Church Law and Tax 1994-03-01 Recent Developments

Taxation – Church Property

Richard R. Hammar, J.D., LL.M., CPA

• Key point: A church-owned parsonage is exempt from property taxation in some states, even if the minister who lives in the parsonage performs few if any ministerial duties in the parsonage.

• The Nebraska Supreme Court ruled that church-owned parsonages are exempt from property taxes even though the clergy who live in them perform some of their religious responsibilities in a church office. The Nebraska Conference of the United Methodist Church (the conference) is operated as an itinerant ministry in which pastors are rotated among local churches by their bishop. District superintendents are appointed by the bishop to supervise churches in the district and assist in administration. Under this itinerant system, a Methodist minister can expect to be relocated every 5 to 8 years, and district superintendents are replaced by the bishop at least every 6 years. To facilitate this mobility, the conference owns several parsonages which provide housing for pastors and superintendents while they are serving in a particular community. Superintendents are required to live in these parsonages as a condition of their employment. One of these parsonages is used as the residence for the district superintendent of the northwest district in Nebraska. This district contains some 25 pastors and 38 churches. The district superintendent of this district conducts worship services in churches some 25 weeks each year, provides pastoral support to district clergy and their families, and fills in for clergy who are ill or absent. For many years the district applied for and received an annual exemption of the parsonage from property tax. The 1990 application for exemption was denied by the tax assessor on the ground that the religious use of the parsonage had changed. This determination was based on the fact that in 1990 the district rented office space for the superintendent for three hours each day to produce a district newsletter, maintain church records, and prepare correspondence. The assessor concluded that the removal of these activities from the parsonage to a rented office prevented the parsonage from qualifying for exemption as a property used exclusively for religious purposes. The conference appealed this decision, and the state supreme court ruled that the parsonage was entitled to exemption despite the fact that some of the superintendent’s duties were transferred to a rented office. The court noted that Nebraska law exempts from property taxation any property that is owned by a religious organization and used exclusively for religious purposes, and that “this is the first opportunity for this court to address the question of whether a cleric’s use of a parsonage constitutes exclusive religious use for exemption purposes.” In concluding that the parsonage qualified for exemption the court observed:

The record before us shows that the parsonages are an essential part of the Methodist church, both in their day-to-day activities and within the overall scheme of the itinerant ministry of the Methodist church. The special role parsonages play in the Methodist ministry requires that consideration be given to United Methodist’s unequivocal use of the parsonage in the furtherance of its religious purpose …. [N]either the profession of a sectarian creed, nor the formal dedication or occupation of property to promote the objects and purposes of a faith thus expressed is an essential element of a “religious use,” nor a necessary prerequisite to and of an “exclusive religious purpose.” It is clear that the [superintendent’s] parsonage is used to promote the objects and purposes of a faith and would therefore fall under the above definition.

This conclusion was not affected by the fact that an office was rented for the superintendent’s use. The court concluded: “[A] parsonage owned by a church, which parsonage houses a pastor who is engaged in full-time ministerial work, which parsonage is provided to him for the convenience of the church and parishioners, and which parsonage serves numerous religious purposes, is property used exclusively for religious purposes and exempt from taxation.” Nebraska Annual Conference of the United Methodist Church v. Scotts Bluff County Board of Equalization, 499 N.W.2d 543 (Neb. 1993).