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Defendant was found to have promoted an abusive tax shelter in violation of 26 U.S.C. § (I.R.C.) § 6700 by encouraging and assisting “ministers” of a church he founded to execute a vow of poverty and transfer all their property, both real and personal, to the church telling the “ministers,” often with reference to I.R.S. materials, that as ministers of the church they were not required to pay taxes on income they earned so long as it was assigned to the church. The government was entitled to injunctive relief under 26 U.S.C. (I.R.C.) § 7408(b), having shown that (1) defendant organized a tax avoidance plan; that (2) he made false or fraudulent statements concerning the tax benefits to be derived from the said plan, falsely promising prospective “church ministers” that they could eliminate their federal income taxes by executing a “vow of poverty” and assigning their income to the church; that (3) defendant knew or had reason to know that his tax advice was false or fraudulent; that (4) said false or fraudulent statements were a material factor in causing a number of ministers to act upon defendant’s advice by not filing tax returns for the years in which they had “assigned” their income to the church and that (5) injunctive relief was necessary to prevent a future recurrence of this conduct. Upon defendant’s advice, “ministers” taking a vow of poverty transferred title to all personal property to a trust created by defendant’s church and quitclaimed their real property to the church, which the church in turn quit-claimed to a trust. Ministers also assigned to the church all income they earned as a part of their normal employment. In some instances, the ministers received the check from their employer and then endorsed it in favor of the church. In other cases, their earnings were deposited by the employer directly into accounts controlled by the church. In practice, however, ministers retained access to their funds and property, because the church provided them with a debit card from a church account which they used for their necessary living expenses. The church also paid the mortgage, if any, on the minister’s home and other related home expenses, with the church referring to the home in which ministers and their families resided as a “parsonage.”. Although the church maintained the right to refuse payment of the minister’s expenses, there was no evidence of any request by a minister for an expense that the church had denied. In proving its case, the government relied primarily on the conduct of X and defendant’s interactions with him. Prior to becoming a church minister, X earned $60,000 annually as a histotechnologist for KP, an independent company. Upon taking a vow of poverty, X declared that he was giving all of his possessions to the church, including his car, and assigned his pay from KP to the church, directing KP to deposit his paycheck directly into a church account. Nevertheless, X continued to receive his employee benefits from KP, including health care, sick leave, and vacation days. The church was not in any meaningful way involved in X’s employment with KP: it did not participate in X’s obtaining his employment; was not a party to the employment contract between X and KP or a third-party beneficiary of said contract; did not direct X’s work or have responsibility to provide others to perform the work should X cease doing so. Although the work X performed at KP in providing healthcare was consistent with the stated mission of the church – providing compassionate acts to others – X had not undertaken his work at KP in pursuit of his ministry, but merely continued to do what he had been doing before becoming a minister. The church’s only substantive connection to X’s employment was its acceptance of his pay check, an arrangement that X could change at any time. Based upon these facts, the U.S. District Court for the District of Utah in the Tenth Circuit, relying on the Seventh Circuit’s approach in Schuster v. Commissioner of Internal Revenue Service (1986), found that the services rendered to KP by X resulted in taxable income to X and that defendant’s statements that X was exempt from certain tax obligations due to his relationship with the church were false or fraudulent under the “anticipatory assignment of income doctrine.” See the court’s opinion for details and a review of the pertinent cases. Pursuant to 26 U.S.C. (I.R.C.) § 7408(b), the court issued an injunction enjoining defendant from continuing to aid and abet ministers from understating their tax liability. However the court refused the government’s request for injunctive relief under 26 U.S.C. § 7402 for the purpose of preventing defendant from continuing to interfere with tax enforcement by ordering defendant to provide the names and addresses of ministers who may have already relied upon his advice, saying that while defendant was now on notice that the income obtained through the services rendered by X to KP was taxable to X, whether the facts of other particular ministers would support the same conclusion remained unresolved, because the particular circumstances of other ministers of defendant’s church could possibly meet the Internal Revenue Code requirements necessary to avoid tax liability. Those circumstance would have to be substantially different than the circumstances of X’s case, but the court said that the present record was inadequate for it to find that the request by the government the names and addresses of ministers who may have already relied upon defendant’s advice was necessary to prevent defendant from continuing to disrupt the federal tax system and that it would not grant such request pursuant to § 7402 at this time absent additional evidence that, after this decision, defendant continued to promote the same tax avoidance arrangement addressed in this decision. The court concluded by saying that “[i]t should be clear to [defendant] . . . that he now has notice of the law and that if he continues his actions or attempts to cleverly distinguish future actions from the particulars of the violative conduct discussed in this . . . decision . . . the court will not be sympathetic. It would also be appropriate for [defendant] to undertake all necessary actions to correct any advice he has given to other ministers and to assure that the Church’s directions and instructional manuals are consistent with this decision. Should he fail to take such actions, the court will entertain a request by the United States for further relief.” Case # 4468 (D. Utah)

A South Carolina School District used its website, e-mail, and other forms of communication to urge opposition to a bill pending in the South Carolina legislature that would have granted a tax credit to persons sending their children to a private school or having them home schooled. The School District believed that the bill, if enacted, would tend to undermine public education. Plaintiff, a county resident who favored the bill, requested “equal access” to the School District’s “informational distribution system” to present his own message in support of the bill. When the School District refused his request, he commenced an action, claiming that the School District’s refusal violated his First Amendment rights by discriminating against his point of view. The Fourth Circuit affirmed the district court’s judgment in favor of the School District, concluding that the School District’s campaign was largely “government speech” and that the School District’s informational distribution system was not a public forum to which plaintiff was entitled access. Throughout its campaign, the School District maintained control over the development and dissemination of its message, and it never allowed private persons to participate in the channels through which it disseminated its message so as to create a public forum. For instance, the School District’s inclusion on its website of links to other websites did not result in the creation of a limited public forum. Every link to other websites was included by the School District on its own initiative, and it did so only insofar as the link would buttress its own message. It thus retained sole control over its message. The same was true for attachments to School District emails containing statements of private parties. The Court rejected the argument that the government speech doctrine does not apply when the government attempts to influence legislation Case # 3225 (4th Cir.)

Action Against Tax Auditor For Religious Discrimination

A Bivens federal cause of action is not available to permit a plaintiff to sue an employee of the Internal Revenue Service for damages resulting from a constitutional violation claimed to have occurred in connection with the assessment of a tax liability; plaintiff claimed religious (anti-Semitic) bias on the part of the IRS auditor Case # 948 (3d Cir.)

Church was denied exemption from ad valorem taxes for its Ford F-150 truck. In Kansas property used exclusively for religious purposes is exempt from taxation. If the property is used for a nonexempt purpose, it will still qualify for the tax exemption so long as the use is “minimal in scope and insubstantial in nature.” According to the church the truck was used exclusively for its street ministry in which church members transported handmade signs to various locations around the country, including churches, military funerals, government offices, political conventions, and other locations to express, often in acrimonious language, the church’s religious message. Church members published the message that God had punished and would continue to punish the United States because of the country’s willingness to condone homosexuality. Even though the church members sincerely believed that all of their signs conveyed their religious beliefs, the State Board of Tax Appeals (BOTA) denied the exemption on the ground that the picketing activities did not serve an exclusively religious purpose given the fact that many of the signs made no reference to church doctrine or anything remotely religious; rather they simply labeled public figures and institutions with terms such as “fag,” “dyke,” “whore,” “pervert,” or “Nazi.” BOTA further found that because such signs represented over 40% of the signs, the truck did not qualify for the exception extending the exemption to properties used for a nonexempt purpose when the use is minimal in scope and insubstantial in nature. The Court held that BOTA’s determination that many of the signs were nonreligious in nature violated the Establishment Clause, as BOTA was engaged in the act of interpreting and weighing the church’s religious doctrine. But although BOTA’s reason for denying the tax exemption was in error, the Court upheld the denial of the tax exemption for another reason. Although the signs may have been religious in nature, the picketing activity the church members engaged in was in large part political, and hence secular, in nature. Not every use of property affiliated with a religious organization may qualify as property used exclusively for a religious purposes. Although the church maintained that its picket activities were exclusively for religious purposes, there was an obvious political component to its activities. For example, picket signs named individual elected leaders and other government and political officials and figures, so as to publish the fact that these officials did not live a proper life. An example given by one picketer was President Bush, who the picketer believed claimed to be conservative, but who nominated and selected for important government positions people who were practicing homosexuals. Church members picketed Democrat and Republican national conventions for the purpose of making sure people understood the ramifications of putting a person in a position of power who doesn’t serve God. These examples showed that the church believed that public and government officials, whom it believed to be ungodly, were being placed in positions of authority within the government. Although arguing that it was promoting godly government, in essence the church was advocating a reform of government whenever it picketed a public or elected official. Merely saying a message is apolitical does not make it so. In balancing the government’s interest in collecting taxes, the government had a right to make a limited inquiry as to whether the church’s activities in the use of the truck were exclusively for religious purposes. The court recognized that a problem arises when one attempts to draw a distinction between those activities characteristic of secular life that are also pursued by religious organizations and those activities characteristic of religious life. Clearly, the church members believed that they had a moral responsibility to make the state better. However, the Court was of the opinion that they chose to do this politically by warning the public about allegedly ungodly public and elected officials and advocating the election of godly officials to office. In advocating the reform of local, state, and national government by their message, the church members were engaged in affairs of government and politics, secular activities. If a religious organization could latch onto a secular activity and incorporate that activity into its religious activities based simply upon its members’ sincerely held religious beliefs, the scope of free exercise claims would be stretched to an untenable degree. Thus, although the Court accepted the church’s contention that its picketing activities represented its sincerely held religious beliefs, it determined that its political activities and secular philosophy, which constituted a significant part of its picketing activities, precluded a tax exemption for its truck Case # 3261 (Kan. Ct. App.)

“An appropriate high-level Treasury official” for Purposes of 26 U.S.C. § 7611

The IRS, seeking to investigate potential improprieties in a church’s finances that could jeopardize its tax exempt status, served an administrative summons seeking examination of the church’s records. 26 U.S.C. § 7611 specified that a church tax inquiry could begin only after notice and if “an appropriate high-level Treasury official” reasonably believed that the church may not be entitled to tax exempt status. An “appropriate high-level Treasury official” was defined by § 7611 as “the Secretary of the Treasury or any delegate of the Secretary whose rank is no lower than that of a principal Internal Revenue officer for an internal revenue region.” Following a formal notice and comment period, the IRS issued a Treasury Regulation determining that a “Regional Commissioner (or higher Treasury official)” was “an appropriate high-level Treasury official” for purposes of § 7611. However, in 1998, Congress, without amending the definition of “appropriate high-level Treasury official,” eliminated the position of Regional Commissioner. Additionally, the IRS did not undertake any rule-making procedures to amend its own definition. Instead, the IRS delegated authority to other IRS officials to assume the former responsibilities of the Regional Commissioners. In the instant case, the Director of Exempt Organizations, Examination (DEOE) was the IRS official who made the reasonable belief determination required by § 7611. The court held that the DEOE did not constitute an appropriate high-ranking Treasury official authorized to make the necessary “reasonable belief” determination required by § 7611 and that therefore the IRS was not entitled to enforce its administrative summons. The court refused to defer to the IRS’s interpretation of the statutory phrase “appropriate high-level Treasury official” as including the DEOE. In enacting § 7611, Congress sought to balance the rights of legitimate churches with the need for the IRS to investigate and eliminate church tax avoidance schemes. Congress sought to make the person responsible for this balancing act one having broad responsibility and experience and a high-profile position that would make it likely that he or she had a heightened understanding of the political and policy interests at stake. The DEOE, who was four management levels removed from the Commissioner of the IRS, was not the “high-level Treasury official” envisioned by Congress to properly serve the balancing function Case # 3413 (D. Minn.)

Church Audit Procedures Act

IRS revoked church’s tax exempt status; the church challenged the revocation on the ground that, in violation of 26 U.S.C. § 7611(c)(1)(A) of the Church Audit Procedures Act, the tax examination took more than two years; in rejecting the church’s argument, the court held that § 7611(c)(1)(A) was not mandatory, but precatory, and that § 7611(e)(2) expressly barred the church’s defense Case # 837 (Fed. Cir.)

“Church” status under I.R.C. § 170(b)(1)(A)(i)

The Foundation of Human Understanding, a nonprofit corporation founded and led by Roy Masters, taught meditation techniques, emphasizing emotional self-control through a specific type of meditation as the key to salvation. The IRS recognized the Foundation as a publicly supported educational and religious tax exempt 501(3)(c) corporation that qualified for non private foundation status. See I.R.C. § 509(a). However, the IRS revoked the Foundation’s status as a “church” under I.R.C. § 170(b)(1)(A)(i). Status as a “church” under § 170 is advantageous because, for example, a “church” is exempt from filing annual information returns and a “church” may be audited/investigated by the IRS only in accordance with strict and specific procedures. The Foundation had the burden to establish that the IRS’s revocation was erroneous and it failed to satisfy that burden. In sustaining the IRS’s revocation of the Foundation’s status as a “church,” the U.S. Court of Federal Claims initially looked for guidance to the 14 criteria developed by the IRS as a guide in evaluating plaintiff’s § 170(b)(1)(A)(i) status as a “church.” Ultimately, however, the Court of Federal Claims decided the case by applying the “associational test,” under which an organization must serve an associational role in accomplishing its religious purpose and must include a body of believers or communicants that assembles regularly in order to worship. The Court of Federal Claims found that the Foundation no longer, as in the past, provided religious services to an established congregation; rather its primary activities were internet and radio broadcasting, activities which were not supplemented by associational activities. Substantially relying on the Court of Federal Claims, the U.S. Court of Appeals for the Federal Circuit affirmed, holding that the associational test is an appropriate test for determining church status under § 170. The attendance of groups of people at occasional seminars in cities scattered across the country did not constitute a regular assembly of a cohesive group of people for worship for purposes of the associational test. Nor did the holding on 5 seminars in one location in a 3-year period enable congregants to establish a community of worship. While the associational test does not demand that religious gatherings be held with a particular frequency or on a particular schedule, it does require gatherings that, by virtue of their nature and frequency, provide the opportunity for members to form a religious fellowship through communal worship. When bringing people together for worship is only an incidental part of the activities of a religious organization, those limited activities are insufficient to label the entire organization a “church” for purposes of § 170. Nor does the dissemination of religious information, whether through print or broadcast media, fulfill the associational role required to qualify as a “church” under § 170. Plaintiff asserted that its radio and internet broadcasts were “attended” by congregants assembling virtually by using the internet or by tuning in on the radio and that its religious message was “no less heard by the congregation than [it] would be if [it] were delivered in a room with a pulpit.” However, the Court of Federal Claims held that radio and internet broadcasts lack the critical associational aspects characteristic of religious services in which the congregants physically assemble together. There was no evidence, for example, that plaintiff’s adherents regarded their experience while listening to plaintiff’s broadcasts as a shared experience with other of plaintiff’s followers, or as a communal experience in any way. The extent to which the Foundation brought people together to worship, was incidental to its main function which consisted of a dissemination of its religious message through radio and internet broadcasts, coupled with written publications. When bringing people together for worship is only an incidental part of the activities of a religious organization, those limited activities said the Court of Federal Claims are insufficient to label the entire organization a “church.” The Court of Appeals agreed, rejecting the Foundation’s assertion that a religious organization should be treated as a church under § 170 as long as there is a body of followers beyond the scope of a “family church” who seek the teachings of the organization and express or acknowledge an affiliation with its religious tenets. The Foundation did not satisfy the associational test simply because its electronic ministry included a “call-in” show that enabled individuals to call and interact with the Foundation’s clergy over the telephone. Those conversations, according to the Foundation, were broadcast to listening congregants and subsequently transcribed for distribution. However, a call-in show, like other forms of broadcast ministry, does not provide individual congregants with the opportunity to interact and associate with each other in worship, and it therefore did not provide a basis for concluding that the Foundation’s religious activities satisfied the associational test Case # 4088 (Fed. Cir.), affirming, Case # 3770 (Fed. Cl.)

Church Tax Inquiry

Church that ran print advertisement in two national newspapers in opposition, on religious and moral grounds, to a presidential candidate, and that solicited donations, could have its § 501(c)(3) tax exempt status revoked; revocation of its exemption did not violate the church’s its right to freely exercise its religion under either the First Amendment or the Religious Freedom Restoration Act; church had alternative means by which to communicate its views on political candidates; the IRS was not guilty of selective prosecution; other churches which may have also been guilty of political activity potentially subjecting them to revocation of their tax exempt status were not similarly situated Case # 756 (D.C. Cir.), affirming, Case # 475 (D.D.C.)

Until it is served with an IRS summons, a church cannot not bring before a court an objection that the proper U.S. Treasury official did not approve the “church tax inquiry” into the affairs of the church. The IRS may not examine a church without first conducting a “church tax inquiry.” And, before conducting a church tax inquiry, an “appropriate high-level Treasury official” must reasonably believe and record in writing that the church may not be exempt or may be engaging in taxable activities. 26 U.S.C. § 7611(a)(2). The Director of Exempt Organizations Examination (DEOE) is not an appropriate high-ranking Treasury official authorized to make the necessary “reasonable belief” determination. In the present case, the DEOE approved an IRS church tax inquiry into the affairs of the plaintiff church and the church went to court seeking a writ of mandamus requiring a reasonable belief determination from an “appropriate high-level Treasury official” before the IRS could continue its church tax inquiry. Held: (1) Technically, mandamus is not available to require a government official to perform a purely discretionary act. (2) Even assuming that the DEOE was not an “appropriate high-level Treasury official,” the complaint had to be dismissed because a remedy for IRS noncompliance with the church tax inquiry statute is available only in the context of a summons enforcement proceeding. Even then, all a court can do is stay the church tax inquiry until the noncompliance is corrected. The present case did not involve a summons or a summons enforcement proceeding as the IRS had issued no summons to the church. If and when it was served with an IRS summons, the church could present its objection that the proper official did not approve the church tax inquiry Case # 3818 (D. D.C.)

