Key point. The tax-exempt status of church property generally is determined by the actual use of the property on the "tax assessment" date.
A New Jersey court ruled that a commercial building purchased by a church as the site of a new sanctuary was not entitled to exemption from property taxation since the property was in the process of being renovated on the tax assessment date.
A church and parking lot were exempt from local property tax. However, as the congregation grew, it sought opportunities to expand its facilities. In September 2009, the church purchased property (the "adjoining property"). Prior to the sale, the adjoining property was improved with a commercial warehouse.
Sometime between 2009 and 2012, the church filed an application for local property tax exemption for the adjoining property. The city denied the application, and the church did not appeal the denial.
The church claimed that from 2009 through 2011, it used the property in furtherance of its work, including an "extension of its regular religious activities," including for "ceremonial activities, religious services during mild weather months, youth rallies, women's rallies, fundraising activities, fairs and storage of various items associated with church functions."
Beginning in late 2011, the church began a series of significant renovations and improvements to the property to convert it from a commercial warehouse into a large sanctuary, offices, and meeting space. Building permits were issued for the interior construction and renovation, including building, framing, electrical, plumbing, mechanical (installation of heating, ventilation, and air conditioning systems), and installation of fire protection apparatus. Soon thereafter, construction of the renovations and improvements to the subject property began.
In 2012, the church applied for local property tax exemption for the adjacent property for the 2013 tax year. The city denied the application. The plaintiff appealed the denial, as well as the reasonableness of the 2013 tax year assessment of $213,000.
The church asked a court to rule that the property was exempt from local property tax for 2013. The New Jersey Tax Court began its opinion by noting that "in addressing a tax exemption based on construction of a new building for a property not previously tax-exempt, the courts have principally focused on whether as of the assessing date, the property was in actual use, or was a fully functional establishment prepared to offer its charitable services to the public … . Stated differently, the inquiry is whether the property was, as of the assessing date, a fully operating institution, ready and waiting to expend its charitable endeavors on those who might apply for them." The court noted:
As of the October 1, 2012 assessing date, plaintiff was making limited use of the partially renovated structure on the subject property by conducting daily 20-minute morning prayer services. However, these prayer services were incidental to the prayer services, offered by the church, in its adjacent building, and were limited to church members, who were part of the construction team, offering inspirational blessings as they began their workday to renovate the subject property. These prayer services were not available to the public and do not constitute actual use, as contemplated under [the exemption] … .
Moreover, the church's minister readily acknowledged that "formal religious services commenced around the time of Thanksgiving 2012," some six to seven weeks after the October 1, 2012 assessing date. Significantly, a temporary certificate of occupancy, lawfully permitting the subject property to be occupied and used by the public for its intended religious purpose, was not issued until April 15, 2013, some six months after the assessing date. The record before the court further discloses that construction on the subject property continued after the October 1, 2012 assessing date, with interior finish work being performed, and building construction code inspections for the fire alarm system, interior building finishes, mechanical systems, building, and electrical systems, being conducted on November 30, 2012, December 30, 2012, January 3, 2013, July 1, 2013, and July 23, 2013.
The court concluded that the church was not in a position to provide its services or benefits to the public, as of the October 1, 2012, assessment date. As a result of ongoing construction and renovations, the structure was not available, nor was it ready to be occupied and used by the public for religious or charitable activities until sometime following the October 1, 2012, assessment date. Thus, as of the assessing date, the only recipients of the plaintiff's religious services on the subject property were the parishioners and their spouses, who were part of the construction team, dedicated to renovating the structure. Neither the public, nor the vast majority of the plaintiff's congregation derived any benefit from the partially completed structure as of the October 1, 2012, assessing date. Thus, no quid pro quo was offered by the plaintiff thereby entitling it to tax exemption for the subject property.
What this means for churches
The tax-exempt status of church property generally is determined by the actual use of the property on the "tax assessment" date. This often creates confusion as to the tax status of property purchased by a church and in the process of renovation on the assessment date. The exempt status of church property that is under significant renovation on the assessment date, and not fully functioning as a church, is in doubt. Christian Mission v. Passaic City, 30 N.J.Tax 357 (2018).