Word of His Grace Fellowship, Inc. v. State Board of Tax Commissioners, 711 N.E.2d 875 (Ind. Tax Court 1999)
Key point. Property occupied and used by a church may be exempt from property tax even if the church does not own it.
An Indiana court ruled that a church's property was entitled to exemption from property tax even though it did not have legal title to the property.
A church purchased property under a "contract for deed" that is used for religious purposes. Under this arrangement, the seller retained title to the property to secure payment of the purchase price from the church. The church's application for a property tax exemption was denied on the ground that the church was not the legal owner of the property. Under Indiana law, property is eligible for exemption from property tax if it is "owned, occupied, and used" by a church or other religious entity for religious purposes.
A state tax board conceded that the property in question was occupied and used for religious purposes, but it insisted that the property was not "owned" by the church and therefore was not entitled to exemption. The state tax court disagreed, noting that "there is no requirement that the same entity own, occupy, and use the property for religious or charitable purposes. Rather, it is sufficient that the property is owned, occupied, and used for religious or charitable purposes." The court concluded that the property "was in fact owned, occupied, and used for religious purposes, and, therefore … was exempt from property taxation."
The state board of taxation also argued that the property was not entitled to exemption since the church rather than the legal titleholder applied for exemption. Under Indiana law the legal titleholder (the seller in this case) is required to apply for exemption. The tax court agreed that the legal titleholder is the party that must apply for a property tax exemption. However, the court pointed out that the tax board did not base its denial of the exemption on the fact that the church was not the proper party to apply for the exemption. This argument was raised for the first time on appeal, and therefore could not be considered.
Application.
This case illustrates a couple of important points. First, property that is occupied and used for church purposes may qualify for exemption from property tax even though the church does not hold legal title to the property. Second, an exemption from property tax may not be granted if the wrong party applies for it. In some states, only the legal titleholder of property can apply for an exemption from property tax. If the church is not the legal titleholder of property that it occupies and uses, then it may not be the proper party to apply for a property tax exemption. These issues will be determined by the provisions of the property tax exemption law in each jurisdiction.