Clergy; Taxation of

Defendant clergyman received money after delivering sermons. The government prosecuted defendant for failing to report all of his income, taking the position that all monies received by defendant after delivering a speech or sermon at a church was “earned income” received in exchange for services rendered and should have been reported on his tax returns. Defendant’s position was that the monies received were free will gift offerings and not earned income. The U.S. Supreme Court has said that the most important factor in determining whether money received by a religious minister is a gift or reportable income is the donor’s intent. Yet here, although the grand jury asked repeatedly how to distinguish a gift from earnings, it was told by the prosecutor and IRS agent that donative intent was irrelevant. It was incumbent on the prosecutor to correctly inform the grand jury as to the Supreme Court’s approach. The failure to do so misled the grand jury and amounted to misconduct which prejudiced the defendant. Such misconduct, which verged on trenching on defendant’s free exercise rights under the First Amendment, resulted in defendant’s indictment being dismissed Case # 2956 (S.D. Cal.)

Income received by ministers whether from the church itself or from other private employers or sources is not exempt from income tax, even though withholding is not required for income received for services performed by a minister in exercise of a ministry or in exercise of duties required by the church Case # 1452 (D. Nev.)

See also Parsonage, infra.

Discovery of Closing Agreements

Court is of the opinion that closing agreements with religious or other tax-exempt organizations governing the deductions that will be available to their members may not be kept secret from the courts, Congress, or the public. Case # 1203 (9th Cir.)

Equitable Estoppel

Tax exemption denied for a residence for a synagogue’s maintenance person. Fact that county had not collected taxes on prior property serving the same purpose did not effect an equitable estoppel Case # 1612N (Pa. Commw. Ct.)

Failure of Non-Profit Corporation/ Church to Pay Corporate Franchise Taxes Results in Deprivation of the Right to Sue or Defend in the Court

Because plaintiff church, a Texas non-profit corporation, had failed to pay its corporate franchise taxes, it was deprived of the right to sue or defend in the Texas courts. Thus, when the church sued defendant insurance companies defendants were entitled to an abatement of the action until such time as plaintiff church demonstrated that it had cured its incapacity by filing the appropriate paperwork and paying any delinquent tax, penalty, or interest. When the church persisted in failing to cure its incapacity, defendants were entitled to a dismissal of the action for want of prosecution, but the dismissal was without prejudice Case # 3471 (Tex. Ct. App.)

Fees for Keeping Animals for Religious Purposes

In Case # 2427 (M.D. Pa.) plaintiff alleged that his First Amendment right to free exercise of religion was violated when the Pennsylvania Game Commission refused to grant him an exemption to a permit fee requirement for the possession of two black bears. It was believed that the black bears were sacred and gave spiritual strength to plaintiff, a Native American considered to be a “holy man” who conducted spiritual ceremonies for other Native Americans on his property with the bears. Because the Code contained individualized exemptions for secular purposes, but not religious ones, and defendants did not advance a compelling reason to deny plaintiff an exemption, the court granted summary judgment to plaintiff on his claim for equitable relief and defendants were enjoined from requiring payment of a permit fee for possession of the bears. However, as to the liability of the individual defendants for monetary damages, summary judgment was granted dismissing all claims against two individual defendants who were found not personally involved in the decision to deny plaintiff a religious exemption. And as to the remaining defendants, they were held entitled to qualified immunity, because plaintiff’s right to a religious exemption was not “clearly established” so that a reasonable person would know that denial of the exemption would violate the First Amendment free exercise clause. The Third Circuit affirmed in Case # 2449 (3d Cir.), although the Court of Appeals held that all of the defendants were entitled to qualified immunity.

Fees for Lobbyists; Lobbyist Registration Acts

See Lobbyists

Fees for Municipal Services

Real property owned by religious organizations for educational purposes not exempt from fees imposed for use of municipal services such as fire protection; fees were not to be classified as taxes Case # 398 (W. Va.)

Local ordinance requiring church to tap into township’s sewer lines did not violate Religious Land Use and Institutionalized Person Act, because the mandatory sewer tap was not enacted pursuant to a zoning or landmarking law. Nor, inter alia, were the church’s First Amendment right to the free exercise of religion or its Fourteenth Amendment right to equal protection of the laws violated Case # 1843N (2d Cir.)

City’s storm water service charge was a fee; it was not a tax on real property from which plaintiff churches were exempt; case of first impression in Illinois Case # 1926 (Ill. App. Ct.)

Forfeiture of Tax Exempt Status of Religious Organization Engaged in Political Activity

Church that ran print advertisement in two national newspapers in opposition, on religious and moral grounds, to a presidential candidate, and that solicited donations, could have its § 501(c)(3) tax exempt status revoked; revocation of its exemption did not violate the church’s right to freely exercise its religion under either the First Amendment or the Religious Freedom Restoration Act; church had alternative means by which to communicate its views on political candidates; the IRS was not guilty of selective prosecution; other churches which may have also been guilty of political activity potentially subjecting them to revocation of their tax exempt status were not similarly situated Case # 756 (D.C. Cir.), affirming, Case # 475 (D.D.C.)

Income, Social Security, and Medicare Taxes

Petitioner tribal elder of the Navajo Indian Nation was not entitled to head of household filing status, the earned income credit, and the child tax credit by virtue of supporting TD, a “clan relative” of petitioner to whom petitioner owed a duty of support under the dictates of Navajo culture because TD did not qualify as a “qualifying child” under the Tax Code, i.e., T.D. was not the taxpayer’s child, brother, sister, stepbrother, stepsister, or a descendant of any such person. The Tax Code’s exclusion of certain obligatory clan-based relationships in Navajo culture from the definition of “qualifying child” did not violate petitioner’s free exercise of religion rights under the First Amendment or her right to equal protection under the Fifth and Fourteenth Amendments Case # 4623 (U.S. Tax Ct.)

Plaintiff taxpayer was a member of a Hutterite religious commune organized as a nonprofit corporation which farmed some 30,000 acres of land. All members of the commune were members of a single extended family. Upon becoming a member, a person transferred his property to the commune. The commune did not pay wages to its members, but supported the members by providing them with shelter, food, and medical care. As a religious corporation having a common treasury, the commune’s income, from whatever source, was exempt from federal income tax pursuant to 26 U.S.C. § 501(d). Instead, the individual members of the corporation paid tax based on their pro rata share of the corporation’s income. Because plaintiff’s personal gross income was his pro rata share of the commune’s taxable income, as the commune’s annual income went down, so did his individual gross income. Plaintiff argued that the annual value of the food and medical care the commune provided to him was an allowable deduction from the commune’s gross income under 26 U.S.C. § 162(a) as ordinary and necessary expenses paid or incurred in carrying on its farming business. Additionally, plaintiff asserted that on his personal income tax return he was entitled to deduct from his gross income the value of the meals he received on the commune’s premises for the commune’s convenience. See Treas. Reg. (26 C.F.R.) § 1.119-1(a) (“The value of meals furnished to an employee by his employer shall be excluded from the employee’s gross income if . . . (i) The meals are furnished on the business premises of the employer, and (ii) the meals are furnished for the convenience of the employer.”). The district court held that none of the claimed deductions were available because each was dependent upon plaintiff being an “employee” of the § 501(d) corporation and plaintiff, for the reasons articulated by the court, could not be considered an employee. Consequently, plaintiff, on his personal income tax return, could not deduct from his gross income the value of meals he received on the commune’s premises for the commune’s convenience, nor could the commune deduct from its gross income the value of the meals and medical care it provided to plaintiff. The district court did not address the IRS’s argument that even if the commune could take § 162(a) deductions for the cost of the medical care and meals it provided to plaintiff, said provision was trumped by 26 U.S.C. § 262(a), which prohibits deductions for personal, living, or family expenses. The district court’s holding was premised on the finding that plaintiff was not an employee of the commune/ § 501(d) corporation. The Ninth Circuit reversed, holding that plaintiff qualified as an employee of the corporation. The fact that the individual Hutterites also played, worshiped, ate and lived together as a matter of their personal beliefs did not detract from the fact that the commune was also a business of which plaintiff was an employee. The commune’s right to control the day-to-day activities of those members who worked for it was fundamental. Members were told what to do, when to work, and whom to ask for “permission” to change tasks or to take vacations. Other factors favoring a finding that plaintiff was an “employee” were the facts that the corporation furnished all of the tools and equipment necessary to its business operation; virtually all work was performed on the commune’s farm or performed for the benefit of the farm operation; the commune had the right to discharge its members for failing to perform requested work; the individual members worked permanently at the commune; the commune operated a commercial farming business at which members worked; managers had the right to assign members working at and for the farming enterprise to additional projects on an ongoing basis. All these factors favored a finding that plaintiff was to be viewed as a common law employee of the § 501(d) corporation. The fact that the corporation did not pay wages to its Hutterite members and did not withhold taxes, including Social Security taxes, or withhold workers’ compensation or unemployment insurance, did not negate this finding. Because the district court held that plaintiff did not qualify as an employee, it did not go on to determine whether the claimed deductions were proper. The case was remanded for a determination by the district court of how the claimed deductions should be treated Case # 4161 (9th Cir.), reversing Case # 3862 (E.D. Wash.)

IRC (26 U.S.C.) § 107 allows ministers who are given use of a home or receive a housing allowance as compensation for services performed in the exercise their ministry to exempt from taxable income the rental value of the home or the value of their housing allowance from federal income tax. Cal. Revenue and Tax Code § 17131.6 corresponds to I.R.C. § 107 for purposes of the state income tax. IRC § 265(a)(6) allows ministers to claim deductions for residential mortgage interest and property tax payments, even if the money used to pay those expenses was received in the form of a tax-exempt IRC § 107 allowance. Cal. Revenue and Tax Code § 17280(d)(2) corresponds to IRC § 265(a)(6) for purposes of the state income tax. Plaintiffs brought suit in the U.S. District Court against the U.S. Secretary of the Treasury and the Commissioner of the IRS in their official capacities seeking a declaration that the federal statutes violate the Establishment Clause of the First Amendment to the U.S. Constitution. Plaintiffs also sued the Executive Officer of the California Franchise Tax Board in her official capacity seeking a declaration from the federal court that the corresponding state statutes violate the Establishment Clauses of both the U.S. and California Constitutions. The court, on defendants’ motions to dismiss on the grounds of lack of subject matter jurisdiction and for failure to state a cause of action, made the following determinations. (1) Despite the Eleventh Amendment, the Executive Officer of the California Franchise Tax Board could be sued in her official capacity under the provisions of 42 U.S.C. § 1983 for prospective declaratory and injunctive relief against the continuing administration and enforcement of Cal. Revenue and Tax Code §§ 17131.6 and 17280(d)(2) in alleged violation of the Establishment Clause of the First Amendment. However, based on Eleventh Amendment sovereign immunity, the U.S. District Court dismissed plaintiffs’ claims that the state statutes violated the California constitution. (2) Plaintiffs had federal taxpayer standing to challenge the federal tax statutes as a violation of the First Amendment Establishment Clause. Although a plaintiff alleging an injury that arises solely out of his federal taxpayer status generally does not have standing in federal court, under the U.S. Supreme Court’s decision in Flast v. Cohen federal taxpayers have standing when they allege that an exercise of congressional power under the Taxing and Spending Clause of the U.S. Constitution violates the Establishment Clause of the First Amendment. Defendants argued that plaintiffs’ challenge fell outside of Flast’s limited exception because tax exemptions and deductions do not involve “expenditures” of government funds. Rejecting defendants’ argument, the district court said that the deductions and exemptions challenged in this case not only reduced a minister’s would-be tax burden, they also benefitted churches by reducing the cost of hiring ministers. Thus, in the district court’s estimation, effectively, if not literally, the statutes in question constituted a type of direct financial aid grant program to religious personnel and organizations that the federal taxpayers had standing to challenge. (3) Plaintiffs also had standing as state taxpayers to challenge California Revenue and Tax Code §§ 17131.6 and 17280(d)(2) for allegedly violating the Establishment Clause of the federal constitution. (4) Plaintiffs’ complaint successfully stated a claim that IRC § 107, and its state equivalent, allowing ministers to exempt from taxable income the value of their housing allowance, violates the Establishment Clause of the First Amendment. The court evaluated the federal statutes within the context of the entire IRC. In the case of IRC § 107, it found no equivalent secular comparator. Hence the court believed a plausible argument could be made that the statute had the impermissible effect of advancing religion over nonreligion. The closest equivalent to IRC § 107 was IRC § 119(a)(2) excluding from the gross income of an employee the value of any lodging furnished to him by or on behalf of his employer for the convenience of the employer, but only if the employee is required to accept such lodging on the business premises of his employer as a condition of his employment. The court said that this is not a sufficient secular comparator because the minister is allowed to exclude the value of his or her housing even if, inter alia, the housing is not on the church premises, or even in the vicinity of the church, and even if the church gives the minister a cash stipend which the minister uses to buy his own home. Additionally, the court went on to say that § 107 provides a direct and exclusive financial benefit to religion itself, as churches can pay ministers lower salaries because part of their salary is not subject to tax. A minister who receives use of a parsonage tax free or who receives a tax-free housing allowance has a greater net income than a similarly situated secular employee who has to pay taxes on a housing allowance or the rental value of an employer-provided home (unless said employer-provided home is on the business premises and the employee is required to accept such lodging as a condition of his employment). Churches, therefore, can either pay ministers the same salaries as similarly situated secular workers with the effect of giving ministers a greater post-tax income, or they can pay ministers lower salaries than similarly situated secular employers with the effect of giving ministers an equivalent post-tax income. Therefore, while § 107 is facially a tax exemption to be claimed by ministers, effectively churches, as employers, also receive a financial benefit. The financial effect of the exemption said the court is the same as if the government were giving direct subsidies to assist in the hiring of religious ministers. Although historically property tax exemptions given to churches have been upheld, the district court did not see the exemption afforded by IRC § 107 as the equivalent of a property tax exemption. Property tax exemptions said the court serve the important purpose of keeping government out of the undesirable – and constitutionally questionable – position of having to foreclose on church property for the nonpayment of taxes. However, the court saw no evidence that income tax exemptions for employees of religious organizations share a similar historical tradition or serve a similarly important government purpose. While the income exempted from taxation under § 107 is the money allocated to the minister’s housing expenses, the court said that there was no real connection to the property of the church. To the contrary, § 107(2), enacted in 1954, completely severed any tie that might have once existed between a church’s property and the ministerial housing allowance, as ministers can now receive an exemption for housing allowances received and use said monetary allowance to pay for housing that is not owned by the church. Therefore the court believed that plaintiffs plausibly alleged that § 107’s connection with religious property was too attenuated to fall under the constitutional protection afforded property tax exemptions. Regardless of Congress’s motive in passing § 107 and regardless of whether § 107 has an effect of reducing government entanglement with religion, the court believed that plaintiffs alleged sufficient facts which, if accepted as true, gave rise to a plausible claim that the statute violates the First Amendment Establishment Clause by aiding and subsidizing religion over nonreligion by providing ministers and churches with tangible financial benefits not allowed secular employers and employees. (5) Plaintiffs allegation that I.R.C. § 265(a)(6) (and its state equivalent), violate the First Amendment Establishment Clause by allowing ministers to “double dip” by (i) receiving a housing allowance tax free under IRC § 107 which (ii) they can then use to pay the interst on a home mortgage and the real estate taxes paid on the home for which payments they receive a deduction on their income tax return, failed to state a cause of action. Because Congress provided for secular comparators, the the effect and the perception that religion was being favored over nonreligion was not present. Military members who receive tax-free housing allowances are also allowed to use the allowance to purchase a home and to “double dip” by deducting from their gross income the interest paid on the mortgage and the local real estate taxes on the home. The incentive to purchase a home provided by § 265(a)(6) to both ministers and military members provide them the exact same incentives for home ownership provided to all other Americans who are also allowed to deduct their mortgage interest payments and their local property taxes on their federal income tax return. The fact that ministers also receive their housing allowances tax-free pursuant to IRC § 107 is incidental to the predominant secular effect of IRC § 265(a)(6) of giving ministers the same incentive as other American taxpayers to purchase a home. And, as stated, military personnel receiving a tax free housing allowance receive the same benefit under § 265 as ministers. Therefore, the court did not see the complaint as stating facts that could give rise to a plausible claim that § 265(a)(6) violates the Establishment Clause of the First Amendment. See court’s opinion for further details Case # 4014 (E.D. Cal.)

Under the facts, petitioner pastor was entitled to a home office deduction even though the church he worked for provided him with an office on church grounds and he met with parishioners only at the office the provided by the church. Although petitioner met with members of his congregation at the office the church provided, his home office was the focal point of his activity involving all other individuals with whom he was involved with in his trade or business, which was not limited to serving the church. Indeed, petitioner spent most of his time in his home office and much less time at the office the Church provided. Because most of his business activity was conducted at his home office, he qualified for a home office deduction of $8,546 Case # 4650 (U.S. Tax Ct.)

Although, given the facts of the case, the taxpayer’s actions were understandable and laudable, the taxpayer was not entitled to take as a charitable contribution $25,050 in wire transfers made to her mother’s cousin in a foreign country, who distributed the money for the benefit of the Catholic Church in the foreign country. The wire transfers were not made to or for the use of a charitable organization created or organized in the United States or under the laws of the United States. The tax court, inter alia, rejected the argument that the Catholic Church is a universal organization, and therefore Catholic churches in the foreign country were qualified as donees under I.R.C. § 170. Nor was the taxpayer entitled to take as a charitable contribution the airfare expense she incurred while rendering services to Catholic churches in said foreign country. The taxpayer did not render services in the foreign country under the direction of, or to or for the use of a local U.S. church or diocese or other qualified charity Case # 3997 (U.S. Tax Ct.)

