Key point. Church property generally must be held in the name of the church for it to qualify for exemption from taxation. However, in some cases, this requirement is not applied if there are sufficient safeguards recognizing the church’s ownership of the property.
A New Jersey court ruled that a church’s property was exempt from taxation even though the title to the property was held in the name of the bishop rather than the church.
Church’s governing documents explain property ownership
A church (the “Church”) in Camden City, New Jersey, was first incorporated on June 20, 1927. In 1964, the Internal Revenue Service (the “IRS”) recognized the Church as exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code.
In its articles of incorporation, the Church’s stated purpose is to “establish, maintain and perpetuate the doctrine of Christianity and the Apostolic Faith throughout the world among all people, to erect and maintain houses of prayer and worship where all people may gather for prayer and to worship the Almighty God in Spirit and in Truth, irrespective of denomination or creed, and to maintain the Apostolic Faith of the Lord and Savior, Jesus Christ.”
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The Church’s constitution and bylaws were originally adopted on July 1, 1929, and were amended from time to time.
Article VII, Section 5, of the church’s constitution and bylaws provides that, “the Bishop shall hold the property of all of the congregations of the organization as Trustee for the use and benefit of such congregations. The Bishop may rent, lease, dispose of or retain such property, for the use and benefit of the organization.”
Further, Article XI, Section 1 provides that “property purchased by any minister or other persons belonging to this organization for the purpose of assembly of a congregation of this organization shall belong to this organization irrespective of in whose name title thereto is taken.”
The Church acquired property (the “Property”) in 1969. The deed by which title was obtained stated that the grantee was the bishop (“Bishop 1”).
In 1992, a deed for the Property was executed by another bishop (“Bishop 2”). This deed, recorded with the Clerk of Camden County, was intended to reflect the succession of Bishop 2 to the leadership of the Church.
In 1993, a deed transferring title from Bishop 2 to “his successor Trustees” was executed and recorded in the Camden County Clerk’s records. This deed was recorded to eliminate the need to record new deeds each time a new bishop was elected.
After falling into disrepair, use of the Property for church purposes was discontinued for some time. During the years of nonuse, the Property was not exempt from real property tax.
Local assessor: no exemption allowed
In 2019, the Church began renovating and rededicating the Property. It reopened in June of 2020.
Church operations have been conducted there ever since. It is used exclusively for church purposes. No one lives there and it is not rented to any third parties.
In late September of 2020, the Church submitted an application seeking exempt status for the Property.
The local assessor denied the exemption, telling the Church in January of 2021 that:
The deed [to the Property] dated 8-3-1992 lists the ownership as (Bishop 2), Successor Trustee, for (the Church). Based on the ownership listed in this 1992 deed the Property does not meet the eligibility requirement for the tax exemption. The Bishop is not permitted to have an ownership interest in the property.
The Church appealed the denial to the Camden County Board of Taxation, which affirmed the assessor’s denial.
Church turns to court for help
On August 12, 2021, the Church filed a complaint with the local circuit court appealing the judgment of the Camden County Board of Taxation. The court noted that the issue before it was “whether the manner in which title is held bars a property tax exemption for the Property.”
The court began its opinion by noting that to establish a right to an exemption a property owner “must show that: (1) it is organized exclusively for a charitable purpose; (2) its property is actually used for such a charitable purpose; and (3) its use and operation of the property is not for profit.”
The court added that:
a state statute stipulates that this exemption applies only “where the association, corporation or institution claiming the exemption owns the property in question and is incorporated or organized under the laws of this State and authorized to carry out the purposes on account of which the exemption is claimed.”
The assessor conceded that the Church met the second and third elements, but claimed that ownership of the Property by “(Bishop 2), Trustee and his successor Trustees, as Trustee for (the Church)” is not ownership by an “exempt organization organized exclusively for a charitable purpose” and that Church fails to satisfy the exemption statute (quoted above) that specifies that the exemption applies only “where the association, corporation or institution claiming the exemption owns the property in question.”
The Church insisted that the Property was exempt since the Church’s constitution and bylaws specified that “property purchased by any minister or other persons belonging to this organization for the purpose of assembly of a congregation of this organization shall belong to this organization irrespective of in whose name title thereto is taken.
The court agreed with the Church and ruled that the property was exempt from taxation.
What this means for churches
Church property generally must be held in the name of the church in order for it to qualify for exemption from taxation. However, in some cases, this requirement is not applied if there are sufficient safeguards in a church’s governing documents recognizing the church as the de facto owner of the property.
United House of Prayer v. Camden City, 2022 WL 1492867 (N.J. App. 2022)