Court Ruled That a Building Used as a Training Center for Religious Counseling Did Not Qualify for a Property Tax Exemption

A New Jersey state appeals court ruled that a building used in part as a

A New Jersey state appeals court ruled that a building used in part as a training center for religious counseling did not qualify for a property tax exemption.

A state law exempts from taxation "buildings actually and exclusively used in the work of … corporations organized exclusively for the moral and mental improvement of men, women, and children, or for charitable purposes, provided … [the activities] are not conducted for profit."

The court, in rejecting the organization's claim that the property was used exclusively for nonprofit, charitable purposes, observed that "counselors charged fees that were only slightly lower than comparable rates for private psychologists." It concluded that "where there is what might be considered a duplication of a private practice or service, the applicant for a tax exemption has a duty to demonstrate that the circumstances, charges, and public betterment justify exemption and do not reflect merely private practices cloaked in charitable coverings."

Church Contribution Trust v. Mendham Borough, 541 A.2d 249 (N.J. App. 1988)

Court Ruled That an Apartment Building Operated by a Lutheran Agency Was Exempt From Property Taxation

A Pennsylania state appeals court ruled that a 96-unit apartment building located on a 40-acre

A Pennsylania state appeals court ruled that a 96-unit apartment building located on a 40-acre retirement community operated by an agency of the Lutheran Church in America was exempt from property taxation.

The court concluded that the apartments qualified for exemption under a state law exempting "institutions of benevolence or charity … founded, endowed, and maintained by public or private charity," since the facility "charges monthly apartment fees that are by no means exorbitant and that are below actual operating cost; it does not request or receive financial information from apartment applicants before admission, and it routinely grants exonerations from payment of a portion of the monthly fee to residents who later demonstrate financial need."

However, the court ruled that 81 cottage units located on the same property were not exempt since the cottage operation consistently realized a substantial profit, and only a few residents were receiving a subsidy on the payment of fees. Appeal of Lutheran Social Services, 539 A.2d 895 (Pa. Common. 1988)

Court Upheld State’s Position, Rejecting Church’s Contention That Each Exempt Building Was Entitled to an Exemption of 50 Acres of Land

An Indiana court addressed the issue of the exemption of church camps from real estate

An Indiana court addressed the issue of the exemption of church camps from real estate taxes. The camp in question, which is owned and operated by the Indiana Association of Seventh Day Adventists, consists of 175 acres containing a staff lodge, 14 sleeping cabins, a dining hall, an assembly hall, a craft building, and a caretaker's house. It is used primarily as a summer church camp, a retreat, and a weekend meeting place for teachers, ministers, and other church personnel.

Prior to 1983, all of the camp's real estate and improvements were exempt from taxation. In 1983, however, the state denied the exemption for the caretaker's house and all land in excess of 50 acres, relying in part on the wording of the exemption statute which exempts a tract of land if a building situated on the property is exempt and if "the tract does not exceed 50 acres."

The court upheld the state's position, rejecting the church's contention that each exempt building was entitled to an exemption of 50 acres of land. It defined a "tract" as "any area of land that is under common ownership and is contained within a continuous border." Finally, the court rejected the church's claim that the exemption statute unconstitutionally exempted the property of certain organizations (e.g., YMCA, YWCA, Salvation Army, Boy Scouts, Girl Scouts) from property taxation without any acreage limitation, while imposing the acreage limitation on other organizations. Indiana Association of Seventh Day Adventists v. State Board of Tax Commissioners, 519 N.E.2d 772 (Ind. Tax Court 1988)

Undeveloped Tract of Church-Owned Property Was Not Exempt from State Property Taxation

Church Property

A Michigan court ruled that an undeveloped tract of church-owned property on which a sanctuary was about to be constructed was not exempt from state property taxation under a Michigan statute exempting "houses of public worship … used predominantly for religious services or for teaching of religious truths …."

The court concluded that "actual use of a building, not merely preparation for construction or even initiation of actual construction, is a prerequisite to an exemption from taxation" under the Michigan statute" since "by the statute's own terms, a prerequisite to an exemption is that the house of public worship be used predominantly for religious services or for teaching the religious truths and beliefs."

The court rejected contrary rulings in other states with the observation that such rulings were "based on the particular language of those states' exemption statutes." St. Paul Lutheran Church v. City of Riverview, 418 N.W.2d 412 (Mich. App. 1987)

Park Owned by United Church of Christ Qualified for Exemption as Property Used Exclusively for Religious Purposes

Church Property

An Illinois state appeals court ruled that a 1.6-acre "religious park" owned by the Illinois Conference of the United Church of Christ was exempt from property taxation.

The "Pilgrim Park" was owned by the 330-church Conference, and had been established "to provide a unique setting outdoors for individuals and groups to experience and live out the biblical faith, and to experience a place for recreation and reflection." The park was used regularly for religious activities, including morning spiritual meditations, evening vespers, and religious retreats.