(1) Tax court decision on allowance of cash contributions to church as a charitable deduction. (2) Petitioners not entitled to an itemized deduction in excess of $ 25 for charitable contribution of property to the Salvation Army, because, although the Salvation Army provided a receipt reflecting the donation of three boxes containing clothing and toys, the receipt failed to state whether the Army provided any goods or services in exchange for a contribution that petitioners claimed exceeded $ 250 Case # 3013 (U.S. Tax Ct.)

Church’s refusal, on religious grounds, to make withholdings from its employees’ wages for federal income, social security, and medicare taxes and to contribute its share of social security and medicare taxes, subjected the church to the enforcement procedures provided by the tax code and the free exercise clause, the establishment clause, and the Religious Freedom Restoration Act did not provide a defense Case # 836 (7th Cir.).

IRS sought to enter judgment against defendant Indianapolis Baptist Temple, an unincorporated society, for unpaid social security and federal income tax contributions, and to foreclose on tax liens it had against the Temple's realty; however, the tax assessments had not been made against the Temple in its unincorporated form, but against a not-for-profit corporation, named the Indianapolis Baptist Temple, Inc., identified by its employer I.D. number; the corporation had been dissolved and no longer existed during the time period for which the taxes were assessed; however; the congregation continued operation as an unincorporated religious society, with the corporation’s assets being transferred to the defendant unincorporated society; court addresses question whether the corporate identity could be disregarded and judgment entered against the defendant unincorporated religious society Case # 420 (S.D. Ind.)

Holding strongly held religious beliefs against having or using a social security number (SSN) or being involved in the social security system, plaintiff requested: (1) a religious exemption from the social security self-employment tax under I.R.C. § 1402(g); (2) a declaration that, as applied to plaintiff, various portions of 26 U.S.C. § 1402(g) violated the First Amendment’s Free Exercise and Establishment Clauses; (3) a declaration that he and his son were not required to have or use an SSN; and (4) a declaration that “various treasury regulations” were unconstitutional because they discriminated against plaintiff based on his religious beliefs. The district court dismissed all four claims under Fed. R. Civ. P. 12(B)(6) for failure to state a claim upon which relief can be granted. The Court of Appeals affirmed dismissal of claims (3) and (4) for failure to state a claim, because plaintiff’s complaint failed to specify the particular statutes and regulations requiring use of an SSN that he objected to. As to claims (1) and (2), the § 1402(g) claims, the Court of Appeals held they should have been dismissed, not for failure to state a cause of action, but because the court lacked subject matter jurisdiction owing to the provision in the Anti-Injunction Act (26 U.S.C. § 7421(a)) generally barring any suit “for the purpose of restraining the assessment or collection of any tax.” Although plaintiff’s complaint did not specifically seek an injunction restraining the assessment or collection of tax, the relief he sought would have necessarily precluded the collection of the challenged tax and therefore fell within the Act’s scope. Plaintiff failed to demonstrate irreparable injury if his case was not heard and certainty of success on the merits and thus failed to satisfy the judicially created exception to the Act Case # 2832 (9th Cir.)

Requiring taxpayers to provide Social Security numbers (SSNs) for their children as a condition to the taxpayers’ dependency exemptions for their children does not violate the Religious Freedom Restoration Act (RFRA), 42 U.S.C. § 2000bb et seq., as requiring petitioners to use SSNs to claim dependency exemptions is the least restrictive means of furthering the compelling governmental interest of preventing fraud. Thus, the IRS did not have to issue individual taxpayer identification numbers to the children to accommodate the taxpayers’ religious objections. Although section 7(a)(1) of the Privacy Act of 1974, 5 U.S.C. §. 552a, makes it unlawful for any government agency to deny to any individual any right, benefit or privilege because of such individual's refusal to disclose his social security account number, section 7(a)(1) is not applicable to "any disclosure which is required by Federal statute." See Privacy Act §. 7(a)(2)(A). Because I.R.C. § 151(e) is a federal statute that requires the disclosure of a dependent's Social Security number, the taxpayers’ rights under section 7 of the Privacy Act were not violated Case # 949N (T.C.)

Requiring taxpayers to provide Social Security numbers (SSN) for their dependent children as a condition to allowing dependency deductions does not violate the right to free exercise of religion or the taxpayers’ rights under the Religious Freedom Restoration Act, 42 U.S.C. § 2000bb et seq. The taxpayers believed that SSNs were universal numerical identifiers to be equated with the "mark of the Beast" warned against in the Book of Revelation. Both taxpayers had SSNs and used them on their tax return but wished to avoid obtaining SSNs for their minor children. The taxpayers’ religious objections extended only to universal identifiers and not to numbers issued for a discrete purpose. Accordingly, they offered to obtain Individual Taxpayer Identification Numbers (ITINs) for their children and to provide the ITINs on their tax return. The IRS, however, refused to issue ITINs to petitioners' children, taking the position that Treasury regulations permit issuance of ITINs only to those who are ineligible to receive SSNs. Tax court upheld position of the IRS. Case # 931N (T.C.).

Owner of gas and oil royalties payable by the City refused on religious grounds to provide a Social Security number for the purpose of taxpayer identification; the City, over plaintiff’s objections, properly withheld 31% of the payments owing to plaintiff as backup withholding for federal income taxes, as required by federal law Case # 806 (Cal. Ct. App.)

On right of employee to withhold social security number, see also Social Security Number

Taxpayers, Orthodox Jews, sought to deduct 55% of the tuition payments made to their children's religious schools as a charitable contribution on the basis that this represented the proportion of the school day allocated to religious education. Ninth Circuit panel ultimately disallows the deduction on the technical ground that the tuition payments did not qualify under the Tax Code as partially deductible "dual payments" to a charity. Court also strongly inclined to the position that I.R.C. § 170 does not, under any case, permit deductions of contributions for which the tax payer receives a benefit, even if such benefit consists of "intangible religious benefits." Under a “closing agreement” with the Church of Scientology the IRS had permitted members of the Church to deduct as charitable contributions payments made for "auditing," "training," and other qualified religious services. The taxpayers argued that the IRS could not restrict the permissibility of such deductions to Scientologists, but had to extend the permissibility of the deductions to all other religious faiths. Court refuses to order such an extension of the closing Agreement to all other faiths. Assuming the validity of the “closing agreement” with the Church of Scientology, there was no administrative inconsistency in allowing the agreed to deductions to Scientologists and not the taxpayers in the instant case because the taxpayers were not similarly situated. Religious education for elementary or secondary school children did not appear to be similar to the "auditing" and "training" conducted by the Church of Scientology. In addition, the Court stated, in dicta, that it believed that the closing agreement with the Church of Scientology constituted an unconstitutional denominational preference. Court is also of the opinion that closing agreements with religious or other tax-exempt organizations governing the deductions that will be available to their members may not be kept secret from the courts, Congress, or the public. In the instant case, the IRS had withheld disclosure of the closing agreement Case # 1203 (9th Cir.), affirming, Case # 794 (T.C.)

Parents paid tuition and fees of $27,283 to two Jewish day schools for the religious and secular education of their five children in 1995. That amount included $175 paid separately for an after-school Orthodox Jewish education class (Mishna) for one of their children. The parents contended that they were entitled to deduct $15,000 of those payments as a charitable contribution under I.R.C. § 170. The deduction was based on their estimate that 55% of the tuition payments were for purely religious education. The Ninth Circuit affirmed the holding of the Tax Court that: (1) None of the payments for tuition, fees, and Mishna classes in 1995 were deductible as charitable contributions. Tuition payments to parochial schools – which, the Court said are made with the expectation of a substantial benefit, or quid pro quo – are not charitable contributions under § 170. 1993 Amendments to the Tax Code did not effect a change in this rule. (2) The tuition payments did not qualify for deduction under § 170 pursuant to a dual payment analysis or quid pro quo payment, i.e., a payment made in part as consideration for non-deductible goods and services and in part for charitable purposes, with the alleged goods and services being the secular education and the charitable purpose being support of a charitable institution that offers intangible religious services in the form of religious teaching and classes. A portion of tuition payments to schools providing both a religious and secular education is not deductible as a charitable contribution under §§170(f)(8) and 6115. (3) A “closing agreement” between the IRS and the Church of Scientology dated October 1, 1993, permitting members of the Church of Scientology to deduct payments for auditing and training courses as charitable contributions did not affect the result of the case. The religious education of the parents’ children was not similar. Tuition and fee payments to schools that provide secular and religious education as part of one curriculum, as in the present case, are quite different from payments to organizations providing exclusively religious services, which is how the Court characterized the “auditing”, “training” or other “qualified religious services” conducted by the Church of Scientology. In addition, while the Closing Agreement with the Church of Scientology constituted an unconstitutional denominational preference, that did not mean that said unconstitutional benefit should also be extended to the parents and their children’s religious school. (4) The Court reiterated its opinion in an earlier case involving the same parents (but involving a claim for a deduction for an earlier tax year) that the Closing Agreement between the IRS and the Church of Scientology was subject to discovery. However, the Court did not decide the extent to which the Closing Agreement might be discoverable in an appropriate forum. The Tax Court had also held that the parents were not liable for the penalty under I.R.C. § 6662 for understatement on their return of the income tax owing. This issue was not before the Ninth Circuit on appeal Case # 3380 (9th Cir.), affirming, Case # 2145 (U.S. Tax Ct.)

Illinois tax credit of up to $500 for “qualified education expenses” incurred on behalf of “qualifying pupils”, including pupils who attended private sectarian elementary or high schools, was facially valid and did not violate federal or state constitutional law Case # 1042 (Ill. App. Ct.). Accord the subsequent case of Griffith v. Bower, 319 Ill. App. 3d 993, 254 Ill. Dec. 383, 747 N.E.2d 423 (Ill. App. Ct. 2001).

A religious objector to military spending was not afforded a right by either the First Amendment, the Ninth Amendment or the Religious Freedom Restoration Act (RFRA) to retain the unpaid portion of his taxes until such taxes could be directed to non-military expenditures. Second Circuit affirms Tax Court’s imposition of a penalty of $ 5,000 pursuant to 26 U.S.C. § 6673(a)(1) based on its conclusion that petitioner’s arguments were frivolous Case # 2759 (2d Cir.)

Quaker could not refuse to pay taxes on ground that allocation of tax receipts for military purposes violated her religious principles. Religious Freedom Restoration Act (RFRA), which still applied to federal legislation, did not mandate a different result. Taxpayer was subject to penalty for failure to file return as religious objection was not a “reasonable cause’ for failing to file or an “unusual circumstance” Case # 496 (3d Dept.), affirming, Case # 80 (T.C.). Subsequently, in an action brought under 26 U.S.C. § 6332(d), the I.R.S. sought to hold the Philadelphia Yearly Meeting of the Religious Society of Friends directly liable for the unpaid taxes of the taypayer who was employed by the Yearly Meeting as sanction for the Yearly Meeting’s refusal to honor a levy on the taxpayer’s wages. The district court concluded that under the rather unique circumstances of this case, the Religious Freedom Restoration Act (RFRA), 42 U.S.C. § 2000bb-1 et seq., did not exempt the Yearly Meeting from honoring the Service’s levy on the employee’s salary, and it therefore had to suffer the consequences of its non-compliance. However, because the action raised issues of first impression under RFRA, the Meeting was held not liable for the 50% penalty that the Service would otherwise be entitled to collect pursuant to § 6332(d)(2) Case # 1690 (E.D. Pa.)

Quaker who failed to pay income taxes because it was contrary to her religious beliefs against paying for wars or national defense, was subject to penalty assessments under 26 U.S.C. § 6651(a)(2) Case # 205 (D. Conn.)

Quakers were not entitled on religious grounds to withhold percentage of taxes they believed the government allocated to military purposes; the court rejected the taxpayers’ position that they were not obligated to pay penalties and interest on the deficiencies and that the government was compelled to use levy procedures to collect the taxes so the taxpayers could avoid having to pay the objectionable taxes voluntarily Case # 183 (D. Vt.)

Taxpayers could not refuse to pay taxes on ground that any tax that they might pay would be used in part to fund abortions, which was contrary to the teachings of their religion Case # 182 (Tax Ct.)

Alternative minimum tax does not unconstitutionally inhibit the free exercise of taxpayers’ religion to have large families Case # 240 (T.C.)

Oregon lawfully taxes pension income that a taxpayer receives in Oregon even though the income originates from a source in another state. In addition, the fact that the taxpayer served as a lay minister and devoted his pension income to the church’s ministerial objectives did not exempt such income from income taxation Case # 1916 (Ore.) (en banc)

On tax exempt status of the YMCA and its properties under Pennsylvania law (Pa. Const. Art. VII, § 2(a)(v), 10 Pa. Stat. §§ 375 and 376, and 72 Pa. Stat. § 5020-204) Case # 1165N (Pa. Commw. Ct.)

Intervention by Religious Organizations in Suit Challenging the Constitutionality of Tax Exemption Benefitting the Interests of the Religious Organizations

It was error to deny the motions of three churches to intervene in a suit challenging, on establishment clause grounds, the constitutionality of a 2006 amendment to an Alaska statute granting a tax exemption to teachers’ residences owned by a “private religious or parochial school.” (Prior to the statute’s amendment in 2006, only non-religious private schools had been granted a tax exemption for teacher housing.) The churches sought to intervene as parties aligned with the only named defendant, the State of Alaska. The three churches in this case were entitled to intervene as of right because they had an interest in defending the constitutionality of the 2006 amendment that was direct and substantial and because the churches’ and state’s interests were adverse in that the churches appeared to want to raise an argument the state was unlikely to raise, i.e., the argument that the pre-amendment practice of granting tax exemptions for teacher residences owned by non-religious private schools violated equal protection owing to the fact that there was no similar exemption for religious schools. Finally, there was the apparent appearance that the state’s interest was adverse to the churches’ interests. The state had contended that because the churches had not been permitted to intervene, the state was now “entangled” with them in violation of its duty to remain neutral in religious disputes by virtue of having to defend a law that benefited religious organizations. There was actually no such danger, as the guarantee of neutrality is respected, not offended, when the government, following neutral criteria and evenhanded policies, extends benefits to recipients whose ideologies and viewpoints, including religious ones, are broad and diverse. In its capacity as a party defending the constitutionality of a state statute, the state was not extending a benefit to the churches but was instead executing its duty by representing the state in all civil actions in which the state is a party. Nonetheless there was an appearance of adversity between the state and the churches. Because the state had asserted that the establishment clause impaired its ability to adequately represent the interests of the churches in this establishment clause case, that contention carried with it an appearance of adversity of interest that might reasonably lead members of the public to doubt that the state would be able to defend the statute vigorously and effectively. For this and the other aforementioned reasons, the churches had a right to intervene Case # 2975 (Alas.)

Jurisdiction of Secular Courts

Defendants who had religious objections to appearing before secular courts, were not entitled to have the suit brought against them in U.S. District Court by the U.S. government for the recovery of unpaid taxes dismissed and removed to an ecclesiastical court Case # 4456 (D. Minn.)

Notice of Tax Assessments and Liens

Plaintiff St. John's Episcopal Church claimed to have owned certain real property. The County had acquired the property by tax deed and subsequently sold the property. Plaintiff sought to set aside the tax deed and the deed transferring the property, claiming that it had not been properly notified of the real property tax assessment, the tax lien, and the sale which resulted in the transfer of the property. But plaintiff failed to establish that it was the owner of the property. When the taxes were assessed, the record titleholder of the property was the Church of All Angels to whom notices were provided. Plaintiff contended that it acquired title to the property when it merged with All Angels in 1929 and that it should have received the various notices. However, plaintiff failed to submit proof that a merger was effectuated in compliance with N.Y. Religious Corporations Law § 13. Since the plaintiff did not establish an ownership interest in the property, its due process rights were not violated. Case # 1093N (N.Y. App. Div.)

Oath; Swearing; Requiring Listing of Taxable Property Under Oath That Includes Phrase “So Help Me God” or in Signed Statement Made Under the Penalties of False Swearing

See Oath

Parsonage

I.R.C. § 107(2) allows a minister to exclude from gross income a rental allowance paid to him as part of his compensation, to the extent said allowance is used by the minister to rent or provide for “a home.” Starting in 2002, the exclusion of the allowance from gross income is allowed only to the extent the expenditure of the parsonage allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities. During the tax years in question in the instant case, 1996 through 1999, the fair rental limitation did not apply, the only requirement for entitlement to the exclusion being that the rental allowance be applied to the rental of “a home” or the provision of “a home” for the minister, whether or not the expenditure of the rental allowance monies exceeded the fair rental value. In the instant case, a minister was provided with a “parsonage allowance” for the acquisition, care, and maintenance of both a principal residence and a summer, lake home. The allowance was used in the acquisition and maintenance of both homes, including mortgage payments, utilities, furnishings, improvements, and maintenance, such as lawn care, painting, and repairs. At no time did the minister use either home for any commercial purposes, such as rental purposes. In a case of first impression, a sharply divided U.S. Tax Court, by a vote of 7 to 6, held that the minister was entitled to exclude from gross income the portion of the parsonage allowance used to provide for the second home and was not restricted to excluding from gross income only that portion of the parsonage allowance allocated to acquisition and maintenance of the first (the principal) home. Section 107 was held not to restrict an excludible parsonage allowance to only one home. Although the second home was only occupied as a residence during the summer, and then not necessarily full-time, the majority allowed all of the parsonage allowance monies expended on both properties to be fully excluded from income. The Eleventh Circuit reversed, holding that I.R.C. § 107(2) is to be read as restricting an excludible parsonage allowance to only one home and that the minister and his wife were not entitled to exclude from their gross income, under § 107(2), the amount that the minister was paid as a “rental allowance” for his second house Case # 4434 (11th Cir.), reversing Case # 4173 (U.S. Tax Ct.)

