Preserving Property Tax Exemptions

Why churches must ensure records are accurate.

Byzantine Catholic Bishop v. County Assessor, 2011 WL 4444186 (Ore. Tax 2012)

Background. In 2007, a church (the “plaintiff”) acquired property through a warranty deed from another church. The title company incorrectly listed the church’s mailing address on the deed. At the time of the conveyance, the property was exempt from taxation on the basis of its religious use. The use of the property did not change when ownership changed; the property was used for religious services by both the old and the new owners.

Late in 2007, a local tax assessor sent the plaintiff a “Notification of Status Change” for the 2008-2009 tax year. This notice was sent to the incorrect address listed on the deed. The notice stated: “An application is enclosed with this notice for you to file … for a tax exemption on the above referenced location.” The reason listed on the notice for the status change was a “change of ownership.” The 2009-2010 tax statement for the property also was sent to the plaintiff at the incorrect address listed on the deed. The plaintiff didn’t receive either statement. Both were returned unopened to the assessor’s office by the post office. No payments were made when the property taxes became due.

The plaintiff did not receive this notice, which was returned unopened to the assessor by the post office with the notation “NMR,” no mail receptacle, on the envelope. The assessor placed the unopened notice in the plaintiff’s file. The assessor did not search its records or other sources to locate a different address for the plaintiff.

In 2010, the plaintiff first discovered that its property was being taxed. It immediately filed an application for tax exemption for tax years 2008-2009 and 2009-2010. The assessor denied the exemption for both tax years because the exemption applications were not timely filed. However, the assessor granted the plaintiff’s property tax exemption for tax year 2010-2011 and for future years. The plaintiff appealed to the Oregon Tax Court the denial of its property tax exemption for 2008-2009 and 2009-2010.

The court’s ruling. The state tax court began its opinion by quoting the property tax exemption statute: “Before any … property may be exempted from taxation … for any tax year, the institution or organization claiming the exemption shall file with the county assessor, on or before April 1 of the assessment year, a statement … listing all property claimed to be exempt and showing the purpose for which such property is used.” An exemption application may be filed as late as December 31 of the assessment year for which an exemption is desired upon payment of a late filing fee. The court concluded:

When the plaintiff acquired the property in 2007 this constituted a change in ownership that required plaintiff to file a new application. The latest plaintiff could have filed an application for exemption was December 31, 2008, for the 2008-2009 tax year, and December 31, 2009, for the 2009- 2010 tax year.

Plaintiff did not file an application for exemption for tax years 2008-2009 and 2009-2010 until December 3, 2010. Accordingly, plaintiff failed to timely file exemption applications for those years.

Improper address

The court acknowledged that the plaintiff did not receive notice of the exemption status change or the tax statements because the assessor sent the notices to the wrong address. The plaintiff claimed that the assessor was obligated to determine the church’s correct address through a search of its internal records or of other available sources, particularly once he was put on notice that the plaintiff’s address of record was incorrect.

Additionally, the plaintiff claimed that the assessor could have searched other sources, such as the Internet, and learned that no mail was accepted at the address on the deed. In rejecting the plaintiff’s request that a property tax exemption be granted for prior years based on the assessor’s failure to send notices to the correct address, the court observed:

While it is definitely a good idea for the county to examine its returned mail, arguing about whether the county might have found the [plaintiff] earlier overlooks the point that the county ought not to have had to look for the [plaintiff] at all… . It is not the county’s obligation to search for the taxpayer. Instead, it is the taxpayer’s responsibility to search the county and make sure its records are correct.

The legislature has placed the burden on taxpayers to notify county assessors of their true and correct address. [The assessor] did not have a duty to locate any other address for the plaintiff either by searching its internal records or by searching some other source.

