Failure to File for Property Tax Exemption

Property tax exemptions can’t be granted retroactively.

Church Law & Tax Report

Failure to File for Property Tax Exemption

Property tax exemptions can’t be granted retroactively.

Key point. Failure to comply with the legal requirements for obtaining a tax exemption for newly acquired church property may lead to loss of exemption.

An Oregon court ruled that a church was not entitled to a property tax exemption because of its failure to file a timely exemption application, despite the fact that its failure to file was due to the fact that the assessor sent the application to the wrong address. In 2007 a church sold its property to another church (the “church”). The warranty deed, which was prepared by the title company, incorrectly listed the church’s address. When the property was conveyed in 2007, it was exempt from taxation based on the prior owner’s use of the property. The church failed to file an exemption application at the time of the change of ownership in 2007. The use of the property did not change when ownership changed; the property was used for religious services by both the old and the new owners.

On November 20, 2007, the tax assessor mailed a “Notification of Status Change” to the church for the 2008-09 tax year, which was sent to the incorrect address listed on the warranty deed. The notice stated: “An application is enclosed with this notice for you to file for a tax exemption on the above referenced location.” The church did not receive the November 20, 2007, notice. The notice was returned unopened to the assessor by the post office with the notation “NMR,” (no mail receptacle) on the envelope. The assessor put the unopened notice in the church’s file, and did not search its records or other sources to locate a different address for the church.

On December 3, 2010, the church filed an application for property tax exemption for the subject property for tax years 2008- 09 and 2009-10. The assessor denied this application for both tax years because it was not timely filed. The 2008-09 and 2009-10 tax statements for the property were also sent to the church at the address listed on the warranty deed. The church did not receive those tax statements. The 2008-09 and 2009-10 statements were returned unopened to the assessor by the post office. No payments were made when the taxes became due.

In November 2010, the church discovered that the property was being taxed. The pastor spoke with the assessor’s office regarding the exemption application and was “instructed by the assessor’s office to file two separate requests for exemption for late filing’.” The church immediately filed applications for exemption. Its application for a property tax exemption was granted for tax year 2010-11 and for future years, but its applications for tax years 2008-09 and 2009-10 were denied on the basis that they were not timely filed. The church appealed.

A state court began its opinion by quoting the exemption statute: “Before any real or personal property may be exempted from taxation … for any tax year, the institution or organization claiming the exemption shall file with the county assessor, on or before April 1 of the assessment year, a statement … listing all real or personal property claimed to be exempt and showing the purpose for which such property is used.”

An exemption application may be filed as late as December 31 of the assessment year for which an exemption is desired upon payment of a late filing fee. The exemption statute does not permit an exemption to be retroactively granted, subject to one exception: “The only time an exemption may be retroactively granted is when there is an addition or new improvements to an already exempt property.” The court reasoned that “had the legislature chosen to make exemption requests retroactive it would have expressly stated its intent as it did in [the case of additions and new improvements].”

The court concluded that the last date for filing an exemption application for the 2008-09 tax year was December 31, 2008, and December 31, 2009, for the 2009- 10 tax year. “The church did not file an application for exemption for tax years 2008-09 and 2009-10 until December 3, 2010. Accordingly, it failed to timely file exemption applications for those years.”

Improper Address

The church asserted that it did not receive notice of the exemption status change or the tax statements because the assessor sent those notices to an incorrect address, and accordingly it did not discover that the property was being taxed until November or early December 2010. The church argued that the assessor was obligated to determine its true and correct address through a search of its internal records or of other available sources (including the Internet), once it was put on notice that the church’s address of record was incorrect. The church sought a property tax exemption based on the assessor’s failure to send notices to the correct address.

“The only time an exemption may be retroactively granted is when there is an addition or new improvements to an already exempt property.”

In rejecting the church’s entitlement to exemption based on the assessor’s use of an incorrect address, the court observed:

While it is definitely a good idea for the assessor to examine its returned mail, arguing about whether the assessor might have found the [taxpayer] earlier overlooks the point that the assessor ought not to have had to look for the [taxpayer] at all. It is not the assessor’s obligation to search for the taxpayer. Instead, it is the taxpayer’s responsibility to make sure [the assessor’s] records are correct. The legislature has placed the burden on taxpayers to notify county assessors of their true and correct address. The assessor did not have a duty to locate any other address for the church either by searching its internal records or by searching some other source.

Due Process

The church also argued that the imposition of tax violated the constitutional requirement of due process because it was not aware that it needed to file for an exemption as it assumed that the exempt status of the subject property would continue because the use did not change. The court disagreed: “[The statute] states that the tax is valid even if the taxpayer does not receive the tax statement. The church assumed that the exempt status would continue because the use of the subject property did not change. However, it was required by [law] to file an exemption application when the ownership of the subject property changed; when no application was filed, the property became taxable. The court is without authority to waive the church’s property taxes based on its lack of knowledge of the application requirement.”

The court concluded:

[The property tax exemption statute] requires that an application for exemption be filed when the ownership of exempt property changes. The exemption application may be filed as late as December 31 of the assessment year. The church’s 2008-09 and 2009-10 exemption applications were not filed until December 3, 2010, and were not, therefore, timely filed. The church claims that, had it known the property was subject to taxation, it would have quickly remedied the situation, as it did for the 2010-11 tax year when it discovered that an exemption application had not been filed. Typically, the error would be revealed upon receipt of a tax statement in the fall. Unfortunately, the church never received the tax statements for the 2008-09 and 2009-10 tax years. The situation is unfortunate and regrettable.

What This Means For Churches:

This case illustrates an important point. Whenever a church acquires property it should review the applicable requirements under state law for obtaining a property tax exemption, be sure that it strictly complies with these requirements, and ensure that the warranty deed and assessor’s office records contain the correct address for the church. Byzantine Catholic Bishop v. Assessor, 2011 WL 4444186 (Or. Tax 2011).

This Recent Development first appeared in Church Law and Tax Report, March/April 2012.

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