Rental Value of Parsonages; Effect of the Clergy Housing Allowance Clarification Act of 2002, see Case # 1287

Ministry caused to be built a residence on a 10.13 acre property used as housing for its only ministerial employee. The ministerial employee selected the site. The residence was an approximately 4,000-square-foot single-family residence with four bedrooms, a fully finished basement, and a two-car attached garage. Also located on the subject property was a partially completed detached garage building which was used to store a van, a recreational vehicle, and other equipment all owned by the Ministry. Once fully completed, an office was also to be located in that building. Property was exempt from taxation. For purposes of Neb. Rev. Stat. § 77-202(1)(d) the property was used exclusively for religious purposes and was not used for financial gain or profit (even though the ministerial employee’s wife earned income through her consulting and her use of the kitchen table for art lessons). See Case Digest for complete factual details Case # 1943 (Neb. Ct. App.)

In addition to the parsonage exemption for its rabbi, Jewish congregation may claim a property tax exemption for a residence used by its cantor. N.J. law, N.J. Stat Ann. § 54:4-3.6 Case # 1601N (N.J. Tax Ct.)

Jewish temple was allowed to claim an exemption from realty taxes under N.J.S.A. 54:4-3.6 for a residence (parsonage) occupied by a retired rabbi who continued to be active in the congregation as “rabbi emeritus.” When the right of occupancy is independent of service, as, for example, under a retirement agreement, the exemption still serves the statutory objectives as long as the clergy member continues to function in a role that falls within the statutory concept of officiating clergy. The statute’s reference to “officiating clergyman” is not restricted to the individual having ultimate supervision of the affairs of the congregation or responsibility to conduct regularly scheduled worship services. Where a member of the clergy is engaged in a continuing and regular pattern of activities, as opposed to one that is sporadic or occasional, said individual may be considered an “officiating clergyman,” even where the role does not include ultimate supervision of congregational affairs or the conduct of regularly scheduled services Case # 1713N (N.J. Tax Ct.)

County Board of Taxation improperly denied tax exempt status to two residences claimed to be parsonages. The Tax Court rejected the Township’s contentions that (i) The clergymen living in the two homes did not officiate for an active house of worship. (ii) One of the two Rabbis did not qualify as an officiating clergyman at the so-called synagogue. (iii) Because plaintiff received rental income on the two homes, the parsonage exemption did not apply. (iv) Granting a parsonage exemption would violate the Establishment Clause because plaintiff received Section 8 rental payments on the two properties from the federal government. Plaintiff not-for-profit corporation organized for religious, charitable and educational purposes, operated both a religious elementary school and synagogue, both located on property A owned by plaintiff. Plaintiff also owned two single family homes (properties B and C) which it claimed were the parsonages of two officiating Rabbis at the synagogue. At the time it purchased the two homes (which were within a short walking distance to the synagogue, the two Rabbis lived in the homes as tenants. When plaintiff became aware of the homeowners’ intention to sell the two homes, thereby placing the Rabbis’ continued service to the synagogue in jeopardy, plaintiff decided to acquire title to the two homes. Property B, where Rabbi 1 lived, was subject to a $ 271,885 mortgage. Property C, where Rabbi 2 lived, was subject to a $ 296,104 mortgage. In exchange for the properties, plaintiff satisfied both mortgages. To finance the transactions, plaintiff increased the amount of an existing mortgage on Property A. At the time of the transfer of the residential properties to plaintiff, both Rabbis were tenants receiving rental assistance under the federal Section 8 Housing Assistance Payments Program. This arrangement continued after plaintiff purchased the homes. The Rabbis paid approximately 20% of the monthly rent to plaintiff. The federal government paid the remainder. By regulation, the total rent received on the two properties was defined as the market rate. The rental money received plaintiff was used to pay the increase in the mortgage on Property A occasioned by the purchase of the homes. Holding that plaintiff was entitled to the parsonage exemptions, the Tax Court held: (1) Plaintiff maintained an independent house of worship separate and apart from the school at Property A. See court’s opinion for governing legal principles and the relevant facts. The court observed that a plaintiff did not need to provide the municipality with the names of the individual members of the synagogue congregation so the validity of plaintiff’s claim to be running an active religious congregation could be verified. (2) Rabbi 2 qualified as an officiating clergyman of the synagogue. The fact that his duties were ancillary to those of Rabbi 1 and included supervising the children of the congregation during services did not negate the parsonage exemption. (3) Plaintiff’s collection of rent on the residential properties did negate the availability of the parsonage exemptions. Plaintiff’s motivation in obtaining the properties was to ensure the continued service of the Rabbis at the synagogue and was not undertaken as part of a profit-making venture. There was no evidence that the rental proceeds were used for any purpose other than to support of the synagogue. While plaintiff’s mortgage payments incrementally increased plaintiff’s equity in Property A and reduced its debt to the mortgagor, both of which inured to plaintiff’s benefit, these facts alone were insufficient to put plaintiff in “the role of an ordinary landlord” with respect to its officiating clergymen. The two residential houses, while providing some income to plaintiff, plainly were not profit centers for the synagogue congregation. Nor must a parsonage be provided free of charge to officiating clergymen. Plaintiff incurred significant debt to obtain the two residences and the rental payments it received covered the monthly mortgage payments arising from that debt. Without an exemption it would be necessary for plaintiff to dedicate a portion of the synagogue’s revenue, already insufficient to meeting the congregation’s operating expenses, to the payment of local property taxes, increasing plaintiff’s operating deficit. Permitting a parsonage exemption in these circumstances, furthered the legislative intent. This was true even though plaintiff collected a market rent for its two parsonages, as the market rent did not provide the owner with a profit. (5) Plaintiff’s receipt of federal rental funds on the two homes also did not negate the availability of the parsonage exemption. Plaintiff was not formed to obtain federal funding and to run its congregation exclusively with that funding. The synagogue was funded largely by the contributions of its members. The federal rental assistance funds received by plaintiff were a small part of the congregation’s income and its rental of the two residences were incidental to plaintiff’s overall purpose. The purpose of the exemption was to provide financial assistance to religious organizations that provide housing to officiating clergy and to facilitate the convenient location of parsonages. That purpose was fulfilled here, even considering plaintiff’s receipt of federal rental assistance payments. (5) A local property tax appeal was not the appropriate forum for determining the constitutionality of Section 8 rental payments. In addition, the substantive validity of the Township’s Establishment Clause claim was suspect, as the Section 8 rental program resulted in payments to a plaintiff, a religious organization, as a result of the housing decisions of private citizens, the low-income renters Case # 3383 (N.J. Tax Ct.)

N.Y. Real Property Tax Law § 462 provided that “property owned by a religious corporation while actually used by the officiating clergymen thereof for residential purposes shall be exempt from taxation.” The term “officiating clergymen” is not limited to the cleric who has ultimate supervisory authority over other clergy. While the term “officiating clergyman” does not mean all clergymen, neither does it mean only one clergy person who presides over subordinates. Rather, the term “officiating” looks outward to a cleric’s relationship with his or her congregation, and not to the hierarchical structure of the various clergy persons. Thus, a full-time, ordained member of the clergy who presides over an established church’s ecclesiastical services and ceremonies, conducts weddings and funerals, and administers the sacraments of the church – in short, one who “officiates” – is entitled to the statutory tax exemption, even if only an “assistant” pastor. The statute is concerned with the character and extent of the clergyman’s activities. Review of New Jersey cases under N.J. Stat Ann 54:4-3.6 Case # 1782N (N.Y.)

Property owned by petitioner, a religious and educational corporation seeking to further the work of the Lubavitch/Chabad Hasidic movement, was no longer entitled to a total exemption from real estate taxes pursuant to N.Y. RPTL § 420-a because, although the primary use of the property was for religious purposes, the holding of religious services on the premises (just one of many activities conducted on the property in furtherance of the owner’s religious purposes), in knowing violation of the Village zoning code rendered the property ineligible for a § 420-a(1) exemption. However, petitioner was entitled to a parsonage exemption for the property under N.Y. RPTL § 462 Case # 4102 (N.Y. Sup. Ct.)

Plaintiff, a religious corporation/synagogue owned a property consisting of three floors. The synagogue occupied the ground floor. The second floor consisted of a living room, dining room, kitchen and study. The Rabbi used the study and sometimes the dining room to meet with congregants. The kitchen was for the personal use of the Rabbi’s family; however, once a month the kitchen was used to cook food for a congregational “Kiddush,” a light repast sanctifying and celebrating the Sabbath. The third floor contained the bedrooms used by the Rabbi and his family. The trial court held that the congregation was not entitled to a tax exemption under N.Y. RPTL 420-a, because the subject property was principally and primarily that of a residence for the Rabbi and his family, a use that was not necessary and incidental to operating and running the synagogue. The trial court also held that the congregation was not entitled to the rectory or parsonage exemption afforded by RPTL § 462, because the Rabbi’s outside employment as a full-time special education teacher made it highly unlikely if not impossible, for the Rabbi to meet the necessary requirement of being an officiating clergyman for purposes of receiving an RPTL § 462 parsonage exemption. The editor sharply criticized both holdings of the trial court. On appeal the Appellate Division reversed, holding that the property qualified for a full tax exemption under RPTL 420-a. Notwithstanding that more than one-half of the premises was used by the Rabbi and his family for personal use, given the comprehensive nature of the Rabbi's duties for the Congregation, nearly all of which occurred on the premises, the residential use of the subject premises was held necessary and reasonably incidental to furthering the religious corporation's primary exempt purpose, thereby qualifying the premises for a full tax exemption. Given this outcome, the appellate court did not address whether plaintiff was entitled to the rectory or parsonage exemption afforded by RPTL § 462 Case # 3096 (N.Y. App. Div.), reversing Case # 2703 (N.Y. Sup. Ct.)

Living quarters of the Circuit Overseer Worldwide Order of Special Full-Time Servants of Jehovah’s Witnesses entitled to exemption from realty taxes as property used for religious purposes. Oregon law Case # 2457 (Or. Tax Ct.)

Upper level of parish house owned by St. Aloysius Roman Catholic Church, which was used primarily and regularly as a parsonage for residential purposes, was not exempt from taxation on the basis that it was an “institution of purely public charity.” A church functioning as a church cannot receive a tax exemption for its parsonage under the institution of purely public charity exemption. The upper level, consisting of three bedrooms, three bathrooms, a dining room, and a living room, housed the Church’s local priest and also provided housing for additional support staff, as well as assistance for individuals conducting retreats, missions, prayer services, and training programs for the parish ministries. The upper level periodically housed brother priests recuperating from illnesses and missionaries. Staff lunches and meetings were also held on the upper level. Further, prior to workshops and meetings, prayer services were held on the upper level and some Bible studies were also held there on occasion. The upper level was also available to individuals of any denomination involved in domestic difficulties and, periodically, served as a refuge for travelers from the highway. The Church traditionally had a priest on duty at the upper level 24 hours a day for emergency calls. Nevertheless, because the upper level was primarily and regularly as a parsonage it did not qualify for an exemption Case # 1913 (Pa. Cmwlth.)

Rooming units constructed by religious society and reserved for for visiting priests did not qualify for parsonage exemption Case # 1927 (Vt.)

A Wisconsin church was not entitled to a tax exemption for the church-owned residence of the church custodian. Neither the plain language of the applicable statute nor case law supported extending the tax exemption beyond the statutory list set forth in Wis. Stat. § 70.11(4) so as to include residences of persons who are “integral to the functioning of the church.” The property in question was adjacent to the church and was used by the church custodian as his residence. As a condition of his employment, the custodian had to be available to the church on short notice, 24 hours a day, for maintenance, security and opening and closing the church Case # 3813 (Wisc. Ct. App.)

See also:

The Christian Fellowship and Renewal Center (CFRC), a Maine non-profit corporation, owned a property of 75 acres on which was located a main building, a farmhouse, and a caretaker’s house. The main building was used both for food distribution for the poor and was also rented, at reduced rates, to churches and religious groups. The farmhouse was used by a minister and his family and for overflow lodging if there was a group that was too large to be housed entirely in the main building. The caretaker’s house was used by the caretakers of the property. The caretakers received no compensation for their services, but were not charged rent. Lastly the property was available for rent for a variety of activities such as conventions, family reunions, bridal and baby showers, conferences, seminars and anniversary parties, but had not actually been rented for any of those purposes. For unstated reasons, the main building and an adjoining 3 acres were not taxed by the taxing authority (although they were arguably subject to taxation) The farmhouse, caretaker’s house and the remaining 72 acres were held not entitled to the exemption afforded to institutions organized exclusively for benevolent and charitable purposes. The justification for granting an exemption to a benevolent and charitable institution is that such institution by its charitable activities relieves the government of part of its burden and confers a pecuniary benefit upon the body politic, and in receiving an exemption from taxation it is merely being given a “quid pro quo” for its services in providing something which otherwise the government would have to provide. When a religious organization such as CFRC provides services other than those that government would provide it no longer qualifies as a benevolent and charitable institution. Here, CFCR was assisting fundamentalist, bible-believing churches and individuals both physically and spiritually, in part by making its facilities available to churches and their members at reduced rates. But government is not in the business of renting facilities to churches at low cost. Hence, CFCR was not organized exclusively for benevolent and charitable purposes. Nor was the caretaker’s house exempt. While it is true that there was no explicit restriction on exemption for employee housing for benevolent and charitable institutions, unlike the prohibition on an exemption for employee housing for literary and scientific institutions, the caretaker’s house should only be exempt if either all the property was exempt or, at least, the main building was exempt as a benevolent and charitable institution. But while the main building was not taxed, the reason for that exemption had not been stated by the taxing authorities, and the main building was clearly not dedicated exclusively for benevolent and charitable purposes Case # 1921 (Me. Super. Ct.)

Pension

Realty Taxes

Plaintiffs denied tax exemption for property claimed to be used for religious purposes brought action in federal district court; the relief requested, the grant of the tax exemption, was barred by 28 U.S.C. § 1341 as a plain, speedy and efficient remedy was available in the state courts Case # 292 (S.D.N.Y.)

Tax exemption for church building and surrounding land upheld; pastor and wife were not the de facto owners; land used for church purposes Case # 20 (Ark. Ct. App.)

Religious organization's use of its property only once during a tax year constitutes sufficient use to qualify for an exemption Case # 149 (Colo. Ct. App.)

Religious corporation’s challenge to tax assessment on its realty for years 1992 and 1993 was filed more than one year from the date on which the property was last evaluated for tax purposes and was thus untimely; although challenge to assessments for the years 1994 and 1995 were timely, property in question was not entitled to exemption because the lot had no buildings or improvements, either completed or in progress, suitable for use for charitable purposes; Connecticut law Case # 626 (Conn. App. Ct.)

Church purchased land that had previously been used for agricultural purposes; the church, although otherwise generally exempt from property taxation, was liable for the farmland rollback tax because the tax was levied against the land and not against the church directly; the church was not immune from the rollback tax pursuant to the U.S. or state constitutions; Delaware law Case # 795 (Del. Super. Ct.)

D.C. Code § 47-1002(10) affords an exemption from real estate taxes to buildings belonging to or operated by schools, colleges, or universities which are not organized or operated for private gain; there was no requirement that the property be both owned and operated by a nonprofit school; nor does the property have to be owned and operated by the same type of non-profit; for example, if the property is leased to a nonprofit school, the lessor does not also have to be a nonprofit school; if a school rents from a religious institution, or a religious institution from a school, the property is entitled to the exemption as long as both institutions are nonprofit Case # 742 (D.C.)

