Tax Exemptions for Infrequently Used Property

Key point. Undeveloped church-owned property generally is not exempt from property taxation. However, some courts have ruled that such property may be exempt from taxation if its sole, though infrequent, use is for religious purposes.

The Kentucky Supreme Court ruled that church-owned vacant land was entitled to a property tax exemption despite infrequent religious use. The Kentucky Supreme Court ruled that a 10-acre tract of largely vacant property that a church had acquired for future expansion was exempt from property taxation due to its occasional use for church purposes. A church purchased ten acres of land, including two houses. The acreage was divided into two parcels, each consisting of approximately five acres, with a single family dwelling located on each parcel. It was the stated purpose of the church to build a new, larger facility on this property, as well as to provide for an activity center and other related church facilities as soon as finances allowed. The two houses were rented to individuals for residential purposes, with the rental income being used by the church building fund to service a mortgage on the property. The field on the side of these houses is used by the church for recreational purposes about once a year. On two occasions, the church has held an annual church picnic on the property. And while there have been no improvements or permanent structures erected by the church, a cross and bench were erected on a small portion of the property with permission of the tenants. This area is used for meditation by some of the parishioners.

The tax assessor determined that the property was subject to taxation. The church appealed to the state supreme court, claiming that the property was exempt on the basis of a provision in the state constitution exempting from taxation "property owned and occupied by … institutions of religion." The court, in concluding that the property was entitled to exemption, observed:

While the evidence does not indicate a continuous use of these grounds by [the church] it does support the finding of the trial court as to periodic use, such as horseshoe pitching, volleyball, softball, and tugs of war during the occasional outings by the church membership. There is also a portion used as a prayer and meditation area, including a bench and a large wooden cross. In essence, the congregation has used this property like a park, although not on either a daily or weekly basis. However, it would seem that it has been utilized by the church with the same frequency as many, if not most, churches use outdoor land that adjoins their main sanctuaries. Therefore, we find that substantial evidence supports the findings by the trial court that the land owned by the church, but not occupied by the tenants, is, in fact, occupied by the church for purposes of the Kentucky Constitution.

The court then made the following significant comment:

We recognize that churches are unique. For the most part, they are never "occupied" in the conventional sense. A vast majority of properties owned by "institutions of religion" such as churches, mosques, tabernacles, temples, and the like, are used for places of worship at specified times and may remain vacant for substantial periods during the week. We further recognize that adjacent facilities, such as activity buildings, gymnasiums, even shelters, may be owned by religious institutions, but perhaps utilized irregularly on an as needed basis. School buildings owned by religious institutions may, in fact, sit idle for a great deal of time. This would not preclude these buildings from being "occupied" … It is precisely for these reasons that we find that the trial court's findings were supported substantially by the evidence in this case as to the property not being rented out as residences. Freeman v. St. Andrew Orthodox Church, Inc. 294 S.W.3d 425 (Ky. 2009).

This Recent Development first appeared in Church Law & Tax Report, January/February 2011.