Taxation—Church Property

The New Jersey Tax Court addressed the eligibility of two church-owned properties for an exemption from property taxes.

Church Law and Tax 2000-01-01

Taxation-Church Property

Key point. Church property may be exempt from state property taxes even if it is used infrequently for religious purposes.

Key point. The exemption of church property from taxation may not be affected by the fact that it is rented to other religious organizations.

The New Jersey Tax Court addressed the eligibility of two church-owned properties for an exemption from property taxes. The Roman Catholic Archdiocese of Newark became the owner of the assets of two churches that had dwindled in membership. One of the churches (“Church A”) conducted a weekly religious service, and its gymnasium was occasionally used by a Catholic youth basketball team for practice and team meetings. The second church (“Church B”) was used for weekly religious services and as a storage area for various religious artifacts and furnishings. In addition, this church rented space to a public school. The court noted that no more than two persons generally attended services at each church-the pastor and the security guard for the church. While others attended on occasion, “those days were few and far between.” Although the doors to the churches were unlocked on the days services were held, the court noted that “no one could have known about them unless they asked the pastors, or happened by the churches, since there was otherwise no advance notice to the public.” A tax assessor insisted that neither church property was entitled to exemption from property tax because the degree of “religious use” was insufficient. New Jersey law exempts from property tax “all buildings actually and exclusively used for … religious worship [and] all buildings actually and exclusively used in the work of associations or corporations organized exclusively for religious … purposes.” The assessor claimed that the properties were not actually and exclusively used for religious worship or religious purposes.

Religious services

The court noted that New Jersey courts have never addressed the issue of whether a minimum level of activity is required to obtain a tax exemption for property used for religious worship or religious purposes-other than to rule that “complete non-use of property by a tax exempt religious entity will not suffice to obtain a property tax exemption.” The court examined decisions in several other states, and concluded that the civil courts generally have refused to condition the property tax exemption on a minimum degree of religious activity. It concluded:

The law is well settled that in return for a tax exemption, the property owner seeking the exemption must provide some quid pro quo. Exemption [from taxation] can be justly sustained only upon the principle that the “concession is due as quid pro quo for the performance of a service essentially public, and which the state thereby is relieved … from the necessity of performing ….” To measure the quantum of religious use of a completed building as a condition of granting a tax exemption would engage the courts in an improper evaluation of religious practice. Obviously, minimal use creates a heavy burden on a municipality. The quid pro quo is hardly there. But once occupied and used (so long as there are no prohibited uses and there are some appropriately exempt uses), the failure to grant exemptions would be inappropriate. The court recognizes that the consequences of refusing to inquire into the quantum of religious use may tempt others to abuse the statute and gain tax exemption without any quid pro quo. That is not the case which is before this court. The fact that the amount of service performed for the community at the two properties which are the subject of this appeal had been significantly greater than the services currently performed, is not a reason to deny them their exemption.

Religious institutions are entitled to the exemption … if they demonstrate that the property is actually used for a religious purpose, and that the amount of use in this case, though minimal, is sufficient to sustain the exemption. Once it has been proven that religious activities are conducted on the property, the taxpayer has met its prima facie case on that issue, and then must prove only that such exempt use is exclusive to establish entitlement to the exemption.

The court noted that the Archdiocese actually used the two former parish properties for religious worship and religious purposes. The fact that religious services “were attended by only two persons on most occasions is irrelevant, as is any inquiry into the reasons why the participants selected the time and place for those religious observances.” The court emphasized that the religious services “are obviously part of the spiritual practice of the Roman Catholic Church, and there is no claim otherwise by the [tax assessor].”

Rental of church property

A portion of one of the church properties was rented to a nearby public school. Did this affect the property’s exemption from tax? The court noted that it had previously ruled that “the leasing of an exempt educational property by an exempt educational organization to another exempt educational organization for an educational use will not defeat the claim of exemption.” West Orange Township v. Kushner Hebrew Academy, 13 N.J. Tax 48 (Tax 1993). However, after carefully reviewing the history of the property tax exemption under New Jersey law, the court concluded that this principle did not apply to a lease of church property to a public school, even though property owned by public schools was exempt from tax. As a result, “a religious or charitable organization which leases its property to an educational organization loses its tax exemption.”

Application. This case is important for two reasons. First, it will be a useful precedent for churches to cite when confronted by zealous tax assessors attempting to place church-owned property on the tax rolls because of the infrequency of religious use. This is a very important development that will be of direct and immediate assistance to many churches. Second, the court suggested that churches may rent their property to other churches without affecting their property tax exemption. This conclusion certainly makes sense. There is no guaranty that courts in other states will agree with this conclusion. However, this is one of the few cases to address this question, and so the court’s conclusion may be given more weight by courts in other states. Roman Catholic Archdiocese v. City of East Orange, 17 N.J. Tax 298 (Tax Court 1998).

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