None of the 43 separate real estate parcels of a Catholic Medical Center in Illinois – a not-for-profit, full-service, general acute-care hospital which operated as an apostolic mission and health-care ministry of the Catholic Church – was entitled to either a charitable or religious exemption from real property taxes. The Illinois Supreme Court, after examining the appropriate standard of review of an administrative determination denying a tax exemption, concluded that the Medical Center was not entitled to either a charitable or religious exemption, as it operated primarily as a business operation with certain charitable and religious overtones. Charitable Exemption. Eligibility for a charitable exemption requires not only that the property be actually and exclusively (i.e., primarily) used for charitable purposes, but also that it be owned by an institution of public charity. All five Justices of the Illinois Supreme Court deciding the appeal (two Justices taking no part) agreed that the Medical Center failed to meet its burden of showing that it was a charitable institution and on this ground alone was ineligible for the charitable exemption. The distinctive characteristics of a charitable institution are that: (1) it has no capital, capital stock, or shareholders; (2) it earns no profits or dividends but rather derives its funds mainly from private and public charity and holds them in trust for the purposes expressed in its charter; (3) it dispenses charity to all who need it and apply for it; (4) it does not provide gain or profit in a private sense to any person connected with it; and (5) it does not appear to place any obstacles in the way of those who need and would avail themselves of the charitable benefits it dispenses. The Medical Center clearly satisfied factor (1) and it also satisfied factor (4) even though it subcontracted many of its operations to non-charitable third-party providers who operated on a for-profit basis. However, the remaining factors demonstrated that the Medical Center did not qualify as a charitable institution. It failed to meet factor (2), as its funds were not derived mainly from private and public charity, but were generated, overwhelmingly, by providing medical services for a fee. The Medical Center also failed to meet its burden in showing by clear and convincing evidence that it satisfied factors (3) or (5), namely, that it dispensed charity to all who needed it and applied for it and did not appear to place any obstacles in the way of those who needed and would have availed themselves of the charitable benefits it dispensed. Although treatment was offered to all who requested it, and no one was turned away based on their inability to demonstrate how the costs of their care would be covered, the Center did not advertise the availability of charitable care; patients were billed as a matter of course, and unpaid bills were automatically referred to collection agencies; hospital charges were discounted or waived only after it was determined that a patient had no insurance coverage, was not eligible for Medicare or Medicaid, lacked the resources to pay the bill directly, and could document that he or she qualified for participation in the institution’s charitable care program. See Court’s opinion for further details. A three-man plurality was also of the opinion that the Medical Center failed to meet its burden of showing that it used its property “actually and exclusively” for charitable purposes. Both the number of uninsured patients receiving free or discounted care and the dollar value of the care they received were de minimus. In 2002, the tax year in question, the Center devoted only 0.723% of its total revenue to charity care. Of 110,000 admissions in 2002, only 302 of the hospital’s 10,000 inpatient and 100,000 outpatient admissions were granted reductions in their bills under the hospital’s charitable care program and the hospital hired collection agencies to recover the remaining balances from 64 of the patients to whom it had given discounts. The Medical Center argued that charities were not to be defined by percentages and that, in any event, it dispensed an ample amount of charity to the community in forms other than charity care in that the hospital had a charity-care policy based on federal poverty guidelines and it advertised the availability of “financial assistance,” which it gave to every patient who needed and requested it. The Center also argued that considering the meager rates of reimbursement the government paid, treating Medicare and Medicaid patients was itself an act of charity. But discounted care provided to Medicare and Medicaid patients is not considered charity for purposes of assessing eligibility for a property tax exemption. The plurality rejected the Medical Center’s assertion that that any assessment of its charitable endeavors should also take into account the subsidies it provided for ambulance service; its support of a crisis nursery providing a temporary haven for young children whose families were experiencing some form of crisis; the donations the Center made to other not-for-profit entities; the volunteer initiatives it had undertaken in the form of providing free health screenings, wellness classes, and classes on handling grief; the support it provided for graduate medical education through its medical residency program; its operation of two shelters, one primarily for adult men and the other for runaway teens; and its provision of emergency services training in which it trained prehospital responders and providers in how to most effectively respond to patients in need as they are responding and transporting those patients to the hospital. For why all of the above did not qualify as charity, see the Court’s opinion. But even if some of the real estate parcels owned by the Medical Center were actually and exclusively (i.e., primarily) used for charitable purposes, they were not eligible for the charitable exemption because, as stated, the Center failed to meet its burden of establishing that it was a charitable institution. Without ownership of the property by a charitable institution, as well as charitable use, no charitable exemption is permitted. The two dissenting Justices, while agreeing that the Medical Center failed to meet its burden of showing that it was a charitable institution and thus was not entitled to the charitable exemption, dissented from the plurality’s holding that the Center’s use of the property in 2002 was not a “charitable use” because the charity care provided was de minimus. The dissent agreed with the Michigan Supreme Court that: “there can be no threshold [dollar amount of free medical services provided] imposed under the statute. The Legislature provided no measuring device with which to gauge an institution’s charitable composition, and we cannot presuppose the existence of one. To say that an institution must devote a certain percentage of its time or resources to charity before it merits a tax exemption places an artificial parameter on the charitable institution statute that is unsanctioned by the Legislature.” The dissent continued: “The plurality has set a quantum of care requirement and monetary requirement without any guidelines. This can only cause confusion, speculation, and uncertainty for everyone: institutions, taxing bodies, and the courts. Because the plurality imposes such a standard, without any authority to do so, I cannot agree with it. [¶] I also disagree with the plurality’s conclusion that . . . [the Center] was ‘required to demonstrate that its use of the property helped alleviate the financial burdens faced by the county or at least one of the other entities supported by the county’s taxpayers.’ Slip op. at . . . n.10. . . . I neither agree with this, nor do I believe that . . . [the Center] failed to show it alleviated some burden on government.” The dissent concluded by remarking that “the discussion of charitable use does not command a majority of the court and, therefore, is not binding under the doctrine of stare decisis.” Religious Exemption. All agreed that there was no error in rejection of the request for a religious exemption. To qualify for a religious exemption the property in question must be used exclusively for religious purposes. The Medical Center’s claim to a religious exemption was founded largely on the proposition that it was a ministry of the Catholic Church. But religious purpose is not determined solely by the professed motives or beliefs of the property’s owner. A court must also take into account how the property is actually used. The court must ask whether, in actuality or practice, the building is used primarily for a religious purpose. Here the primary purpose for which the Center’s property was used was providing medical care to patients for a fee. Although the provision of such medical services may have provided an opportunity for various individuals affiliated with the Medical Center to express and to share their Catholic principles and beliefs, medical care is not intrinsically, necessarily, or even normally religious in nature. Moreover, no claim was made that operation of a fee-based medical center is in any way essential to the practice or observance of the Catholic faith. It was argued that religious institutions alone have the right to assess the religious nature of their activities and that courts may not second-guess those assessments without violating constitutional guarantees regarding the free exercise of religion. But if this argument were valid, it would mean that the church rather than the judiciary is the ultimate arbiter of when and under what circumstances church property is exempt from taxation under the constitution and statutes of the State of Illinois. The Medical Center did not cite any authority to support such a claim, nor was it raised by the Center in its petition for leave to appeal. Thus, the argument was not even properly before the Ill. Supreme Court Case # 3955 (Ill.), affirming, Case # 3305 (Ill. App. Ct.)

Plaintiff’s property was not used exclusively for religious purposes. There is a distinction between nonprofit organizations that engage directly in religious activities, such as worship, missionary work, and religious education, and secular organizations that merely supply religious entities with materials to conduct such activities. Here plaintiff, an Illinois nonprofit corporation that owned condominium office space, sent staff members to train and advise church youth to develop into student leaders of the church either at church sites or on religious trips. The materials distributed were written and produced by plaintiff. However, plaintiff submitted no evidence establishing the background of its employees, how they were formally associated with their clientele, or the qualifications of those who developed its curriculum. No evidence indicated that ministers, seminary graduates, or people with any religious training led the trips or taught in the churches. Plaintiff’s stated purpose was “to plan, organize, and lead short-term mission trips, within the United States and abroad, for high school and college age students”; its focus was on domestic and international trips, with a religious component, not on the education of individuals who either were in the process of becoming or had already become teachers, instructors, or professors of religious studies. The “purposes” section of plaintiff’s incorporation and bylaws stated nothing about religious educational studies or teaching youth about religious education as a career. Rather, the main focus of every one of plaintiff’s trips or “leadership training” events was teaching and learning “leadership” so that students could become the future leaders of the church. However, leadership training does not necessarily mean that it cultivates future pastors or ministers; leadership development is not per se a religiously imbued undertaking. Under the tax exemption statute, plaintiff also needed to introduce evidence that its primary activities on the property in question, in addition to being “religious,” were not conducted “with a view to profit.” The fact that plaintiff had a 2.7% loss in 2004 and that its president stated that no profits were realized in its endeavors, did not permit an inference that in 2005 it did not use the subject property with a view to profit, especially given that plaintiff relied primarily on fees and not on contributions to finance its operations. Plaintiff needed to introduce some specific evidence regarding how the property was not used with a view to profit in 2005. This it failed to do. Although plaintiff did present evidence of missionary activities that it conducted, this evidence was irrelevant to the determination of whether its primary activities on the subject property were conducted with a view to profit. The primary use of the subject property was be evaluated, not plaintiff’s activities in other locations. The fact that profits were not distributed to any individual was not a factor to be taken in consideration Case # 3320 (Ill. App. Ct.)

Three Angels Broadcasting Network (TABN) operated a television and radio station featuring an array of programming, including devotional and inspirational shows, as well as programming devoted to music, cooking, exercise, and a healthy lifestyle, all of which were consistent with the principles of the Seventh-Day Adventist Church. According to its articles of incorporation, TABN’s purposes were exclusively religious, charitable, or educational. And all of the programming produced and broadcasted by TABN communicated Adventist doctrines. So, for example, although there were programs on health-related issues, such as quitting smoking, abstaining from drugs and alcohol, and lowering cholesterol and blood pressure, it appeared that the health-related programming communicated a vital tenet of the Adventist faith. TABN’s board of directors was made up of 12 Adventists. One position on the board of directors was reserved for the president of the Illinois Conference of Adventists. Several board members were current or former ordained Adventist pastors. In 1997, TABN and the General Conference of Adventists which oversaw the organized Adventist Church worldwide, executed a document called the “Joint Declaration of Commitment” in which TABN commited itself to offer its resources and to work in cooperation with the Adventist Church to proclaim the “gospel” to the entire world. The Adventist Church committed itself to establish official communication with and to support TABN and to encourage its departments, divisions, and institutions to utilize the services of TABN for the production and distribution of programming. In 2000, TABN’s use of the subject property generated approximately $ 604,000 in “airtime and productions fees,” $ 3 million in “Sky Angel equipment sales,” and $ 146,000 in “video sales.” TABN’s total expenses amounted to more than $ 13 million, resulting in an increase in net assets of more than $ 1 million. TABN’s applications for a religious-use property tax exemption and, in the alternative, charitable-use property tax exemption for the subject property, a five-acre parcel of land containing three buildings, was denied for the taxyears 2000 and 2001, except for two pastoral offices located on the second floor of one of the buildings and a corresponding amount of land. This determination was upheld by the Illinois Appellate Court. Although the Illinois Supreme Court had previously determined that the production, distribution, and selling of religious literature and supplies to religious organizations are secular activities and are not exclusively religious – the same as any other commercial service organization furnishing necessary services to a religious institution such as fuel, lights, building material, or any other item necessary to the religious institutions ordinary and customary functioning – the Appellate Court said that the present case was distinguishable and the Court was inclined to accept TABN’s characterization of its programming as religious instruction, in order to avoid running afoul of the religion clauses of the First Amendment and the Illinois Constitution. Nevertheless, the court held that the subject property was not entitled to a religious-use property tax exemption. To be entitled to the exemption, TABN needed to introduce evidence that its primary activities on the subject property, in addition to being “religious,” were conducted without “a view to profit.” 35 ILCS 200/15-40. Thus, even assuming, without deciding, that TABN’s purposes were exclusively religious, these purposes were carried out primarily by the production of programming and the sale of airtime to other organizations. In addition, TABN’s programming was received by viewers via satellite equipment and video and audio recordings that were produced, stored, and sold by TABN using the subject property. The selling of airtime and video and audio recordings was an activity which had a propensity to be conducted with a view to profit, irrespective of whether the programming that was sold was exclusively religious. Although it is possible for an organization to make use of its property to provide a product or service without a view to profit, TABN did not meet its burden to show that its products and services were sold in this manner. On the type of evidence TABN needed to put in, see the court’s opinion. While TABN presented evidence of missionary activities that it conducted throughout the world, as well as some occasional, special programs it conducted in conjunction with the Adventist Church, these factors were irrelevant to the determination of whether TABN’s primary activities on the subject property were conducted with a view to profit. And it was the primary use of the subject property, and not TABN’s activities in other locations or the uses to which the subject property was put on special occasions, that had to be evaluated. The fact that TABN had no stock and that profits were not distributed to any individual did not factor in the court’s analysis. When money is made by the use of a building, that is profit, no matter to what purpose that money is applied. The fact that property is used with a view to profit defeats a religious-use property tax exemption regardless of whether that profit inures to a private individual or is applied to maintaining a religious organization. It is whether the activities are conducted with a view to profit, and not how the profits are used, that determines whether there should be an exemption. The court also held that TABN was not entitled to a charitable-use exemption. The court also addressed a number of evidentiary issues concerning the use of other properties as comparators and the relevancy of certain testimony Case # 3156 (Ill. App. Ct.)

A church had purchased a separate building from which it operated (1) a daycare center; (2) a preschool program; (3) a kindergarten; and (4) a school consisting of grades 1 through 12. As part of its religious mission, the church made religious instruction an integral part of each of the four programs. The Illinois Department of Revenue determined that the church was entitled to a tax exemption for that portion of the building used for the kindergarten and grades 1 through 12, but not for those portions of the facility used for the daycare and preschool programs. This determination was upheld by the Appellate Court. The Department could reasonably find that given the very young ages of the children and the nature of the stimulation to which they were exposed, in practical reality the primary use of the daycare center and preschool was for daycare and not for “religious purposes” and that the religious purposes of evangelism and theological instruction in those programs were secondary. The Department could also reasonably find that the daycare center and preschool program were not exempt as “schools” because neither of them offered an established, commonly accepted program of academic instruction. See Case Digest for details Case # 3105 (Ill. App. Ct.)

Plaintiff foundation earned the vast majority of its income by publishing Christian educational materials and selling them to churches, teachers, and Christian bookstores. A real property tax exemption for the year 1999 was denied because plaintiff’s property was not “used exclusively for religious purposes” within section 15-40 of the Illinois Property Tax Code, 35 ILCS 200/15-40. Court discusses case law distinguishing between nonprofit organizations that engage directly in religious activities, such as worship, missionary work, and religious education, and secular organizations that merely supply religious entities with materials to conduct such activities. In 1999, plaintiff directly engaged in little or no specifically religious activity and used the property for no such purpose. Instead, plaintiff achieved its corporate purpose of advancing Christian education almost entirely by selling Christian educational materials to organizations that then did the actual teaching. Plaintiff itself did no religious teaching. Moreover, plaintiff received the bulk of its revenues either from such sales or from selling items produced by Day Spring its for-profit greeting card company. Only a tiny portion of plaintiff’s revenues came from contributions, and plaintiff made a profit in one of the two fiscal years that included part of calendar year 1999. Although plaintiff did not routinely make a profit and, upon a dissolution, it could not distribute its net income or assets to private parties, these factors were dispositive. When a secular nonprofit organization does not directly engage in religious activities but merely supplies materials to assist others in doing so, the organization is not using its real property “exclusively for religious purposes.” There was another compelling reason to hold that plaintiff did not satisfy section 15-40 for at least part of 1999. For approximately half that year, plaintiff’s property was used in part for the operations of Day Spring, the for-profit company. It was of no moment that the profits Day Spring made were plowed back into plaintiff’s nonprofit operations. Also, while the court did not know exactly what portion of the property was used for Day Spring’s needs, it was undoubtedly significant and when property in unidentifiable portions is used both for an exempt purpose and a nonexempt one, the property will be wholly exempt only if the exempt use is primary and the nonexempt use is incidental. Thus, even were plaintiff’s other operations tax-exempt, for as long as Day Spring operated out of the property, the property as a whole was ineligible for the requested exemption. Case # 1932 (Ill. App. Ct.)

When the subject property was acquired by a church in 1996, crops were growing on the land; crops were not planted in 1997 as the church intended to use the property as a extension of an existing, adjacent, yard area; nothing was done to the subject property in 1997 except mowing and tilling in preparation for planting grass; the subject property was entitled to an exemption in 1997 as being used exclusively for religious purposes; evidence that land was acquired for an exempt purpose does not eliminate the need for proof of actual use for that purpose and the mere fact that the subject property adjoins land that is tax exempt is of no significance; but in the instant case, the subject property was converted from agricultural use to actual religious use when the church elected not to plant crops on the property as had been done in 1996 and prior years; that decision, along with mowing the property and tilling it was sufficient as the property was undergoing a “process of change” and development for use as an additional church yard or recreation area; court discusses proper standard of review Case # 1019 (Ill. App. Ct.)

Under Illinois law all property used exclusively for religious purposes and not leased or otherwise used with a view to profit was tax exempt; church was entitled to an exemption for property which, in furtherance of its religious mission, it rented for one dollar to a non-profit corporation whose primary use of the property was to distribute food, clothing, furniture, and other goods to the needy; the lessee did realize some income, almost all of which was distributed to community organizations, from the sale of some of the goods it received as donations Case # 627 (Ill. App. Ct.)

Where realty is already being devoted to a religious purpose, an incidental interruption of the religious use due to fire will not destroy the entitlement to a tax exemption; church held entitled to tax exemption for property on which burned church structure stood, storage building, and parking lots Case # 419 (Ill. App. Ct.)

A commercial lessor rented over 70% of its building to a church. Reversing the decision of the Ind. Tax Court, the Ind. Supreme Court held that the lessor’s act of charging below market rent to the church did not, standing alone, entitle the lessor to a religious and charitable purpose property tax exemption for that portion of the building leased to the church. In order to qualify for the exemption the taxpayer had to demonstrate that its property was owned for exempt purposes, occupied for exempt purposes, and predominately used for exempt purposes. Unity of ownership, occupancy, and use by a single entity is not required; however, when such unity is lacking (as was the case here), both entities must demonstrate that they independently possess their own exempt purposes. Although the church occupied and used the leased premises for charitable and religious purposes, the lessor failed to demonstrate that it owned the property for such exempt purposes. Even assuming that the lessor charged the church below market rents for the leased space (a contested point which the Tax Court should not have resolved in favor of the owner-lessor) and that such fact manifested a charitable purpose on the part of the lessor, that did not establish that the lessor owned the property for its “own exempt purposes” separate from the exempt purposes of the church. At most what the lessor proved was that it leased and primarily used its property for religious and charitable purposes. But in order to qualify for an exemption the property also had to be “owned” for religious and charitable purposes. Here, there was no evidence that the property was owned by the owner-lessor for an exempt purpose separate and distinct from the exempt purpose of its lessee. Thus, the property was not entitled to the statutory tax exemption Case # 4175 (Ind.), reversing, Case # 3793 (Ind. Tax Ct.)

The Cedar Lake Conference Association (CLCA) – a not-for-profit corporation, whose stated purpose was “to conduct religious services and promote religious education” – was entitled to a tax exemption for a parcel of land containing a bathhouse, soccer fields, an archery range, walking trails, an RV (Recreational Vehicle) park, campgrounds, and a prayer garden (hereinafter, the RV Park). The RV Park was adjacent to a “Bible Conference Center,” a separate parcel of land also owned by the CLCA. The fact that some recreational activities may have taken place at the RV Park did not necessarily lead to the conclusion that CLCA’s use of the RV Park did not further its religious purposes. The evidence established that the RV Park was predominately used for religious purposes. Participants of CLCA’s Bible Conference programmed events used the RV Park and a majority of the income produced by the RV park (67.2%) came from those who were attending the Conference Center. The RV Park was predominantly used in conjunction with the Conference Center and was an integral part of the Center in its mission for providing a life-changing environment for evangelism and spiritual growth Case # 3209 (Ind. Tax Ct.)

Property tax exemption; under land sales contract, religious institution was the equitable owner in possession, but not the legal owner, legal title remaining in the name of the seller for purposes of securing payment; to qualify for the tax exemption the property had to be “owned”, occupied and used by the same entity for religious or charitable purposes; for purposes of the statute, ownership could be equitable, it did not have to be legal; however, the application for the exemption had to be made by the legal owner, not the equitable owner; although the equitable owner applied for the exemption, the property was entitled to the exemption because the State Board of Tax Commissioners based its denial of the exemption on the religious institution’s equitable ownership and not on the fact that the legal owner failed to make the application; in so doing, the commission waived the objection that the wrong party made the application, an objection that could not be raised for the first time before the tax court Case # 584 (Ind. T.C.)

