Competing for greater market share with the promise of better-than-ever coverage, cellular companies are always on the lookout for new places to construct cell towers. That means pastors and church financial directors will continue to be approached—and sometimes even hounded—by companies hoping to build antennas into steeples, disguise them as crosses and bell towers, and slap them on spires.
These arrangements promise hundreds or thousands of dollars per month in lease fees to cash-strapped churches. But the possible pitfalls include hidden tax burdens, opposition from activists and neighbors, and leases that hamstring the church from expansion.
Pluses and minuses
A quick internet search finds a few examples of churches embroiled in arguments with neighbors and others over whether the tower will change the neighborhood’s character. Others oppose the towers out of fears over health problems from electromagnetic radiation—a factor the federal government and multiple studies have dismissed.
Both factors can usually be overcome and, generally, once a tower is up for a while, the neighborhood forgets about it. Sarah Graham, financial administrator at The Church at Green Hills in La Habra, California, said she’s unaware of any controversy over the cell tower her church has hosted for 20 years. It’s operated by T-Mobile—which pays $24,000 annually for the lease—and is disguised as a cross.
“My experience has been that the agreement was a good agreement,” said Graham, who grew up in the church.
Churches that are satisfied with their leases have maintained control over their property, said Casey Hale, an attorney who works with churches and serves the nonprofit sector for Brown & Streza in Irvine, California.
Hale has seen it far too often: a church signs an agreement, senses somethings is amiss, and then gives him a call. “Then it’s too late,” said Hale. “Depending on terms in the agreement, it might make it difficult for the church to make any changes to its property or buildings. [Or] the church could be locked into below-fair-market rental rates for decades.”
“In dealing with carriers, you want to be as shrewd as snakes,” said Steve Kazella, referencing Jesus’ words in Matthew 10:16. Kazella heads Tower Genius, a cell tower lease consulting firm in Lewiston, Idaho. The way to do that, according to Kazella, is to hire people with thorough knowledge of zoning, tax codes, legal issues, and the wireless industry itself. Tower Genius, he said, typically works with lawyers on the latter.
Following IRS rules
On the tax side, the biggest problems relate to property tax rules, which differ from state to state, and a lack of clarity around Internal Revenue Service rules, CPA Dave Moja said. Moja helped write a 2014 report to the IRS on issues with unrelated business income tax (UBIT).
Under IRS rules, if a church collects money on an activity unrelated to its ministry, it could be considered taxable income. Those rules can be difficult to untangle, Moja said.
Moja offers these tips for church leaders:
- Check with local government about whether the area of church property where the tower will be erected would be subject to property tax.
- If the church owns the building outright and the IRS considers it “real property,” it may be exempt from paying UBIT on rental income from antennas or towers affixed to it.
- If the church already owns a stand-alone radio antenna and allows a cell service provider to affix an antenna to it, the congregation may be subject to UBIT on the net income from the tower rental.
- If the church has debt on its building or land and rents space for a cell tower, it may have to pay tax on the rental fee, depending on the percentage of the property considered debt-financed.
- If the church simply rents land to a communications company and that company constructs a tower and pays all costs associated with operating the tower, the church will generally not owe UBIT on the land rental. However, if the church has debt on the land, it would be subject to the debt-financed rules.
Navigating zoning boards
Sometimes churches will find that their neighbors don’t want to allow a cell phone tower on church property, but zoning boards generally look favorably upon cell towers at churches, said Kevin Donohue, a partner in the Tower Genius consulting firm.
“If [churches] can hide the antennas, planning boards and zoning boards won’t give them a hard time,” Donohue said.
Seek expert help
“The UBIT laws I’ve been working with for 20 years are probably the best marketing tool for CPAs and attorneys out there,” Moja said. “There’s a don’t-try-this-at-home aspect to this stuff. It comes down to working with your tax advisers and making sure you have good guidance on local, state, and federal laws.”
Real estate agent Dominic Dutra, whose California-based firm consults with churches and other nonprofits on cell phone tower leases, urges clients to consider alternatives to cell phone towers. Too often, he’s heard of churches devastated by being trapped in contracts that take away control of their property, result in unanticipated taxes, or yield far less income than they should have.
Dutra encourages churches to ask themselves questions like these before signing any cell tower contracts: “Does it do anything for us beyond the income? Does it improve what we do in our ministry or in the community? Or does it constrain what we want to do with our property on a long-term basis?”
He said the biggest question churches should ask themselves is, “Why are we doing this?”