Religious Radio Station Tax Exempt

Court rules in favor of property tax exemption request.

Church Law and Tax 1996-03-01


Key point. A “church” that meets in the home of the pastor is not necessarily exempt from property taxes.

The Minnesota Supreme Court ruled that a “church” that met in a private home was not exempt from property taxes. The church was organized in 1980, and owned a residence that had been the private home of the pastor. The congregation conducted weekly services with attendance ranging between none and fifty persons. Most of the church’s revenue was donated by the pastor, and in turn most of the pastor’s income was paid to him by the church. The pastor was also permitted to use the church’s car and airplane. A tax assessor ruled that the property used by the church was not exempt from property tax, and this decision was appealed to a trial court. The trial court agreed, and the case was appealed to the state supreme court. The supreme court agreed that the property was not exempt. The court noted that Minnesota law exempts from property tax “all churches, church property, and houses of worship.” The court applied a 2—part test for evaluating the exempt status of church property: (1) does a church own the property, and (2) is the property used for a purpose for which the tax exemption was created. The court concluded that the “church” in question was not a church and therefore was not entitled to the exemption. The court applied 2 tests in concluding that the “church” was not in fact a church.

Test 1. The court applied an 8—factor test that it developed in a 1981 case. Under this test, in deciding whether or not a particular organization is a church, the following factors should be considered: (1) whether “the preconceived and primary, if not the sole, motive behind the organization was tax avoidance in favor of the private individuals who control the corporation; (2) whether the doctrines and beliefs of the organization are intentionally vague and non—binding upon its members; (3) whether the members of the organization freely continue to practice other religions; (4) whether the organization has formally trained or ordained clergy; (5) whether the organization has sacraments, rituals, education courses or literature of its own; (6) whether the organization has a liturgy, other than simple meetings which resemble mere social gatherings or discussion groups rather than religious worship; (7) whether the organization is an institution which advances religion as a way of life for all men; (8) whether the organization requires a belief in any Supreme Being or beings. Ideal Life Church v. County of Washington, 304 N.W.2d 308 (Minn. 1981).

Test 2. The court observed: “[T]he test for determining whether an organization is properly considered a church for tax purposes is a subjective one, focusing on the sincerity of belief and taking into account [the 8 factors mentioned in the first test].”

The court concluded that the “church” in this case was not a church under either test. It failed the first test because a number of 8 factors were not satisfied: “In particular, we note the lack of association with other congregations, the lack of a prescribed course of study for ordained ministers and the dearth of sacrament, ritual, liturgy or recognized form of worship.” The court acknowledged that the pastor had “taken some steps to fit his fraudulently motivated organization into the [8] factors,” but it concluded that “an analysis of all the facts and circumstances of this case leads us to conclude that the beliefs asserted to be religious by [the pastor] are not held in good faith. [He] used the [church] as a device to recharacterize his non—church salary and personal service income from taxable to nontaxable, and thus we do not attach tax exempt status to the property ….”

The court also concluded that the “church” failed the second test since the principal motivation of [the pastor] was tax minimization. In reaching this conclusion the court pointed to 3 factors: (1) most of the church’s income came from the pastor, and most of the pastor’s income came from the church; (2) most of the church’s expenditures were for the pastor’s personal expenses; and (3) the pastor and his wife dominated the meetings of the [church’s] board of trustees, and the principal topic at board meetings was the progress of tax litigation. State v. American Fundamentalist Church, 530 N.W.2d 200 (Minn. 1995). [ Tax Legislation for Churches]

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