State Board failed to consider all the evidence relevant to the exemption claim for a church building, barn and mobile home on rented property; facts may have justified exemption despite fact that the property's use did not have the normal hallmarks of religious activity Case # 209 (Ind. T.C.)

Church owned property was entitled to exemption even though it was not yet being used for charitable purposes on the assessment date; the fact that on the assessment date the church was in the act of renovating the building for future use in furtherance of an exempt purpose qualified the building for the exemption Case # 207 (Ind. T.C.)

Church which owned a Bible school was entitled to tax exemption for the school’s dormitory; given the uses of the dormitory building, it was clear that the property was used exclusively for educational purposes Case # 1046 (Kan. Ct. App.)

Mixed use of the subject property – private rentals and church use – precluded the treatment of the property for tax purposes as being either all or nothing. Church purchased 10 acre property for the purpose of building new church facilities as soon as finances would allow. The property was divided into two parcels, each consisting of approximately five acres, with a single family dwelling located on each parcel. The two houses were rented to individuals for residential purposes, with the rental income being used by the church building fund to service a mortgage on the property. No steps had been taken towards construction of the new church, but the church had engaged architects to develop a site plan for the property. Ky. Const. § 170 exempted from taxation real property “owned and occupied by” institutions of religion. Neither of the rented houses was entitled to the exemption, even though one of the tenants permitted the church to store chairs, tables, signs, and other items in the basement of the rented house. The residences on the property were not being occupied by the church for purposes of § 170 simply because the rental monies went to its building fund. However, the surrounding acreage – other than the yards occupied by the tenants – was entitled to a tax exemption because the evidence was that such land was not occupied by the tenants, but was periodically used by church members for church picnics and prayer and meditative contemplation. See Court’s opinion for facts Case # 3710 (Ky.)

A church purchased two residential properties intending to use all the property for a future, larger church. Various church activities, including picnics, were held on the grounds, but to help pay the mortgage, the houses were leased. Although no development had yet begun, and there had as yet been no bids, contracts or construction plans drafted for the development of the proposed new church, there was a large sign on the property announcing plans to build a church. The church was entitled to an exemption from taxes, even for that portion of the property occupied by the residential tenants. Under § 170 of the Kentucky Constitution, as amended in 1990, real property “owned and occupied” by a religious institution is tax exempt. The word “occupied” does not require that the property be occupied exclusively by the religious institution or that the religious institution be in current rather than future occupation. The word “occupancy” can be taken in the broad sense of “the use to which property is put.” Here there was no evidence that the church intended to use the property for investment purposes or to construct anything other than a church and the use to which the properties were put (in their entirety) was for the ultimate erection of a new church Case # 2957 (Ky. Ct. App.)

Salvation Army thrift store entitled to exemption from property tax Case # 206 (Me.)

Salvation Army; court rejects assessor’s contention that property was not exempt because its owner, the Salvation Army, was not organized primarily for benevolent or charitable purposes and that the property, a summer camp ground, was not used solely for the organization's benevolent and charitable purposes; the organization had allowed its officers and their families to vacation in the ground’s residential buildings when vacant Case # 184 (Me.)

Church, which had purchased property zoned for agricultural use, obtained special exception permit allowing construction of a church; construction was restricted to a 7.5 acre development envelope, although the construction of driveways, road improvement, storm water management, utilities or other such improvements could take place outside of the envelope; the Supervisor of Assessments determined that all property within the development envelope, plus 3 acres outside the envelope used for storm water management and a septic system, were tax exempt; however, the Supervisor erroneously denied a tax exemption for the remaining 16.5 acres of the property; the entire property had to be viewed as a package and the 16.5 acres, which were restricted to open space use, provided a natural setting for the church for religious worship use; as the disputed acres were being actively used by the church for religious worship use they qualified for the tax exemption Case # 1018 (Md.)

The Maryland Code provides that property owned by a religious group or organization is not subject to property tax if the property is actually used exclusively for, inter alia, a “convent.” Although the statutory language of a property tax exemption is construed strictly, generally a common-sense approach must be taken when it comes to religious exemptions in order to achieve a fair construction of the statute and not read the statutory language to accord only with certain religious traditions. In this spirit, the Maryland Court of Appeals held that to qualify as a “convent” eligible for a tax exemption a property must be comprised of several basic qualities: It must consist of a community of people living together who follow strict religious vows and devote themselves full-time to religious work. Under this definition an apartment complex owned by the Mormon Church used to house a revolving group of “ordinance workers” who performed religious ceremonies full-time for a two-year period at the Church’s Washington, D.C. Temple was exempt from a county property tax as a “convent.” A Mormon Temple is a sacred site, access to which is limited to members who strictly follow the Church’s teachings. Within the Temple, special religious sacraments, referred to as “ordinances,” are performed. Ordinances, which include marriages, baptisms, and confirmations, can take place only within the Temple and can be performed only by “ordinance workers” – Church members called into service by the Church – who perform their Temple duties without compensation. Ordinance workers – who are subject to a strict religious code of behavior and subject to dismissal from service if they do not follow it – generally serve for a two year period. They spend most of their time performing ordinances, but they also teach, instruct, minister to, and counsel members of the Church within the Temple. The ordinance workers who served at the D.C. Temple mostly came from outside the D.C. area. To accommodate ordinance workers from out-of-town, the Church purchased a 44-unit apartment complex in Maryland about a mile from the D.C. Temple for them to live in. Between 50 to 60 ordinance workers lived in the complex, the majority of whom were retired married couples. The Church charged the ordinance workers below-market-value rent as a means of off-setting the operating expenses of the apartment complex. The ordinance workers worshiped together each Sunday at a chapel located on the Temple grounds. The apartment complex qualified as a “convent” under the definition of a convent set forth supra. The ordinance workers qualified as a “community of people who live together.” Although the workers inhabited separate living units within the apartment complex, they lived together at one location, socialized, and worshiped together as a group every Sunday. In addition, they followed strict religious vows and were subject to removal from their position if they forsook them. Finally, the ordinance workers devoted themselves full-time to religious work, spending their days each week during their two-year commitment performing religious ceremonies within the Temple without compensation and holding no outside employment. The Court of Appeals rejected the definition of convent used by the state Tax Court. The Tax Court stated that the definitions of convent and monastery “do not include married men and women and single persons living separate lives in separate households.” Additionally, the Tax Court required “vows of poverty, chastity and obedience to a superior” in the vein of “a typical monk or nun” and ruled that convent members must “make lifetime commitments like nuns and monks” and “keep a common purse or share things in common” and that those living in a convent “do not pay rent to the Church for a home in which to live.” Case # 4638 (Md.)

Property owned by church and operated as a youth center was exempt from real estate taxes as a church under Minnesota Law. The building had a gymnasium, auditorium, tanning salon, weight room, prayer room, offices, and video arcade, among other rooms. The entire property was entitled to the exemption including the weight room and tanning salon. The weight room qualified because users of the weight room were approached for discussions of religion and the Christian gospel, thus the room related to and was necessary for the accomplishment of the Church's purpose. The entire space of the prayer room also qualified for the exemption, even though half the space was occupied by cardiovascular exercise equipment and was used for fitness purposes. The Tax Court found that the tanning room was not devoted to, nor reasonably necessary for, the accomplishment of church purposes, because, inter alia, no interaction with others (except in the waiting area) and no teaching or proselytizing went on in the room. However, because the tanning room was not sufficiently “substantial” to justify apportionment and pro rata taxation of the non-exempt portion of the property, even the space allocated to the tanning room was exempt from taxation Case # 1432 (Minn. Tax Ct.)

Church, whose primary focus was to encourage healthy living, entitled to exemption from property tax as it established that the realty was used exclusively for purely charitable purposes Case # 150 (Mo. Ct. App.)

Apartment complex owned by a nonprofit corporation, which was sponsored by a Catholic religious order whose mission was to provide quality, affordable, service-enriched housing for the poor was not entitled to a tax exemption; the property was not owned by an educational or religious organization; and while it may have been owned by a charitable organization, the property was not used “exclusively” for educational, religious or charitable purposes; its primary purpose was to provide low income rental property; there is a presumption that the county board of equalization has faithfully performed its official duties and has acted upon sufficient competent evidence to justify its actions, until rebutted by clear and convincing evidence; that presumption, previously recognized in valuation cases, held to be applicable in exemption cases; Nebraska law Case # 698 (Neb.)

Religious charitable organization providing substance abuse and mental health treatment for women on a charitable basis was not entitled to a property tax exemption. The subject property was not being “used exclusively” for an exempt purpose as of the date of application for the exemption, March 28, 2005. The fact that the organization had obtained the necessary building permits as of July 21, 2005, and in accordance with the county assessor’s policy, the subject property was considered to be devoted to an exempt purpose, did not make it unnecessary for it to reapply by August 1, 2005 in order to obtain the tax exemption Case # 3230 (Neb.)

As a result of a church leasing part of its facilities to a school district, the County Board of Equalization reduced the tax exemption on the church’s property from 100% to 80%. This was error as the property owned by the church continued to be used exclusively for religious and/or educational purposes. Ownership and use of the property may be by different entities. All that is required is exclusive use of the property for exempt purposes. An exemption is available if property is used exclusively for religious, educational, charitable, or cemetery purposes. The property need not be used solely for one of the four categories of exempt use, but may be used for a combination of the exempt uses. For purposes of the exemption, the term exclusive use means the predominant or primary use of the property as opposed to incidental use. In this case, the property was being used exclusively for religious or educational purposes. The lease of the property by the church to the school did not create a taxable use, as the property was used exclusively for a combination of exempt uses. It was error for the taxing authority to focus on the market value of the lease and its profitability to the church. The issue of financial gain or profit to the owner or user of the subject property was not an issue to be considered. But compare the concurring opinion, which argued that the issue of market value or profitability of a lease should not be disregarded in all cases. The concurring Judge, speaking only for himself, expressed the view that an unnaturally high rent may have implications for exempt purposes, because at some point, the use of the property as a device for generating exaggerated receipts will have bearing on whether the dominant use of the claimant-owner remains for the charitable purpose of the original exemption or will have devolved into an unrelated use. However, on the facts of this case, given the modest rent charged, the concurring judge agreed that the portion of the property leased was obviously not used as an unrelated business vehicle serving as a revenue stream to finance an endeavor different from that for which the property tax exemption was granted Case # 3436 (Neb.)

N.H. Supreme Court discusses which property held by a religious institution qualifies for a “charitable exemption” and which property qualifies for a “religious exemption.” Here, none of the lakeside property owned by a church qualified for a charitable exemption, but some elements of the property (not all) qualified for the religious exemption Case # 1202 (N.H.)

In the process of reorganizing and restructuring parishes, a Roman Catholic bishop had suppressed or deconsecrated two parish churches and put them up for sale. The churches ceased being used by parishioners, who began worshipping elsewhere. Pending sale, the church buildings were used to store items of religious significance. One of the properties was also used by a local "Neighborhood Watch" group. Held: the properties, prior to their sale, were not entitled to a tax exemption, as they were no longer being used and occupied directly for religious purposes. The mere storage of religious objects in a deconsecrated church, on a temporary basis, does not rise to the level of using or occupying the space for "religious purposes." Case # 2836 (N.H.)

Church properties transferred to archdiocese after the parishes the churches served were dissolved continued to be exempt from real property assessments; although a priest conducted a weekly mass in the churches of each closed parish, it was unnecessary to decide, as had the tax court, whether religious worship services which are conducted in a manner that is not reasonably calculated to attract attendance by members of the public is sufficient to qualify the church properties for tax exemption; the properties of the closed parishes were used in conjunction with the operation of the remaining functioning parishes within the diocese for such purposes as the storage of religious artifacts and records, meetings of priests from different parishes and Catholic Youth Organization basketball; these were all "reasonably necessary" for the archdiocese's religious purposes; moreover, these religious uses were not de minimis Case # 868 (N.J. Super. Ct. App. Div.)

Plaintiff Catholic Community Services, a tax-exempt organization for charitable and religious purposes, owned property that in previous years had qualified for a tax exemption under N.J. Stat. Ann. § 54:4-3.6. However, in 2001, 2002, and 2003 it had leased the property to the U.S. Postal Service for a post office and adjoining parking lot. Under the statutory language of § 54:4-3.6 as it read prior to a 2001 amendment, the Tax Court, in Roman Catholic Archdiocese of Newark v. City of East Orange, 17 N.J. Tax 298 (Tax 1998), had held a tax-exempt religious corporation that leased exempt property to a board of education lost the entire exemption for the property. In response, in 2001 the Legislature enacted an amendment to § 54:4-3.6 reading: “Provided that if any portion of a building used for that [i.e., religious or charitable] purpose is leased to a profit-making organization or is otherwise used for purposes which are not themselves exempt from taxation, that portion shall be subject to taxation and the remaining portion shall be exempt from taxation, and provided further that if any portion of a building is used for a different exempt use by an exempt entity, that portion shall also be exempt from taxation . . .” L. 2001, c. 18, § 1 In effect, the amendment permitted a religious or charitable entity that was entitled to a tax exemption for property it owned and used, to lease a portion of the exempt property to a “profit-making organization” without losing the property’s entire exemption. In addition, any portion of the leased premises used for a different exempt use by an “exempt entity” continued to be exempt from taxation. The question in this case was whether the U.S. Post office was a lessee that qualified as an “exempt entity” for purposes of the 2001 amendment, thereby qualifying the property for continued exemption from taxes. The City argued that Catholic Community Services was not entitled to receive the remedial benefit of the 2001 statutory amendment, since the U.S. Postal Service was not an entity “exempt” from state and local real property taxation, but – as an agency or instrumentality so closely connected to the U.S. government that the two could not realistically be viewed as separate entities, at least insofar as the activity being taxed was concerned – was technically an entity “immune” from taxation. The City argued that because the word “immune” did not appear in the statutory amendment, plaintiff could not qualify for the exemption. The City’s position was rejected by the N.J. Tax Court, which held that the narrow distinction urged by the City would not further the legislative intent and lacked a rational basis. Therefore, under the facts of this case, Catholic Community Services, as an exempt entity, could permit the use of a portion of its exempt property by the Postal Service, an immune or exempt entity, for its postal service functions, without any impact upon the tax liability status of the subject property Case # 1915 (N.J. Tax Ct.)

Neighboring property owners challenged the grant of a real property tax exemption for property used exclusively for religious purposes on the grounds that the Buddhist Temple had lost its right to an exemption (1) because of noncompliance with a local zoning ordinance requiring a special permit for use as a house of worship in a residential district and (2) because, as a foreign religious corporation, the Temple failed to obtain authority to do business and to conduct activities in the state as required by state law; court holds that petitioners lacked standing to challenge the grant of the exemption; fact that the grant of the exemption may have increased petitioners’ tax rate was insufficient for standing; nor did petitioners satisfy the two-fold test for standing to challenge governmental action as they did not show either an injury in fact or show that the alleged injury fell within the zone of interests or concerns sought to be promoted or protected by the statutory provision granting the Temple an exemption; finally, petitioners did not have common law taxpayer standing Case # 919 (N.Y.)

Religious order of the Roman Catholic Church purchased an unimproved 168-acre parcel of land for the declared purpose of developing the subject property into a “campus-like environment” where its members could enjoy “quiet reflection, meditation, reading, studying and group discussions.” In addition, the subject property was to be developed “for outdoor religious activities” – including an outdoor chapel, a rosary path, Stations of the Cross and a grotto. There was also to be recreational sites such as sport fields, picnic areas and gardens. The subject property was located in an General Office Building District within which a church or other place of worship was permitted as of right. However, a special use permit was required to develop property in the district for other forms of religious activity. It was error to deny a tax exemption for the unoccupied parcel for the years 1997 – 2001 on the ground that a special use permit had not been secured. To qualify for a tax exemption under N.Y. Real Property Tax Law (RPTL) § 420-a a nonprofit corporation must demonstrate that it is “conducted exclusively for religious, charitable, hospital, educational, or moral or mental improvement purposes and that the property is “used exclusively for carrying out thereupon one or more of such purposes” Where the property for which exemption is being sought is unimproved and not being used to further any of the necessary objectives, the nonprofit may receive tax exemption for its land if, inter alia, the construction of the contemplated buildings or improvements is in progress or is in “good faith contemplated.” To demonstrate that the improvements are in “good faith contemplated” an applicant seeking an exemption must have concrete and definite plans for utilizing and adopting the property for exempt purposes within the reasonably foreseeable future. But there is no necessity that a special use permit be obtained, or even applied for. However, an application for a special use permit may well be a factor in determining good faith. With each application for renewal, the boundaries of good faith take on new dimensions. As years pass, the taxpayer may reasonably be required to show some concrete act toward developing or otherwise improving the property to carry out the tax exempt purpose. The Appellate Division erred in determining that the proposed use was illegal absent the acquisition of a special use permit. The court therefore failed to undertake a review of the issue of “good faith contemplation.” Case # 1600 (N.Y.)

