Church Wins Round In Court Over Property Tax Exemption

In a recent court case, a New York court ruled that two churches closed by a Catholic Diocese remained exempt from property taxes. In this situation, the diocese had announced plans to permanently close the churches and issued canonical “decrees of suppression.” This action has the effect of terminating the diocese. The property was transferred to other parishes. The local tax assessor informed the diocese that the churches were being placed on the tax rolls, removing the property tax exemption from the two churches.

The diocese asked the court to reinstate the tax-exempt status of both churches, citing the fact that the properties were being used on occasion for religious purposes including monthly religious services. In addition, the diocese stated that the churches were not used for any other purpose. The assessor countered that the properties were not entitled to the exemption because they were no longer used for religious purposes and the properties do not currently function as churches. Further, the assessor claimed that the churches are investment properties being marketed for sale for the non-exempt purpose of generating income.

The diocese submitted a rebuttal that stated that a canonical decree of suppression did not preclude the continued use of the properties for religious purposes and that both properties continue to be used at this time for religious services to serve the needs of the parish faithful. This includes morning prayers on one of the properties and periodic prayer services and communion services on the other.

In its conclusion, the court stated that it is the actual or physical use of the property that determines its tax exemption status. Since no evidence was presented indicating any use other than for religious purposes, the tax exemption was reinstated. The court further stated that a change in the frequency of religious services does not alter its tax-exempt status.

Property tax laws vary from state-to-state, but this ruling contains two significant points for churches in any state. First, it affirmed that a church property may be tax exempt even if it is only used infrequently for religious purposes. Secondly, on the other hand, in order to maintain its tax exempt status, the property must be used for no other purposes. One should not take this conclusion to the improper extreme. Presumably, an operating church with regular, frequent religious services and activities may still allow non-religious events to occur in the church. The church should be circumspect about the frequency and nature of such events and monitor them closely.

Dr. John Stancil (My Bald CPA) is Professor Emeritus of Accounting and Tax at Florida Southern College in Lakeland, FL. He is a CPA, CMA, and CFM and passed all exams on the first attempt. He holds a DBA from the University of Memphis and the MBA from the University of Georgia. He has maintained a CPA practice since 1979 with an emphasis in taxation. His areas of expertise include church and clergy tax issues and the foreign earned income credit. He prepares all types of returns, individual and business.

Dr. Stancil has written for the Polk County Business Journal and has presented a number of papers at academic conferences. He wrote the Instructor’s Manual for the 13th edition of Horngren’s Cost Accounting. He is published in the Global Sustainability as a Business Imperative, Green Issues and Debates, The Encyclopedia of Business in Today’s World, The Palmetto Business Review, The CPA Journal, and in the NATP TaxPro Journal. His paper, “Building Sustainability into the Tax Code” was recognized as the outstanding accounting paper at the annual meeting of the South East InfORMS. He wrote a book entitled “Tax Issues Faced by U. S. Missionary Personnel Abroad ” that will soon be published.

He has recently launched a new endeavor, Church Tax Solutions, which presents online, on demand seminars on various church and clergy tax issues.

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