Tax Exemption of Boarding School Dormitories

The Arkansas Supreme Court recently ruled on this issue.

Church Law and Tax 1991-09-01 Recent Developments

Taxation – Church Property

The Arkansas Supreme Court ruled that dwellings located on the grounds of a church-operated boarding school were not exempt from state property taxes. The Arkansas Conference of the Seventh Day Adventists operates a boarding school consisting of grades 9 through 12. Most of the students are members of the Seventh Day Adventist Church. The campus consists of a boys’ dormitory, a girls’ dormitory, a gymnasium, a maintenance building, a box factory, a duplex, and 12 single family dwellings that are rented to faculty and staff. A county tax commission determined that the 12 dwellings were not exempt from property taxation, and the Conference appealed. The Conference noted that state law exempts from taxation “school buildings and apparatus” and “grounds used exclusively for school purposes.” The Conference claimed that the 12 dwellings qualified for exemption under these provisions since they were located on school property, and were used for counseling and spiritual guidance of the students in addition to serving as the residences of faculty members. The Conference contended that one of the school’s goals is to provide “mental and spiritual guidance” to the students, and that this purpose was directly fulfilled by having the dwellings on campus and readily accessible to the students. Therefore, the Conference argued that the dwellings should be treated like the dormitories, which are exempt from taxation. The tax commission maintained that the dwellings rented to faculty and staff are in direct competition with other owners of rental properties and therefore the dwellings should be taxed. A trial court agreed with the tax commission that the dwellings were not exempt, and the case was appealed to the state supreme court. The supreme court agreed that the dwellings were taxable. The court observed that the exemption of school properties applies only to those properties that are used exclusively for school purposes, and that even this exemption is to be interpreted narrowly. The court conceded that the dwellings were used for counseling of students, and occasional student parties. However, the court observed that “no residences are used for conducting classes” and the counseling activities are not “regularly scheduled obligations.” Accordingly, the court could not agree that the dwellings were used exclusively for exempt purposes. The court added that “another factor to consider is that the residential dwellings compete with other property owners in the area,” whose properties are not exempt. Based on these considerations, the court concluded that “the primary use of the dwellings is for residential purposes and the incidental use is for school purposes.” Arkansas Conference Association of Seventh Day Adventists, Inc. v. Board of Equalization, 800 S.W.2d 426 (Ark. 1990).

Property Taxes

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