Plaintiff a religious corporation planned to construct a Yeshiva, a religious college, and student housing on the subject premises and had begun to expend sums for the development of the college. However, during the tax years in question, petitioner continued the previous owner’s practice of operating a religious summer camp on the property. The camp was operated by a for-profit firm in the business of operating day camps, which paid plaintiff a rental or license fee of $ 60,000 – $ 70,000 a year. The income received from the camp exceeded the carrying costs of the subject property and plaintiff used the fees received to defray some of the development costs associated with its planned Rabbinic College. None of the campers or their parents were members or students of the plaintiff. The trial court held that the Town properly revoked the tax exempt status of the property for the years in question. Plaintiff was not entitled to the tax exemption provided for by N.Y. Real Property Tax Law (RPTL) § 420-a since, although the use to which the premises was put was arguably religious, the camp operator was not a religious or otherwise tax exempt corporation, but one incorporated for profit. In addition, even if the camp operator had been a religious or otherwise tax-exempt corporation, the trial court was of the opinion that the exemption was not available since the income from the camp exceeded the carrying, maintenance and depreciation charges of the property. Nor, said the trial court, was the real property used “exclusively” (i.e., principally or primarily) for religious purposes of the plaintiff, as the sole activity occurring on the subject property during the years in question was the operation of a summer religious day camp by a for-profit, non-owning corporation, and the benefits of the religious camp were offered not to members of petitioner but to the general public as a whole. This was not a case, said the trial court, where a non-profit organization’s activities generated profits that were reasonably incidental to the corporation’s religious purposes. The N.Y. Appellate Division reversed holding that petitioner was entitled to a tax exemption for the tax years in question pursuant to RPTL § 420-a(1). The fact that property was leased or licensed to other parties, or the fact that the plaintiff owner derived some profit from the use of the property, did not defeat the tax exemption pursuant to § 420-a(1), because a tax-exempt property will generally retain its tax-exempt status even where a non-exempt, for-profit independent contractor conducts commercial operations on the property, so long as those operations are in furtherance of the property’s tax-exempt purposes. Here, said the Appellate Division, the Town failed to meet its burden of proving that the operation of the religious summer camp was inconsistent with plaintiff’s intended principal use of the property as a religious college. Plaintiff was closely involved in the operation of the religious summer camp, as evidenced by its approval of the camp’s personnel, religious curriculum, and purveyors of Kosher food and the Appellate Division found that the operation of the religious summer camp was in furtherance of the principal use of the property for the plaintiff’s corporate purposes, as expressly in plaintiff’s Certificate of Incorporation. New York’s highest court affirmed the holding of the Appellate Division, noting that when a municipality seeks to revoke a previously granted tax exemption, it bears the burden of proving that the real property is now subject to taxation. The Court of Appeals noted that the contract between plaintiff and the camp operator indicated that the contractor was managing the camp on behalf of the plaintiff and that plaintiff retained general supervision and control over the camp’s operation, including the right to approve the hiring of camp personnel, the purveyors of kosher food for camp lunches, and the religious curriculum. An economic profit made by a religious corporation “does not by itself extinguish a tax exemption.” Case # 4294 (N.Y.), affirming, Case # 3991 (N.Y. App. Div.), reversing, Case # 3702 (N.Y. Sup. Ct.)

By a vote of 3 to 2, Appellate Division holds that a ministry’s real property was wrongly denied the tax exemption afforded by N.Y. RPTL 420-a(1)(a). The 46-acre property contained an art studio adorned with religious art designed to resemble a chapel, a small barn, a four-bedroom chalet, two small rural cabins and undeveloped land upon which a brook and seasonal waterfall were located. The art studio was used for the creation of religious art, spiritual talks and prayer, and the entire property was used regularly for spiritual retreats by parishioners from New York City churches and by prayer groups and college students. Mass and prayer services were an integral part of the events held on the property, and were held when visitors were present. In addition, petitioner erected a religious shrine in 2007 and commenced work on a “holiness trail,” since completed, dedicated to the 14 stations of the cross. Visitors to the shrine filled water bottles in a nearby natural spring; the water was then blessed and taken home by the visitors as “holy water.” A tax exemption was denied on the ground that a “retreat” does not qualify for a N.Y. RPTL § 420-a(1) exemption. However, property used as “a spiritual retreat” does, in fact, qualify for the exemption despite the fact that a “retreat center is not a church in the narrow sense.” In addition, the unimproved land preserved in its natural state for use in connection with the retreat also qualified for the exemption. The Appellate Division rejected the Town’s contention that it could not consider any of the evidentiary submissions in the record that were not supplied to the Town in connection with petitioner’s application for the exemption. The dissent asserted that the ministry should not have been granted summary judgment, because there was a question of fact as to whether the ministry lost its entitlement to the exemption by using the property in violation of the local zoning ordinance. The Town presented evidence that petitioner was using the art studio – for which a certificate of occupancy had been granted – as a place of worship, which use required a special use permit, and that petitioner intentionally failed to apply for said permit, even after being requested by the Town to seek a special use permit. For the majority’s response, see the court’s opinion Case # 4120 (N.Y. App. Div.)

Religious corporation operated a Yeshiva summer camp for the study of the principles and doctrines of Judaism. For assessment years 1998 through 2001, the property was exempt from real property taxation. On applying for a renewal of its tax exemption, petitioner noted that there had been no relevant changes since its prior application and, as in years past, the camp’s purpose was described as “vacation season.” Petitioner’s application was disapproved by a finding that “vacation season” was not a qualified use and the town Board of Assessment Review upheld said determination on the grounds petitioner had “failed to complete the appropriate form in a timely fashion and with the proper wording, according to law.” This was error. Although exemption statutes are to be strictly construed against the taxpayer, the interpretation of those statutes should not be so narrow and literal as to defeat their purpose of encouraging, fostering and protecting religious and educational institutions. Petitioner completed the official application form within the time frames set and a mistake in the application process should not have been a basis for summary rejection of the application. Assessors are charged with the responsibility of investigating the necessary facts upon which to establish a proper assessment roll and, thus, the question was whether petitioner established a prima facie case that the property was used for religious purposes, or in a manner incidental or auxiliary thereto. Here, petitioner submitted the requisite quantum of evidence to establish that its use of the property was in furtherance of its exempt purpose. Upon this showing, the burden shifted to the Town to show the existence of a factual question on the issue of use. No such evidence was submitted Case # 1566N (N.Y. App. Div.)

Diocese was not entitled to an exemption from real property tax for property used as a religious cemetery for the 1997/98 tax year since the proposed use of the property that would invoke the exemption was not authorized for that year Case # 1322 (N.Y. App. Div.)

N.Y. Real Property Tax Law § 420-a provides a mandatory real property tax exemption for real property owned by corporations organized or conducted exclusively for religious or educational purposes and used exclusively for carrying out such purposes and there is no requirement that in order for the property of such a corporation to be exempted from real property taxes the corporation must complete and file any prescribed application forms. Thus, a village’s denial of an exemption on the ground that the applicant failed to fully answer every question on a form prescribed by the New York State Board of Real Property Services was error Case # 3113 (N.Y. App. Div.)

The Associate Dean of the Hebrew Union College and Director of its Rabbinic School was entitled to the partial clergy tax exemption afforded by N.Y. RPTL § 460. (1) There is no requirement in § 460 that the applicant be an officiating clergyman of a religious corporation/congregation. Petitioner qualified under the statute as being “engaged in the work assigned by the . . . denomination of which . . . she is a member.” (2) Petitioner’s position was not primarily administrative in nature. Even if petitioner performed administrative duties in conjunction with her position, they were de minimis in nature and sufficiently interconnected with her rabbinic duties Case # 4356 (N.Y. Sup. Ct.)

Petitioner, a New York not-for-profit corporation, operated an islamic school on leased premises. The lease, executed in november 2001, was for a term of 99 years. In return for paying the record owner of the property $ 330,000, petitioner was granted the exclusive option to purchase the premises until april 1, 2016. Petitioner, which was obligated to pay all real estate taxes that accrued on the premises during the term of the lease, asserted that the property was exempt from real estate taxes. To qualify for a tax exemption under N.Y. Real Property Tax Law § 420-a, the real property must, inter alia, be “owned” by a corporation organized or conducted exclusively for religious or educational purposes. The court rejected petitioner’s assertion that its lease and option to purchase the premises qualified it as a beneficial owner of the property such that it satisfied the ownership requirement of § 420-a. The court also rejected petitioner’s argument that application of the ownership requirement of § 420-a to it violated the free exercise clause of the first amendment to the U.S. Constitution. Even the broader protection afforded by the free exercise clause of the N.Y. Constitution did not entitle petitioner to the tax exemption Case # 4016 (N.Y. Sup. Ct.)

Church owned building used by church choir director as his residence not entitled to tax exemption under statute providing exemption to religious corporations for property used for residential purposes by "officiating clergymen"; however, under the facts, property was entitled to a full exemption under statute providing exemption from taxation for property owned by a religious corporation and used exclusively for carrying out the purposes of the religious corporation Case # 1063 (N.Y. Sup. Ct.)

Over 470 acres of realty owned and occupied by Hutterite community was entitled to tax exemption under provisions on New York Real Property Tax law Case # 602 (N.Y. Sup. Ct.)

Tax exemption denied for residential property owned by Orthodox Jewish Free Loan Society. The only other New York case dealing with the charitable aspects of loaning money had denied a tax exemption, perhaps because the loans to the poor were made on interest, albeit at a low rate of interest. Here, however, the loans were not made on interest and the petitioner Free Loan Society was organized exclusively for tax exempt purposes. However, petitioner was not entitled to a tax exemption, because the subject property was not primarily used for a tax exempt charitable purpose. The property was occupied as a residence by the Rockland County Executive Director of the Free Loan Society, his wife and children and his in-laws. In fact, the property had initially been owned by the in-laws. When the in-laws, who were having financial difficulties, were unable to meet their mortgage payments, the Rockland County Executive Director arranged, in lieu of receiving a salary, to have the Free Loan Society purchase the property, with the in-laws being required to pay rent in an amount between $5,000 and $10,000 a year. The subject premises were almost exclusively used for purposes other than the business of the Free Loan Society. Court compares cases where the residential use of the property is actually part of the charitable and benevolent work of the exempt corporation, or is merely an incidental use of the property Case # 1798N (N.Y. Supreme Ct.)

Plaintiff Tri-State Christian T.V., alleging that the town assessor, in an act of religious discrimination, imposed a property tax despite plaintiff's status as a non-profit, tax-exempt, religious organization, was precluded from bringing an action in federal court under 42 U.S.C. § 1983 for declaratory and injunctive relief, because local state law afforded an adequate remedy at law by affording plaintiff a monetary refund if it were found that there had been a misclassification by the assessor Case # 527 (N.Y. Sup. Ct.)

Tax exemption for non-profit homes for the aged, sick or infirm only if owned, operated, and managed by a religious or Masonic organization is unconstitutional Case # 148 (N.C.)

North Carolina statute, N.C. Gen. Stat. § 105-278.3, exempting from property tax “buildings, the land they actually occupy, and additional adjacent land reasonably necessary for the convenient use of any such building” to the extent the property was used “for religious purposes” did not provide an exemption for land on which there were no buildings. The building did not have to actually be used as a house of worship, only for a religious purpose. Although church alleged that the statute was unconstitutional because the church’s religious tenets prohibited religious worship in buildings, the court refuses to address said challenge because the church’s tenets did not prohibit religious use of buildings for purposes other than worship and the church was actually planning the future construction of buildings on the land Case # 1485N (N.C. Ct. App.)

Baptist seminary entitled to exemption for three parcels of land pursuant to N.C. Gen. Stat. § 105-278.4 governing educational exemptions; the parcels were unimproved and used for recreational purposes and as buffer zones; the statute was constitutional and did not violate the rule of uniformity Case # 655 (N.C. Ct. App.)

Discussion of Ohio Rev. Code § 5709.12(B) providing tax exemption to real property belonging to “institutions” that is used “exclusively for charitable purposes”; previously in Case # 654 (Ohio) the court held that the applicant, a non-profit corporation whose purpose was to disseminate a religious message, qualified as an “institution”; Case # 654 held that under the statute an “institution” need not be charitable to be eligible for an exemption, it need only use the property for which the exemption is sought “exclusively for charitable purposes”; the case was remanded for a determination whether, under the facts, the property was used exclusively for charitable purposes; the court held that the applicant qualified for the exemption; the term “exclusively” means primarily, and the spread of a religious, evangelical message qualifies as a charitable purpose Case # 1064 (Ohio)

A Church owned a tract of land on which was located a church building, a school, and a print shop. The print shop was not used by the Church, but by a separate nonprofit corporation, BPS. The trustees of the Church and BPS were the same. There was no written agreement between the Church and BPS for BPS’s use of the print shop, and BPS did not pay any rent. BPS had its own staff, paid its own employees, and paid the utilities for the print shop. Two apartments attached to the print shop were occupied by persons associated with either the Church or BPS. BPS used the print shop to conduct its primary business, printing Bibles and distributing them free of charge. BPS was financed by gifts and contributions from churches and individuals. In addition to its primary business, BPS also conducted a second operation under the name JB Printing. JB was not a separate legal entity, but operated within BPS, using the same employees and equipment to do custom printing for churches or persons affiliated with a church. BPS also printed Sunday school materials for a separate entity named Master Ministries. Finally, BPS printed school catalogs for Biblical School World of Evangelism. All of these additional printing activities of BPS were accounted for under JB. JB paid for its printing activities through sales and contributions. The Ohio Supreme Court affirmed denial of a tax exemption for the print shop and apartments under Ohio Rev. Code 5709.12(B), which provides that:: “Real and tangible personal property belonging to institutions that is used exclusively for charitable purposes shall be exempt from taxation.” Under R.C. 5709.12, ownership of the property for which an exemption is sought by a charitable or educational institution and the use of said property must coincide. Where, as here, the owner (the Church) is seeking an exemption based on a use of its property by a separate corporation, BPS, and the owner does not justify exemption by establishing any of the situations described in Ohio Rev. Code 5709.121, the property is not exempt under § 5709.12. In order for its property to be considered for exemption under R.C. 5709.12, the religious institution must itself be using the property exclusively for charitable purposes. The dissent, while agreeing that the residential apartments were not entitled to an exemption, would have found the print shop property exempt from taxation under R.C. 5709.12(B) because the Church used the print shop exclusively for a charitable purpose, printing Bibles. Although the majority held that the Church failed to qualify for an exemption under § 5709.12 because BPS, not the Church, used the print shop, the dissent believed that the majority’s conclusion exalted form over substance. While BPS, which paid no rent to the Church, was a separate nonprofit corporation, the Church and BPS were run by the same trustees and the Church considered BPS to be an extension of its own ministry to print scriptures for free distribution worldwide. Under the facts, the dissent would have found BPS to be an alter ego of the Church Case # 2588 (Ohio)

Under the “prospective use” exemption for real property, where an entity, which under the law is entitled to have its property exempted from taxation, acquires real property with the intention of devoting it to a use exempting it from taxation, such property is entitled to be exempted from taxation as long as it is not devoted to a nonexempt or commercial use, even though actual physical use of the property for the exempt purpose has not yet begun. Prior Ohio Supreme Court cases recognized that a property owner may obtain a “prospective use” exemption for real property during a year in which the owner is developing the property for the exempt use. Now the Ohio Supreme Court, in a case involving a religious school, holds that the applicant’s ultimate failure to accomplish its exempt purpose does not result in a denial of the prospective use exemption for a prior tax year. In addition, the Court holds that a “prospective use” exemption from real property taxation should be granted if, as of the January 1 lien date of the tax year, the applicant acquired the property with the intention of devoting it to an exempt use, so long as the applicant had not devoted the property to any nonexempt or commercial use as of the tax lien date. The reasonable prospect of exempt use must exist only on the tax lien date, it need not also subsequently exist on the date the exemption application is filed and the applicant, at the time the application for exemption is made, need not be actively working toward the actual use for the public benefit. In this case, the plan to use the site for an Episcopal school in Cincinnati that would be located near the city center, would be religiously based, and would serve inner-city and other children in greater Cincinnati, had effectively been abandoned by the time the application for the tax exemption was filed (December 21, 2001). In addition, the property was sold in November 2002 to a for-profit entity, thereby rendering the tax exempt purpose impossible of ever being fulfilled. Nevertheless the property was entitled to a tax exemption for the year 2001, because the property had been acquired for the express purpose of being developed into a school that would qualify for exemption as a public schoolhouse under Ohio Rev. Code (R.C.) 5709.07 or as a charitable use of property under R.C. 5709.12 and 5709.121. Although the plan for the school began to unravel beginning in February 2001, as of January 1, 2001, the Episcopal diocese and the school’s trustees had taken substantial steps to secure financing to renovate the building, had hired a principal, were reviewing teacher applications, and had announced the school’s opening. Thus, as of the January 1 lien date the applicant clearly had the intention of devoting it to an exempt use. The dissent believed that a prospective use exemption from real property taxation should be granted if the applicant (1) has acquired the property as of the date of the tax lien for the tax year and (2) produces evidence as of the date of its application for tax exemption that the property is intended to be devoted to an exempt use Case # 3125 (Ohio)

Tax exempt status for church realty is not determined on the date the exemption application is filed. To be exempt, the property must have been owned by the applicant and used for an exempt purpose as of the tax lien date, January first, in the year in which the exemption is sought. Here the property was acquired and first used for a tax exempt purpose on January 26, 2005, hence the church was not entitled to a tax exemption for the 2005 tax year. Ohio law Case # 3208 (Ohio)

