Temporarily Vacant Church Buildings and Property Tax Exemption

When a congregation moves, must it pay property tax on its old building?

Church Law and Tax 1991-07-01 Recent Developments

Taxation – Church Property

In an important decision, an Illinois state appeals court ruled that a church building does not lose its property tax exemption when it is temporarily vacant following the congregation’s move to another location. A Lutheran church owned a piece of property on which was located a single building consisting of a church, an office, and a parsonage. The church and parsonage portions of the property were connected by the office. In 1985, following the minister’s retirement, the church merged with a campus ministry at a nearby state university. Thereafter, church activities were conducted at the campus location. The church attempted to sell its old building, but was not successful for nearly a year. During that year, the church and office portions of the property were used for storage of church property, including church records, pews, hymnals, an altar, a cross, the church pipe organ, and other furnishings. The church portion also was used for the storage of clothing and other materials prior to shipment to missionary sites. The parsonage portion of the building was not occupied during the year that the property was for sale. It too was used to store miscellaneous items of church property. The state department of revenue asserted that the building was not exempt from property taxes during the year in question because it was not being used for exempt purposes. The church appealed this determination, and an administrative judge within the department of revenue ruled that the church and office portions of the property were exempt but not the parsonage. The church appealed this ruling to a state court which concluded that the entire property was exempt. The state appealed this ruling, and a state appeals court upheld the trial court’s decision exempting the entire property from taxation. The court began its opinion by noting that Illinois law exempts from property taxation “all property used exclusively for religious purposes … including all such property owned by churches or religious institutions or denominations and used in conjunction therewith as parsonages or other housing facilities provided for ministers.” On appeal, the state conceded that the church and office portions of the property were exempt, but it insisted that the parsonage no longer was entitled to exemption since it was vacant and therefore could not be said to be used “exclusively for religious purposes.” Further, the state insisted that the building should be “divided” for tax purposes, with the church and office retaining their tax exemption and the parsonage being subject to tax. The court rejected both claims. It noted that the entire property had been used for exempt purposes for more than 40 years, and that no portion of the property currently was being used for a non-exempt purpose. The court concluded: “We do not think that mere temporary vacancy or lack of use of a portion of an otherwise exempt parcel of property renders that portion taxable. To hold that when a portion of a building otherwise used for an exempt purpose becomes temporarily vacant or unused it loses its exempt status is nonsensical and impractical of application. Nor do we think it is practical to divide this parcel of property, consisting of a single building, on the basis of temporary vacancy of a portion of it. We find that the parsonage … portion of the church property continued to be used exclusively for religious purposes ….” The court acknowledged that tax exemptions are to be “strictly construed in favor of taxation.” However, “they are not to be unreasonably construed. A decision based upon an erroneous, arbitrary or unreasonable construction of a statute cannot stand.” The court concluded by observing: “Under the facts of this case, where the property consists of a single building which has been used for an exempt purpose for 40 years, but of which a portion becomes temporarily vacant due to the retirement of the church’s pastor but is not used for a non-exempt purpose, we find denial of the tax exemption for that portion to be unreasonable and improper as a matter of law.” Our Savior Lutheran Church v. Department of Revenue, 562 N.E.2d 1198 (Ill. App. 5 Dist. 1990).

Property Taxes

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