Recent Developments

Issues that affect ministers and churches
Property Tax Exemption and Rental of Parsonages
Does renting a parsonage affect its tax-exempt status?
Minnesota
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Does the temporary rental of a church-owned parsonage affect the tax-exempt status of the property under a state law exempting parsonages from taxation? Yes, concluded a Minnesota appeals court. An Episcopal church owned a parsonage that was occupied by its priest. The priest resigned in 1988, and a temporary replacement priest was appointed. However, the temporary replacement priest chose to live in a neighboring metropolitan area so as to qualify for the special educational needs of his son. Accordingly, the church rented the parsonage, and used the rental income to pay a housing allowance to its temporary priest. The church intended to hire a permanent priest in the near future who would live in the parsonage. A local tax assessor claimed that the parsonage lost its tax exemption when it ceased to be used as a parsonage and was rented. The church disagreed, claiming that the parsonage should remain exempt so long as it was rented temporarily while the church sought a permanent priest. The state appeals court noted that there were two issues: "(1) whether the property qualifies for exemption on the basis that the rent proceeds are utilized for church purposes; and (2) whether the temporary rental of a parsonage pending arrival of a new pastor destroys the tax exemption." The court rejected the view that the parsonage could retain its exemption on the ground that the rental income was used for church purposes. It quoted from a 1927 decision of the state supreme court: "When it ceased to be occupied or used as a residence for the pastor of the society and was rented to others for dwelling purposes it ceased to be a parsonage or to be used in any way for church or religious purposes. It then ceased to be `church property' just as a house of worship ceases to be such if it is abandoned for that purpose and rented and used for business purposes." The court further concluded that the temporary rental of the parsonage in this case pending arrival of the new priest destroyed the tax exemption of the property. It again relied on the earlier decision of the state supreme court:

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Posted: July 1, 1992
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