Church Parking Lots Tax Exempt

Decision made even though lots were rented to other businesses for majority of week.

Key point: In some states, church-owned parking lots will be exempt from property taxation under a state law exempting properties used primarily for religious worship.

In an important ruling, the Texas Supreme Court concluded that a church's parking lots were exempt from property taxation, despite the fact that they were rented for most of the week to a neighboring business.

An inner-city church owned two parking lots (consisting of 407 parking spaces) that it leased to a neighboring business from 7:30 a.m. to 5:00 p.m., Monday through Friday. The church received annual rent of $111,000 from the lease of its parking lots. A local tax assessor determined that the parking lots were not exempt from property taxes since they were rented to a neighboring business, and the church appealed this decision in court.

A trial court concluded that the lots were exempt, but a state appeals court disagreed. The church appealed the case to the state supreme court, which agreed with the trial court that the lots were exempt. The court began its opinion by quoting the Texas property tax exemption statute, which exempts "property that is owned by the religious organization, is used primarily as a place of regular religious worship, and is reasonably necessary for engaging in religious worship."

The statute further specifies that if church property satisfies this test, its use "for occasional secular purposes other than religious worship does not result in loss of the exemption if the primary use of the property is for religious worship and all income from the other use is devoted exclusively to the maintenance and development of the property as a place of religious worship."

The court concluded that the church's parking lots were exempt under this statute. It noted that "for purposes of the tax exemption, a place of religious worship includes not only the sanctuary, but also those grounds and structures surrounding the sanctuary which are necessary for the use and enjoyment of the church. Thus, a parking lot may qualify as a place of religious worship." In concluding that the parking lots in this case satisfied the requirements for exemption, the court observed:

In ascertaining whether there is any evidence that the parking lots were primarily used for religious purposes, we look beyond a mere mathematical calculation of the number of hours the church and its members physically occupied the parking lots versus the number of hours [the company that rented the lots] physically occupied the parking lots. While the "actual use" of the property is an important factor in determining primary use, it is not the sole consideration. Instead, the use of the church property must be examined qualitatively. Thus, the primary use of church parking lots may not be determined by simply adding up the number of hours that church members actually park their cars on the lots.

The court noted that the parking lots were purchased by the church to provide adequate parking for church members attending church activities. The lots were regularly used by church members attending worship services on Sunday mornings and on Sunday and Wednesday evenings. They were also used by members attending special events and activities at the church. This evidence convinced the court that the lots were "used primarily for religious purposes."

This ruling will be of enormous assistance to churches facing a challenge to the exempt status of their parking lots (and some other kinds of property). The Texas Supreme Court insisted that the exemption of church property must be analyzed both quantitatively and qualitatively. That is, the test for exemption is not a "mere mathematical calculation" of the number of hours that a church and its members physically occupy the parking lots or other church property.

While such an analysis is important, it is not the sole tests for evaluating the exempt status of church property. The courts also must consider the "qualitative" use of the property. That is, how significant is the use of the property in terms of the church's mission? Clearly, most churches could not exist without parking lots, and therefore such lots are entitled to exemption even though they may be used only a few hours each week by church members. The Texas Supreme Court reasoned that this conclusion is not affected by the fact that a church rents its parking lots to a neighboring business during the week when the lots are not used for church purposes. First Baptist Church v. Bexar County, 833 S.W.2d 108 (Tex. 1992).

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