Taxation – Part 1

Church Property

Church Law and Tax 1990-01-01 Recent Developments

Taxation – Church Property

Is a vacant and unimproved tract of land owned by a church exempt from property taxation? This is a relevant question for many churches. In a significant ruling, a North Carolina state appeals court concluded that a 5-acre undeveloped lot located next to (and owned by) a Baptist church was exempt from property taxes. The church purchased the lot for future expansion and also as a “buffer” to preserve the church from the burgeoning industrial area surrounding it (which included a plastics factory, a textile mill, and a proposed industrial park). Though the lot remained in an unimproved condition, it was used by the church for youth activities (recreation, camping, etc.) and as a religious retreat for men from a local rescue mission. A local governmental agency ruled that the lot did not qualify for exemption under a state law exempting “buildings, the land they actually occupy, and additional adjacent land reasonably necessary for the convenient use of any building … if wholly and exclusively used by its members for religious purposes.” The agency concluded that the property had been acquired for future expansion and was not presently used “wholly and exclusively” for religious purposes. A state appeals court rejected this conclusion and ruled in favor of the church. It acknowledged that the “present use” of property determines whether or not it is exempt, and not its intended future use, because “no public purpose is served by permitting land to lie unused and untaxed.” Nevertheless, the court concluded that the land was presently being used “wholly and exclusively” for exempt purposes. The court pointed to the church’s use of the property as a religious retreat by men from the rescue mission and as a recreational center for its youth group. The court concluded that the property also qualified for exemption because of its present use as a “buffer zone” insulating the church from surrounding factories. Using the property for this purpose was “reasonably necessary for the convenient use of [church] buildings” and accordingly qualified the property for exemption from tax under the statute. Further, use of the property as a buffer zone “to protect the sanctity and serenity of the church from encroaching industrial development was a permissible religious purpose and present use entitling the property to exemption.” This case demonstrates that undeveloped land acquired by a church for future expansion may be eligible for tax exemption if it is not used commercially and it either (1) is needed as a buffer zone to insulate the adjacent church facility from industrial development, or (2) is used by church youth groups and other groups associated with the church for religious purposes or recreational purposes. Of course, property tax exemption statutes vary considerably among the states, but this ruling will be relevant in those states that exempt church-owned property that is used exclusively for religious purposes. Matter of Worley, 377 S.E.2d 270 (N.C. App. 1989).

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