Tax Exemption of Church Parking Lots

The court concluded that if a church rents its parking lot, and cannot prove that the lot is used primarily for religious purposes, then the exemption is lost.

Are church parking lots exempt from property taxes?

Not if they are leased to a commercial business during the week, said a Texas state appeals court. A Baptist church leased two of its parking lots to a neighboring real estate company. The lease provided that the company could use 407 of the 447 parking spaces on the two lots from 7:30 AM to 5:00 PM Monday through Friday. The church reserved 40 parking spaces for its own use during the week, and also reserved the right to use the lots after 5:00 PM each week day and all day on Saturday and Sunday.

The lease specified that the company, and not the church, was responsible for upkeep and maintenance of both lots. The company paid a rental fee of $275 per parking space per year, for a total annual rental fee on all 407 leased spaces of $111,925. The church applied for a property tax exemption on the two parking lots, but its application was denied by the county tax commission. The church appealed, and a trial court agreed with the church that the parking lots were exempt. The tax commission appealed, and a state appeals court denied the exemption.

The appeals court began its opinion by noting that Texas law exempts real property that satisfies three conditions: (1) it is owned by a religious organization, (2) it is used primarily as a place of regular religious worship, and (3) it is reasonably necessary for engaging in religious worship. The court acknowledged that a church-owned parking lot could be exempt from tax under this law, since a parking lot "may qualify as a place of religious worship" if it is owned by a church and is reasonably necessary to accommodate religious worship in the church sanctuary.

The church argued that the parking lots satisfied all three conditions. In support of its position, it noted that: (1) the lots were used on Sunday mornings and evenings, and Wednesday evenings, by church members attending religious services at the church; (2) it had exclusive use of the lots for a majority of the week (i.e., after 5:00 PM Monday through Friday, and all of Saturday and Sunday); and (3) it needed the lots as a "buffer against encroachment and as assurance of adequate room for growth." Generating rental income was a secondary or incidental purpose. The court rejected the church's arguments. It emphasized that the critical question "is the actual use of the property, not the church's primary reason for owning it or the amount of theoretical access the church enjoys." The court observed:

When the overall, day-to-day use of the property is considered, it is clear that the property is used almost entirely by [the real estate company]. The church does not contend that its right to access from 5:00 PM through the night until 7:30 AM constitutes evidence of primary religious use. The fact that [the company] leaves the lots empty for fourteen and one-half hours each night and gives the congregation the right to enter at night and on weekends does not mean that the lots are being used primarily for a religious purpose. Nor is primary religious use proved by evidence that from the church's viewpoint the lots are kept because it is necessary for a downtown church to have parking. Evidence that the church acquired the land and retains it for member parking and for future growth does not constitute evidence that it is used primarily for religious purposes.

The court emphasized that "the issue before us is not whether the church is entitled to own property for parking and future growth, or whether it can lease its property on these or any other terms …. No one questions that the church is entitled to own and lease property. The sole issue before this court is whether such property remains tax exempt when there is no proof that it is used primarily for religious purposes." To summarize, the court did not dispute that a church parking lot is exempt from tax. Rather, it concluded that if a church rents its parking lot, and cannot prove that the lot is used primarily for religious purposes, then the exemption is lost. Bexar County Appraisal Review Board v. First Baptist Church, 800 S.W.2d 892 (Tex. App. 1990).

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