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Court Sides with Church in Tax Delinquency Case

But the case underscores the importance of knowing—and abiding by—state-specific tax exemption laws

Key point. In some states, exemption of church property from taxation is automatic and there is nothing that a church is required to do for the exemption to apply. In other states, however, the exemption is not automatic, and churches are required to formally apply for and receive notice of exemption from a government agency.

The Virginia Supreme Court ruled that a church’s property was exempt from taxation even though the church never filed an application for exemption.

A six-figure city tax bill

In August 2018, the City of Petersburg (“the City”) brought a complaint against a church (the “Church”) and its trustees for delinquent property taxes. The City asked the court to authorize a sale of the church property to pay the delinquent taxes. The trial court found that, as of April 15, 2019, the Church owed the City $114,059 in delinquent real estate taxes due through June 30, 2015, plus penalties and interest through April 15, 2019.

On appeal to the Virginia Supreme Court, the Church argued that it was exempt from paying real estate taxes under Article X of the Constitution of Virginia because the property at issue was owned and used exclusively for religious purposes. The Church claimed that this tax exemption was self-executing and therefore the church was not required to apply for exemption.

The City claimed that the property was not “automatically exempted” from taxation. Rather, the Church was required to apply to the city assessor for a determination regarding whether it was entitled to an exemption.

The court noted that Article X of the Constitution of Virginia provides that “property owned and exclusively occupied or used by churches or religious bodies for religious worship” shall be exempt from state or local taxation. The court agreed with the Church that “any properties used for religious worship in the City that qualified for tax-exempt status under Article X . . . were automatically exempt from taxation during the years in question.”

City claims church raised challenges too late

The City argued that even if the Church property was exempt from taxation, the Church failed to challenge the tax assessment within the three-year limitations period provided by state law.

The Court disagreed:

[The Church] does not dispute that more than three years have passed since the assessments in question were issued. Under Virginia Code § 58.1-3984, the Church would be barred by the three-year statute of limitations from bringing an action against the City to challenge the validity of the assessments. However, the Church’s inability to initiate a legal challenge under this statute does not end the inquiry. Despite the City’s argument to the contrary, just because the Church can no longer initiate a lawsuit against the City does not mean it cannot raise the self-executing tax exemption as a defense to the City’s attempt to sell the property in a tax sale.

City looks to tax “learning annex” on church property

The City claimed that a "learning annex" on the Church’s property did not qualify for exemption from taxation since it was not used for worship. The court disagreed, concluding that the exemption in question extended to “property used for ancillary and accessory purposes” that “support[s] or augments the principal religious worship use . ...”

What this means for churches

This case is important for two reasons.

1. Property tax exemptions. It demonstrates the importance of being familiar with any conditions that must be met in order for church property to be exempt from taxation.

In some states, exemptions of church property are automatic. But in many states a church must apply for and receive recognition of exemption—and a failure to do so can result in unexpected tax liability. Note the following important points:

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:

  • Church leaders should contact the local assessor’s office to determine if property tax exemptions for churches are automatic or if formal application for exemption is required.
  • When purchasing property, be sure your church’s mailing address is correctly listed on the deed, since this is the address typically used by the assessor’s office. Also take the extra step of confirming the assessor’s office has the church’s correct address.

And perhaps 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.

  • 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.
  • 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.

2. Ancillary uses. In most states, a church’s property tax exemption extends to “ancillary uses” of property that are necessary for a church to engage in exempt activities. As an example, church parking lots typically are exempt from taxation though little, if any, religious worship is conducted in the parking lot.

Emmanuel Worship Center v. City of Petersburg, 867 S.E.2d 291 (Va. 2022).

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