Recent Developments in Arkansas Regarding the Taxation of Church Property

An Arkansas court ruled that a church and its surrounding grounds, including a parking lot, were exempt from property tax.

Church Law and Tax1998-07-01

Taxation of Church Property

Taxation-church property

Key point. Property tax exemptions for churches generally apply not only to the ground occupied by the church building, but also surrounding grounds, driveways, and parking lots.

An Arkansas court ruled that a church and its surrounding grounds, including a parking lot, were exempt from property tax. The church was established in 1991 and owned a 1.05 acre tract upon which is located a 6,800 square foot building containing a sanctuary, chapel, Sunday School classrooms, a religious lending library, fellowship areas, administrative offices, and guest quarters for visiting pastors and missionaries. The balance of the property consists of landscaped grounds, approach roads, and a parking area. The church qualifies as a church for federal tax purposes. It is governed by a three—member board, elected by the congregation upon the recommendation of the pastor. Sunday worship service attendance varies between twenty—five and thirty—eight. All services are advertised and open to the public. The 1.05 acre tract occupied by the church is part of a larger fifty—five acre tract that had been acquired by the pastor in 1975 and deeded to the church in 1991. The entire property is subject to a mortgage securing a $750,000 debt owed to the pastor. This debt arose as a result of the pastor’s advancing to the church more than $100,000 per year to support its television ministry. The church has never made payments on this debt, and the pastor has never foreclosed on the mortgage. When the county rejected the church’s application to have the entire fifty—five acres declared exempt from property tax in 1994, the church deeded the 1.05 acre tract (including the church building) back to the pastor. The same day the pastor deeded the property back to the church.

A tax assessor determined that the 1.05 acre tract was subject to property tax even though it contained the church building. She insisted that the pastor should be viewed as the owner of the property, and not the church, because of his “self—dealing” with respect to the property. Further, the assessor pointed out that the pastor’s “ownership” was confirmed by the fact that he failed to foreclose on the large debt owed to him by the church. A state appeals court disagreed. It acknowledged that “tax exemptions must always be strictly construed against the exemption,” but it concluded that the entire 1.05 acre tract qualified for exemption. It noted that state law exempted from property taxation “all dedicated church property, including the church building used as a place of worship, buildings used for administrative or missional purpose, the land upon which the church buildings are located, all church parsonages, any church educational building operated in connection with the church, including a family life or activity center, a recreation center, a youth center, a church association building, a day care center, a kindergarten, or a private church school shall be exempt.”

The court noted that ownership is not a requirement for exempt status, and so even if it accepted the tax assessor’s argument that the pastor “owned” the property this would not be relevant. The only question is whether or not the property is “dedicated” to church use. This test clearly was met.

The assessor insisted that if the church property was exempt from tax, the exemption applied only to the small portion of the property on which the sanctuary was located. The exemption did not apply to the parking lot or surrounding grounds since they were not dedicated to church use. Once again the court disagreed. It noted simply that the “plain language” of the exemption law “specifically grants an exemption to all dedicated church property. Nowhere in the record is there proof that the adjacent land in the 1.05 acre plot was used for any other purpose.”

Application. Most importantly, this case will be a helpful precedent for church leaders to share with a tax assessor who claims that a church’s driveways, parking lots, and surrounding grounds are subject to property tax. Phillips v. Mission Fellowship Bible Church, 955 S.W.2d 917 (Ark. App. 1997).
[State Taxes]

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