Returned mail

The plaintiff also noted that the returned notice was marked with the notation “NMR,” meaning “no mail receptacle,” which indicated not only that the plaintiff’s address was incorrect, but that there was no address at all. Furthermore, the plaintiff noted that it was the title company that incorrectly listed plaintiff’s address on the deed. The court rejected these defenses:

The court has held taxpayers responsible for interest and penalties that were incurred on a late property tax payment when the title company incorrectly listed the address where all property tax statements should be sent. Additionally, taxpayers were held responsible for taxes and interest when their appeal was dismissed as untimely, despite the fact that tax notices were sent to an address with no mail receptacle. Thus, the facts that the title company incorrectly listed the plaintiff’s address where property tax statements should be sent and that the address provided on the recorded deed did not have a mail receptacle do not relieve the plaintiff of the duty to keep the tax collector informed of the correct address.

Relevance to church leaders. This case contains two important lessons for church leaders. First, many churches have purchased a building and grounds from another church or charity. It is a common assumption that since the property continues to be used for exempt purposes, its exemption from property taxation continues uninterrupted. In most jurisdictions this assumption is incorrect, since any transfer of ownership, even from one church to another, requires the property’s exempt status to be applied for again.

Second, this case illustrates that, in most jurisdictions, it is the responsibility of the property owner to ensure that the local tax assessor’s records contain a correct mailing address. Church leaders should not assume that church property will be entitled to exemption from tax if no exemption application is filed, even if the failure to apply for an exemption was due to the fact that the local assessor sent tax statements and related information to the wrong address. And this is so even if, as in this case, the error was attributable to the title company rather than to the church.

The bottom line is that church leaders should pay special attention to property tax exemption requirements when purchasing a building or land, even from another church or charity. Here are some important tips:

  • Do not assume that a property tax exemption automatically “goes with the land” to a new owner.
  • When purchasing property, be sure that your church’s mailing address is correctly listed on the deed, since this is the address that is typically used by the assessor’s office.
  • If you do not hear from the assessor’s office within a reasonable time after acquiring property, this may indicate a problem with the property’s tax exemption that should be addressed promptly.
  • Find out what requirements must be met in order for newly acquired church property to become exempt from property taxes. Go to the assessor’s office and obtain the necessary forms.
  • Confirm that the assessor’s office has the correct address for the church. And, just as importantly, be sure the assessor’s office has the correct name of the church. It is common for churches to change their name from time to time, and this can result in confusion when important notices are received at the church’s correct address but to an addressee whose name is unfamiliar to the person opening mail in the church office.
  • Periodically contact the assessor’s office to confirm the exempt status of church property as well as the church’s name and address.
  • The services of an attorney can be helpful in obtaining and maintaining a church’s exemption from property taxes.
  • More About Property Exemptions
  • All 50 states exempt some church-owned property from property tax. However, the extent of the exemption varies from state to state. Some states exempt property used exclusively for religious worship, while others exempt property used for religious purposes. Parsonages are exempt in many states.
  • The exemption of religious organizations from property taxes is a practice that dates back to ancient times. The Bible records that “Joseph established it as a law concerning land in Egypt … that a fifth of the produce belongs to Pharaoh. It was only the land of the priests that did not become Pharaoh’s” (Genesis 47:26).
  • The emperor Constantine exempted churches from property taxes in the fourth century. Medieval Europe generally exempted church property from property taxes. This tradition of exemption was adopted by the American colonies.
  • All 50 states presently recognize some form of exemption of religious organizations from property taxes. The exemption of church property from taxation has been challenged on a number of occasions on the ground that such exemptions violate the First Amendment’s nonestablishment of religion clause. The Supreme Court historically viewed such challenges as frivolous. Walz v. Tax Commission, 397 U.S. 664, 686 n.6 (1970). In 1970 the court upheld the constitutionality of New York’s property tax exemption statute, which exempted property used exclusively for religious purposes.
  • Every state exempts from taxation buildings that are used exclusively as places of worship.
  • Each state’s statute (or constitutional provision) exempting church property from the property tax is set forth at the end of Chapter 12 in the annual Church & Clergy Tax Guide.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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