Under these circumstance, the court concluded that the park qualified for exemption as "property used exclusively for religious purposes." It rejected the contention that the presence of a small caretaker's residence on the tract prevented the property from being "used exclusively for religious purposes," and similarly ignored court rulings from other states under state property tax exemption statutes "far more restrictive than the statutory authority in our state." Illinois Conference of the United Church of Christ v. Illinois Department of Revenue, 518 N.E.2d 755 (Ill. App. 1988)

Court Ruled Land Owned by a Synagogue Was Exempt from Real Estate Taxes

In a significant decision, the Supreme Court of Ohio ruled that a three-acre tract of

In a significant decision, the Supreme Court of Ohio ruled that a three-acre tract of undeveloped land owned by a synagogue and located on its premises was properly exempt from real estate taxes. Ohio law exempts "houses used exclusively for religious worship … and the grounds attached to such buildings necessary for the proper occupancy, use, and enjoyment thereof, and not leased or otherwise used with a view to profit."

The synagogue in question owned fourteen acres, eleven of which consisted of the synagogue building, a parking lot, and a landscaped lawn area. The additional three acres were a largely undeveloped "grove of trees." The tax commissioner ruled that the three acres tract was not exempt from real estate taxes since it was "not necessary for the proper occupancy, use and enjoyment of the synagogue."

This determination was reversed by the state board of tax appeals, and an appeal was taken to the Ohio Supreme Court. The court, in upholding the exemption, observed that "the land added aesthetic qualities to the existing site. It also served as a sound barrier as well as providing a wooded backdrop for outdoor services and congregational activities." The court added that "for outdoor services to be appreciated, it is certainly important to hear them." Accordingly, the use of a grove of trees "as a sound barrier to the noise of traffic travelling by the property" was a necessary means of enabling the congregation to enjoy its property.

While property tax exemptions vary from state to state, an important lesson can be learned from this ruling—churches owning undeveloped tracts of land can enhance (although not guarantee) the exempt status of such property by integrating it into the church's activities. The congregation in the Ohio case used its land as a sound barrier. Other examples of functional use would be sporting activities, outdoor services, parking, and youth activities. Congregation Brith Emeth v. Limbach, 514 N.E.2d 874 (Ohio 1987)

Church Denied Property Tax Exemption for Failure to File an Application

The Nebraska Supreme Court ruled that a church can be denied an exemption from real

The Nebraska Supreme Court ruled that a church can be denied an exemption from real estate taxes as a result of its failure to file an application for exemption.

The court relied on the United States Supreme Court ruling that those "claiming the benefits of the religious-organization exemption should not automatically enjoy those benefits. Rather, in order to receive them, [they] may be required by the state to provide that [they] are a religious organization within the meaning of the act." Indian Hills Church v. County Board of Equalization, 412 N.W.2d 459 (Neb. 1987)

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Tax Court Refuses to Officially Sanction IRS Criteria for Determining What is a Church

Tax Court recently reversed an IRS determination that a nonprofit religious corporation was not a church.

The Tax Court recently reversed an IRS determination that a nonprofit religious corporation was not a church.

In reaching its decision, the Tax Court applied the following fourteen criteria developed by the IRS for determining whether a particular organization is in fact a church :

  1. a distinct legal existence;
  2. a recognized creed and form of worship;
  3. a definite and distinct ecclesiastical government;
  4. a formal code of doctrine and discipline;
  5. a distinct religious history;
  6. a membership not associated with any other church or denomination;
  7. an organization of ordained ministers;
  8. ordained ministers selected after completing prescribed studies;
  9. a literature of its own;
  10. established places of worship;
  11. regular congregations;
  12. regular worship services;
  13. Sunday schools for religious instruction of the young;
  14. schools for the preparation of ministers.
  15. The IRS has stated that no single factor is controlling, and that all fourteen criteria may not be relevant in every case. The Tax Court declined to adopt the criteria as a controlling test, preferring to treat them as a useful guideline. The court's refusal to officially sanction the IRS criteria should be applauded, since the criteria are far too restrictive and ambiguous to be used in making the critical determination of church status.

    For example, few if any local churches would meet the seventh, ninth, and fourteenth criteria, since these ordinarily would pertain only to religious denominations. In addition, many newer, independent churches would fail the first and fifth criteria and could also fail the second, third, fourth, sixth, and eighth.

    It is therefore entirely possible for a legitimate church to fail as many as ten of the fourteen criteria. The early Christian churches depicted in the Book of Acts easily would have failed a majority of the criteria. Such overly restrictive and ambiguous criteria are of little help in deciding if a particular organization is in fact a church, and should never be endorsed by the courts.

    Foundation of Human Understanding v. Commissioner, 88 T.C. _____(1987).

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