Taxation—Church Property

An Illinois court ruled that a storm drainage service charge based upon the amount of a property owner’s run-off surface was a fee, not a tax.

Key point. Special assessments and users fees assessed by local governments against landowners may be applied to churches without violating a state law exempting church-owned property from property taxation.

An Illinois court ruled that a storm drainage service charge based upon the amount of a property owner's run-off surface was a fee, not a tax, that could be assessed against churches without violating a state law exempting churches from property taxation.

A city enacted an ordinance establishing a "storm water utility fund" to provide for the "management, protection, control, regulation, use and enhancement of the storm water systems" owned by the city. The ordinance imposed a "storm water service charge" on all "developed property" in the city, including church-owned property. Several churches, each of which owns developed property within the city, sued the city to prevent the assessment of the storm water service charge against them.

The annual service charge was based on the number of "impervious area units" on a tract of property (2,800 square feet of impervious area was one unit). The ordinance defined impervious area or impervious surface to mean "those areas that prevent or impede the infiltration of storm water into the soil" including rooftops, sidewalks, walkways, patios, driveways, parking lots, storage areas, compacted aggregate and awnings."

The churches argued that the service charge amounted to a form of "property tax" that could not be assessed against churches that were exempt from property taxation. A trial court ruled that the service fee was a "user fee" rather than a tax, and so it could be legally assessed against churches. The churches appealed on the following grounds: (1) under Illinois law, the definition of a tax upon real property clearly encompasses the service fee charged by the city, and (2) several other states have found similar ordinances to be a tax and not a user fee.

Definition of property tax

On appeal, the churches argued that the term "property tax" under state law was sufficiently broad to cover service charges. The state property tax statute defines a tax as "any tax, special assessment or costs, interest or penalty imposed upon property." Property is defined as "the land itself, with all things contained therein, and also all buildings, structures and improvements and other permanent fixtures thereon."

The court disagreed. It noted that a tax "is a charge having no relation to the service rendered and is assessed to provide general revenue rather than compensation." A user fee, on the other hand, "is proportional to a benefit or service rendered."

The court concluded that the storm water service charge was clearly a user fee since there was a "direct and proportional relationship between imperviousness and storm water run-off, thus creating a rational relationship between the amount of the fee and the contribution of a parcel to the use of the storm water system."

Precedent in other states

The court reviewed several similar cases in other states and concluded that "the more recent case law favors the position that storm water service charges are a fee."

Application. Every state exempts church property from taxation, with some variation from state to state. However, as this case illustrates, the fact that a church is exempt from property taxation does not necessarily insulate it from special assessments or users fees. Church of Peace v. City of Rock Island, 2005 WL 1140427 (Ill. App. 2005).

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