Churches meeting certain criteria are considered automatically exempt for federal tax purposes. That’s why many are caught off-guard when an unexpected bill arrives from the local assessor. Attorney Midgett Parker, a long-time senior editorial advisor for Church Law & Tax, explains what happens when property tax gets assessed, why it might happen, and how churches can work to avoid such problems by building good relationships and maintaining strong communications in the community.
Q: Churches meeting certain criteria are considered automatically tax-exempt for federal tax purposes. Does this mean any property they own is also automatically exempt from taxes?
No. Real property owned by a religious entity is not automatically tax-exempt. Churches that own property or rent their space are still paying property taxes until they apply for, and receive from the local jurisdiction, their tax exemption status for the real property.
In other words, churches must take steps to find out what the procedures are in their local jurisdiction to apply for the tax exemption status for the real property. In today’s world, it’s easy: just conduct an online search by typing in “real property tax exemption for churches in …” followed by the county and state name.
Once you’ve found the address and phone number of the local tax assessment office, pick up the phone, ask for help applying for the exemption and perhaps even visit that office.
Build relationships. Look at it as a positive experience—an opportunity to spread the word that your church is in the community; that it has acquired a property or is leasing a property.
The next thing to do is talk to other church leaders. Ask them if their property is exempt and what processes they went through. Again, it’s about building relationships not just for advancement of the kingdom, but to obtain relief for your congregations whose tithes and offerings are supporting the church. It’s worth the time.
Q: What should a church be prepared to have ready when going through a tax exemption application at the local level?
The primary purpose behind the exemption is that the property is used exclusively for religious worship purposes (which is basically the standard across the United States). You want to present evidence (through written documentation and oral testimony) to show how the property is used EXCLUSIVELY for religious worship purposes.
If you’re not ready to build on a vacant property, obtain a permit for a tent, have a revival. Print out your program or have available a program showing the property is being used for religious worship purposes.
Sure, your church can have picnics, create exercise and meditation gardens, have and serve refreshments, but again, the primary use is religious worship.
Also, make sure you have a site plan that shows the actual property boundaries. You might even want to take a surveyor to the site and put stakes in the ground outlining the shape and size of the property.
Q: What about churches that lease space?
Storefront churches, and churches using similar spaces, are a growing trend because it’s easier to move into an existing building than build a new one from the ground up.
When renting space, the reality is that a portion of your rent is going to pay local real property taxes. And typically, in lease documents, they outline what the rent rate is and maybe mention your responsibility for your portion of the real property taxes. If the lease agreement includes such information, ask the assessor for any exemptions from real property taxes for your religious use on a portion of the real property in the lease.
Tip: Sometimes, a county government will offer an exemption from real property taxes for space used by a religious entity exclusively for religious worship purposes. Prince George County, Maryland, for example, offers an exemption that might make a good template to take to your local assessor or governing body to ask for a similar arrangement.
Q: Why is a church property tax exemption not permanent?
Because land uses change—and there are eyes watching you all the time. So be careful.
A church may sell its property and the government wants to receive its share of taxes, so it will add the property back to the tax rolls.
Or maybe a church owns the property and changes the use. For example, the church adds affordable housing or housing for the elderly, making it a residential use.
Another example: a church lost its exemption from real property tax when it decided to begin renting parking spaces in direct competition with the local metropolitan parking lot – typically near a mass transit rail line. As a result, it lost its property tax exemption for the portion of the property being used as a commercial parking lot.
Q: What if a church sells its property to another church?
Typically, the exemption will remain in place. But, again, relationships and communication are key. Talk to the assessor’s office, let them know what is going on, and remind them that the property will continue to be used exclusively for religious worship purposes.
Q: What types of situations might trigger a property tax assessment for a church, even if it has a valid exemption on record with its local assessor?
When activities cause others to question the activities on the property, it might bring a challenge.
Food banks are a good example, or perhaps a clothing thrift shop. An outsider might see such activity as a non-religious use without being aware the food bank or thrift shop is part of your mission. So, let the assessor know the missional aspect of the activity because, chances are, you will be challenged.
Q: What about building on vacant property or vacating an existing building to allow renovations or an addition? What should church leaders expect from the local taxing authority in these situations?
The period during construction for the church’s use may be targeted to be taxed because you’re not using the space exclusively for religious worship purposes. The key, though, is to continue worshiping there, even during construction.
Another key: building a morals and religious worship clause into all construction contracts spelling out that the property is God’s property and is to be treated as holy ground. Turn the project into a worship experience.
Dig Deeper: A New Jersey church was forced to pay taxes for a converted building. Click here to find out why.
Think creatively. Find a biblical basis—the nexus between what your activity is (construction) and the worshipful aspect of that activity. And be prepared to take your argument to the local tax assessor and your elected officials. They could change the local tax code to allow that a church in the midst of a construction project while continuing to hold religious worship services on the property does not violate the exclusive use requirement.
I’m an optimist about these things!
Q: If a church receives an unexpected property tax bill, what are the best steps that leaders can take to appeal it with the local assessor?
First, do not panic. Pray. Then, read the tax notice in detail, front-to-back, top to bottom. There ought to be in that tax bill a statement of how the recipient can appeal the assessment, along with an address and phone number. Be sure to call the number provided and ask about the appeal process.
Again, be communicative in a positive way. Typically, there is a very limited window of time to initiate an appeal of an adverse decision—often 30 days from the date of the letter. Missing the window means you’ll likely have to wait until the next year to appeal.
One of the best steps a church leader can take is to accept where you are now. If an appeal is possible, do it. If your church got taxed because its exemption lapsed for one reason or another, rededicate your use of the real property toward EXCLUSIVE religious worship purposes and then apply for the exemption. Then, renew the exemption every year going forward. Don’t look back. Look forward and continue to use the property EXCLUSIVELY for religious worship purposes.
Dig Deeper: 7 common tax-related reasons churches land in court.
(Editor’s Note: This interview was edited for length and clarity.)