Church Law and Tax 1993-03-01 Recent Developments

Taxation – Church Property

Richard R. Hammar, J.D., LL.M., CPA

• Key point: Property tax exemptions generally are strictly construed, and all doubts resolved against exempt status.

• A Texas appeals court ruled that a home owned by a church-affiliated college and used as the residence of the college president was not exempt from property taxation. Texas law exempts property used exclusively for educational functions and “reasonable necessary for the operation of the school.” A church-affiliated college purchased a home one mile from the campus for the residence of its president. A tax assessor determined that the home did not qualify for exempt status, and the college appealed. A state appeals court emphasized that “it is a long-standing rule of construction in Texas that language granting exemptions from taxation must be construed strictly.” The court noted that the state supreme court recently observed that “exemptions from taxation are not favored by the law and will not be favorably construed [and accordingly] the burden of proof of clearly showing that the organization falls within the statutory exemption is on the [party claiming the exemption].” The appeals court concluded that “the college has the burden of clearly showing that the property at issue is used exclusively for educational functions and that property is reasonably necessary for the operation of the school. The evidence, however, shows that the house is used primarily as the private residence for the college’s president and his family. Following the requirement to strictly construe tax-exemption provisions, we hold that this private residential use is not an educational function.” The court acknowledged that the house was owned by the college, and that it was used for a variety of nonresidential purposes, including student meetings; faculty meetings; workshops; housing for visiting dignitaries; board of trustee meetings; entertainment for faculty and students; and college fund-raising activities. These various nonresidential activities amounted to some 300 hours each year. However, this limited nonresidential use (about 6 hours weekly) did not alter the fact that the home was used primarily as a residence. In our view, this decision is clearly erroneous. While the nonresidential use of the home was fairly modest, it was not insignificant. More important is the fact that a college must have a president, and a president must live somewhere. If the college chooses to make housing available to the president, how can it be said that the house is used exclusively for non-educational purposes? This is a crabbed interpretation of the statute. A more reasonable conclusion would be that a college-owned home that is made available to the college president is being used exclusively for educational purposes is an reasonably necessary for the operation of the school. Dexar Appraisal District v. Incarnate Word College, 824 S.W.2d 295 (Tex. App. 1992).