The appeals court reversed this ruling, noting that the legislature

did not make the exemption of parking areas contingent upon location or proximity to exempt property. The plain language of the [law] requires that an applicant seeking an exemption for its parking area demonstrate three things: (1) ownership of the parking area by an exempt institution; (2) the fact that the parking area is not leased or used for profit; and (3) the fact that it is used as part of a use for which an exemption is provided ….

The court noted that the church had established its not-for-profit tax exempt status, its ownership of the parking areas, and the fact that the lots were not leased or used for profit. The only remaining question was whether the parking lots were used as part of a use for which an exemption is provided. The court concluded that they were. Once again, it relied on the testimony of a church leader who stated that the church used all of its parking facilities “not all of the time, but most of the time,” and that church buses remained parked there when not in use. This testimony convinced the court that all the church’s parking lots were used as part of an exempt use.

The storage building

The court noted that property will be exempt from taxation if it is “primarily used for purposes which are reasonably necessary for the accomplishment and fulfillment of the [purposes], or efficient administration, of the particular institution.” The court concluded that the storage building met this test: “[T]hough access to the building was limited, the building was used for storage, with certain persons going in and out to store and to retrieve items. Specifically, [the church] demonstrated that it used the storage building … for the purpose of storing desks, chairs, and air conditioners…. [S]o used, the storage building facilitated the congregation’s efforts to keep its church services, activities, and community outreach programs ongoing after the fire. Therefore, we conclude that … [the church] established that the storage building was primarily used for purposes reasonably necessary for the accomplishment and fulfillment of the congregation’s aims of worship and religious instruction, or the efficient administration of [the church].”

Application. This case will be a useful precedent to any church that is confronted by an aggressive tax assessor who wants to place church storage buildings or parking lots on the tax rolls. Mount Calvary Baptist Church, Inc. v. Zehnder, 706 N.E.2d 1008 (Ill. App. 1998). [State Taxes]

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