Divided Ohio Supreme Court holds that the property used as the administrative headquarters for a church or congregation is taxable and that property primarily used to support public worship that is conducted at other locations by local congregations does not constitute a charitable use of real property. The Church of God in Northern Ohio (COGNO) owned a building which was used as an administrative office building used by regional church officials to oversee and assist its member congregations. The building contained conference rooms and classrooms used for church leadership meetings and ministerial teaching and training. The following activities were conducted at the building: materials regarding prayer were prepared and sent out to local churches; information regarding worship was transmitted from the international organization to the local churches; participation of local congregations in global outreach programs was facilitated; help was rendered in the start of new churches; meetings were held for purposes of the continuing education and development of local pastors; arrangements were made for donations and services among churches in the region. Ohio Rev. Code § 5709.07(A)(2), granting a tax exemption to “[h]ouses used exclusively for public worship . . . and the ground attached to them that is not leased or otherwise used with a view to profit,” was not applicable because the property was not used “exclusively for public worship.” Rather, the property was being used for purposes that were merely supportive of public worship at other locations. The exemption under § 5709.07(A)(2) extends only to property that “facilitates the public worship occurring on the premises” for which the exemption is sought. Nor did Rev. Code § 5709.12(B), exempting property “belonging to institutions that is used exclusively for charitable purposes” apply because, in the view of the majority, charitable activity did not take place in the Church’s administrative building. Although the presence of administrative activity on a property does not by itself defeat a claim of exemption under § 5709.12(B), if the activity is ancillary to endeavors which are primarily charitable, in the present case the necessary charitable activity was absent. Here, the property was used by office and support staff for the Administrative Bishop, who oversaw 121 congregations, including 400 ordained ministers and 27,000+ parishioners, a use properly characterized as “supporting public worship.” But the public worship conducted at the local churches did not constitute a charitable activity and thus its support did not constitute a charitable activity. Charity involves the provision of goods or services or knowledge “to advance and benefit mankind in general, or those in need of advancement and benefit in particular”; in other words, charity looks outward toward a general and indefinite public that the institution will serve. But although a religious congregation may welcome all to join in its worship services, the worship service itself does not constitute a charitable activity, because the worship of any particular church, synagogue, mosque, or other temple inevitably focuses on serving the spiritual needs of those participants who are already to a greater or lesser degree members of the congregation, or at least of the larger denomination. If COGNO’s contention that public worship may be equated with a charitable dissemination of religious information or viewed as equivalent to the charitable provision of spiritual edification to mankind in general were correct, there would be no need for a separate exemption for “[h]ouses used exclusively for public worship,” because such buildings would already be exempt as “real property used exclusively for charitable purposes” and the limited scope the legislature prescribed for the exemption of houses of public worship could be avoided simply by claiming exemption under the charitable-use statute rather than the house-of-public-worship provision itself. Compare the dissent which believed that COGNO’s used its property exclusively for the charitable purposes of providing public worship and community programs and was therefore exempt from taxation under § 5709.12(B) Case # 3851 (Ohio)

Appellant nonprofit corporation – which was jointly operated by the National Baptist Convention and a local church – owned and operated a federally subsidized apartment complex for low-income handicapped and aged tenants in Ohio. The local church sponsored the project pursuant to a memorandum of understanding with the National Convention. In spite of the nonprofit status of the owner and the charitable and religious minded motives behind the endeavor, the property at issue did not qualify for exemption from taxation under Ohio Revised Code (R.C.) § 5709.12(B), which grants an exemption to property used exclusively for charitable purposes. Real property owned by a nonprofit corporation for the purpose of operating residential apartments for aged and needy persons is not exempt from taxation under § 5709.12, even where the rent charged is at or below cost, persons unable to pay the full rental will be assisted by subventions from the corporation, and there is no profit to the owner. In Ohio, a distinctly residential use of real property defeats a claim of charitable exemption, even where attendant circumstances indicate the existence of charitable motives. Appellant could not escape this rule simply because (a) it provided services to its tenants over and above the rental of apartments (such as Bible study and social events and blood-pressure and diabetes screening), (b) the operation of the subject property was part of a religious mission, and (c) the existence of “public policies” may have favored its activities. Carrying out a religious mission and conferring a spiritual benefit upon the tenants did not by itself entitle the property owner to a charitable exemption. Entitlement of a particular parcel to exemption depends on the use of the property, not the nature of the institution. Here, the dissemination of religious messages was secondary to the property’s primary use: the provision of low-cost residential apartments. Appellant’s argument that it was entitled to exemption under Ohio R.C. § 5709.121 based on its status as a charitable institution was jurisdictionally barred. Appellant did not raise the argument in its application for an exemption or in its notice of administrative appeal to the Board of Tax Appeals (BTA). When a taxpayer has not specified a particular error in the notice of appeal to the BTA, the court has no jurisdiction on appeal to grant relief based on said error. The concurring opinion argued that providing subsidized housing for the underprivileged should qualify as a charitable use exempt from taxation; however, the concurring Judge reluctantly concurred because the court was bound by a long line of cases holding otherwise Case # 4064 (Ohio)

On a 79.8+ acre plot, appellant built a church building with classrooms on part of the property. 57.9+ acres of the lot was associated with the church building. The remaining acreage consisted of recreational facilities, including softball diamonds, a soccer field, and a jogging path. Although one area was intended to be developed into a ball field, it had not yet been developed. Appellant viewed itself as conducting a sports ministry in connection with the recreational portions of the property and the recreational areas were opened up to the public, thereby providing public recreational facilities that the city would otherwise have had to pay for itself. Primary use of the recreational areas was by the public, not members of the church congregation. Appellant did not charge for use the recreational facilities and the property did not generate income for the church. Appellant was granted an exemption for the 57.9+ acres associated with the church building pursuant to Ohio Rev. Code (R.C.) 5709.07(A)(2), which exempts “[h]ouses used exclusively for public worship . . . and the ground attached to them . . . that is necessary for their property occupancy, use, and enjoyment.” Appellants request for an exemption for the remaining 20.9+ acres dedicated to recreational use under R.C. 5709.12(B) as “[r]eal . . . property belonging to institutions that is used exclusively for charitable purposes” was denied. The Ohio Supreme Court held that this was error. Under R.C. 5709.12(B), property owned by an institution that is accessible without charge to the public for recreational use is a charitable use of the property and the property is exempt from taxation. Although the recreational areas did not qualify for the exemption afforded a house of worship by R.C. 5709.07(A)(2), because the recreational areas were at most an ancillary use of the church buildings and uses which are merely supportive of public worship are not exempted from taxation under R.C. 5709.07(A)(2), that did not prevent the recreational areas from qualifying for the charitable exemption afforded by R.C. 5709.12(B). The religious ownership of the recreational areas of the property and appellant’s religious motives in opening up the recreational areas to public use did not defeat the claim for the charitable exemption. The Court also held that the tax commissioner waived his objections to appellant’s prospective-use argument for a portion of the recreational acreage. For details of the waiver, see the Court’s opinion. (Under the “prospective use” exemption for real property, where an entity, which under the law is entitled to have its property exempted from taxation, acquires real property with the intention of devoting it to a use exempting it from taxation, such property is entitled to be exempted from taxation as long as it is not devoted to a nonexempt or commercial use, even though actual physical use of the property for the exempt purpose has not yet begun.) Case # 4214 (Ohio)

Church was liable for payment of realty taxes because it failed to timely appeal the listing of its property on the tax rolls Case # 63 (Or.)

A portion of a residence owned by a church was used for church storage. The rest of the residence sat empty and was not used for any purpose. Thus, only a portion of the house was used for an exempt purpose, and the remainder was unused. The entire house did not qualify for a tax exemption, but only that portion used for the storage of church property. Court discusses circumstances in which an exemption is allowed for the unused portion of a property Case # 3071 (Or. Tax Ct.)

Application for tax exemption for residential home and converted garage properly denied. Plaintiff “bishop” a taxable owner, had established an unincorporated nonprofit church organization which he ran out off his private residence and a converted garage, renting the property, in its entirety, to the church. Held, the property was not entitled to a tax exemption. The evidence did not show that the property was used “primarily for the benefit of the church,” or that it was “reasonably necessary for the furthering of the religious aims of the church.” Accepting that the primary religious activity was a daily broadcast emanating from one or two of the offices on the property, it appeared that that activity could have occurred anywhere and did not need to be housed within the “bishop’s” residence. It was true that church rules required the “bishop” to live in the home, which was leased to the church, but the “bishop” himself established those rules, and they inured to his benefit. And because the evidence did not demonstrate which portion of the property was devoted to exempt activities, or reasonably necessary to allow those activities, no partial exemption could be allowed. Analysis of Or. Rev. Stat. (ORS) § 307.140 Case # 2912 (Or. Tax. Ct.)

Tax exemption of property owned by religious organizations in Oregon. The entire lot does not have to be either exempt or taxable, but partial exemptions are allowed. Of a church’s 1.89 acre lot, 0.79 was determined by the county assessor to be nonexempt because it was unused and overgrown by thick bushes and tall trees. This was, under the facts, error. Review of cases Case # 1525 (Or. Tax Ct.)

Church was not required to file a new application for a tax exemption for the second phase of its building project because there had been no change in ownership or use and the prior application describing the subject property by street address, assessor's map number, and tax lot number was sufficient to cover the new construction Case # 211 (Or. T.C.)

The Pennsylvania state constitution provides that the legislature may exempt institutions of “purely public charity” from taxation. The state Supreme Court interpreted this as requiring, inter alia, that the actions of the institution relieve the government of some burden. The state legislature could not, in effect, read the Court’s interpretation of the constitutional provision out of existence by legislating that the requirement that that the institution’s actions relieve the government of some burden can be met by the organization simply being one that “[a]dvances or promotes religion and is owned and operated by a corporation or other entity as a religious ministry.” Appellant, a not-for-profit religious entity associated with the Bobov Hasidic Jewish community in Brooklyn, New York, operated a summer camp in Pike County, Pennsylvania. The camp consisted primarily of lectures and classes on the Orthodox Jewish faith and provided food and recreational activities for its students. The camp was funded by donations, rental income from a building in Brooklyn, and tuition from its students, but provided financial assistance to some students, who came from New York, Canada, England, and Israel. While the facilities were also open to the public, appellant was unaware of any Pike County resident utilizing these amenities. The Pa. Supreme Court affirmed the denial of appellant’s application for a property tax exemption as a “purely public charity.” Pa. Const. art. VIII, § 2(a)(v) provides, in pertinent part, that the General Assembly may by law exempt from taxation institutions of “purely public charity.” Under the Pa. Supreme Court’s 1985 HUP test, to qualify as an institution of purely public charity, the institution has to, inter alia, relieve the government of some of its burden. After the HUP case was decided, the General Assembly enacted the Institutions of Purely Public Charity Act (Act 55), which provided, inter alia, that an institution can satisfy the requirement that it “relieve the government of some of its burden” by simply being one that “[a]dvances or promotes religion and is owned and operated by a corporation or other entity as a religious ministry.” The Commonwealth Court had ruled that appellant failed to satisfy the requirement that it must “relieve the government of some of its burden” because the occasional use of appellant’s recreational and dining facilities by members of the public – Pike county residents – was insufficient to prove that appellant relieved the county government of some of its burden. Appellant argued that, irrespective of whether the Commonwealth Court was correct in so deciding – a questioned not before the state Supreme Court – it was entitled to the tax exemption because under Act 55 it satisfied the requirement that it “relieve the government of some of its burden” simply by being an institution that advanced or promoted religion and was owned and operated by a corporation or other entity as a religious ministry. In rejecting appellant’s argument, the Pa. Supreme Court held that to receive an exemption without violating the state constitutional requirement that one be a “purely public charity” an institution must meet the definition of “purely public charity” as measured by the HUP test, which constitutes the state constitutional minimum as to what constitutes a “purely private charity.” Although courts will apply the HUP test in light of evolving circumstances and the state legislature may choose to supplement the HUP requirements for the tax exemption, permitting a charitable association to satisfy the constitutionally mandated requirement that its actions relieve the government of some burden is not met by simply being an organization that “[a]dvances or promotes religion and is owned and operated by a corporation or other entity as a religious ministry” and the General Assembly could not displace the state Supreme Court’s interpretation of the state Constitution because “ultimate power and authority to interpret the Pennsylvania Constitution rests with the Judiciary, and in particular with” the state Supreme Court. Cf. the dissent Case # 4476 (Pa.)

On a 25 acre parcel of property there stood a Roman Catholic Shrine dedicated to the patron saint of Poland. It was visited each year from around the world by over 40,000 people. In addition to the Shrine, the parcel also contained a Church, a Visitor’s Center, a Retreat House, and parking lots. All the property was exempt from taxes as “actual places of regularly stated religious worship” except portions of the Visitor’s Center and Retreat House. In the Visitor’s Center, space allocated to cemetery offices, religious education classrooms and a chapel were exempt from taxation because they were essential to the primary religious undertaking of the Shrine, and the Shrine was exempt from taxation as an “actual place of regularly stated religious worship.” The areas in Visitor’s Center allocated to a museum, gift shop (including the bookstore), cafeteria, and Polish delicatessen were taxable because said areas were not essential to the underlying religious undertaking of the Shrine. In the Retreat House, the area allocated to two chapels, a reference library, confessional rooms, and a sacristy were exempt from as being essential to the underlying religious use of the Shrine, the Shrine being an “actual place of regularly stated religious worship. However, the sleeping quarters for retreatants, which consisted of approximately 40 rooms, and a meeting room were not essential to the underlying religious purpose of the Shrine and, therefore, that they were subject to taxation. But as to the 40 rooms, see the argument in the dissent. The Shrine (and its accompanying Visitor’s Center and Retreat House), did not qualify for tax-exempt status as an institution of purely public charity. While it was undisputed that the Shrine advanced a charitable purpose, operated free of a private profit motive, and relieved the government of some of its burden, and may possibly have donated or gratuitously rendered a substantial portion of its goods and services, it did not provide a benefit to a substantial and indefinite class of persons who were legitimate subjects of charity Case # 1914 (Pa. Commw. Ct.)

Upper level of parish house owned by St. Aloysius Roman Catholic Church was not exempt from taxation on the basis that it was an “institution of purely public charity.” A church functioning as a church cannot receive a tax exemption for its parsonage under the institution of purely public charity exemption. The upper level, consisting of three bedrooms, three bathrooms, a dining room, and a living room, housed the Church’s local priest and also provided housing for additional support staff, as well as assistance for individuals conducting retreats, missions, prayer services, and training programs for the parish ministries. The upper level periodically housed brother priests recuperating from illnesses and missionaries. Staff lunches and meetings were also held on the upper level. Further, prior to workshops and meetings, prayer services were held on the upper level and some Bible studies were also held there on occasion. The upper level was also available to individuals of any denomination involved in domestic difficulties and, periodically, served as a refuge for travelers from the highway. The Church traditionally had a priest on duty at the upper level 24 hours a day for emergency calls. Nevertheless, because the upper level was not primarily and regularly used as a parsonage it did not qualify for an exemption Case # 1913 (Pa. Cmwlth.)

Benedictine Sisters granted a real estate tax exemption for property used for religious retreats. Property in question consisted of approximately four acres of land improved by a three-bedroom, ranch-style house, a swimming pool and a detached garage Case # 1912 (Pa. Cmwlth Ct.)

Two parcels were used as a church parking lot. They were immediately adjacent to a 150 year old Church located in a residential neighborhood, with very limited on street parking . Years ago most members lived within a block or two and walked to the Church. Now, however, the members were aging, and most lived away from the Church. In the 1980s the membership steadily declined to 300 - 400, with about 200 attending services. In 1989 the Church purchased the two parcels for a parking lot, and after that membership increased to 700 - 750 and attendance increased to around 350. The pastor expressed the view that the parking lot was an integral part of the Church and that without it membership would eventually decline to the point where the Church would not be able to sustain its ministry financially or spiritually, and the Church would have to close. The court ruled that the lots used for parking were entitled to an exemption from taxation as reasonably necessary for the operation of the church even though the lots were not used as actual places of regularly stated religious worship and were not needed for ingress or egress into the church, or for light and air. In the past, tax exemption for such parking lots were apparently only approved where churches were required by zoning codes to provide a specified number of parking spaces based upon the number of seats in the sanctuary. Here, of course, given the age of the church, no such zoning code requirements existed at the time the church was constructed. Although the dissent did not believe that an intermediate appellate court should effect a change in the traditional construction of limiting language in the Pennsylvania Constitution, which seemed to limit the legislature’s ability to grant tax exemptions for church property to “actual places of regularly stated religious worship,” the majority felt its decision was limited to a very restricted number of cases where the evidence showed that the house of worship could not exist without the parking lot Case # 1613 (Pa. Commw. Ct.). The Pennsylvania Supreme Court affirmed. The Supreme Court did not hold that all church parking lots are entitled to tax-exempt status. However, if a church proves its parking lots are a reasonable necessity to the existence of the church itself, those lots are entitled to such status Case # 2156 (Pa.)

A church having a commitment to helping people actualize their potential and overcome adversity, especially individuals who would not traditionally go to a church, owned a property that was subdivided into two adjacent but separate tax parcels, each occupied by a building. One building was used for religious worship and was exempt from real estate taxation as an “[a]ctual place[] of regularly stated religious worship”. The other building, referred to by the church as its “community center,” served many different purposes. The first floor of the “community center” consisted of a large meeting room, a smaller room, and a kitchen. The second floor had four bedrooms. One bedroom had been converted to a library/classroom, another was used for storage, and the remaining two were reserved for use by visiting missionaries. In addition to conducting religious services, the Church, in furtherance of its religious mission, implemented several programs. These included programs to help children of incarcerated individuals and to help such individuals maintain family contact and prepare for release; a summer camp program; a food bank; an addictions ministry program; a youth ministry; and a cyber school. All these programs were administered from the community center building and were open to the public, although events related to several of the programs actually took place in the church building. The community center programs were funded entirely by congregation donations and did not generate revenue or profit. The pastor acknowledged that some community center uses were related to worship, such as prayer meetings and Bible study, but he could not put a percentage on such uses. Nevertheless, the pastor emphasized that the programs were open to anyone who desired to participate. The parcel containing the community center was denied an exemption from real estate taxes. On appeal, the trial court, in analyzing whether the community center was entitled to an exemption from real estate taxes, treated the Church and its community center as two separate entities, and not as a single entity. Nevertheless, the court held that the community center parcel was exempt from taxation as a “purely public charity” under section 204(a)(9) of the Pa. Assessment Law, 72 Pa. C.S. § 5020-204(a)(9). Although finding that the Church and the community center were properly treated as two separate entities, and not as a single entity, for tax purposes, the Pa. Commonwealth Court reversed the trial court’s determination that the community center parcel was entitled to a tax exemption. Applying the test for determining what constitutes a “purely public charity” set forth by the Pa. Supreme Court, as supplemented and expanded by the state’s “Purely Public Charity Act,” the Commonwealth Court held that the community center did not qualify as a “purely public charity” exempt from taxation. See the Case Digest for details Case # 4297 (Pa. Commw. Ct.)

Taxation of multi-use building owned by church; Pennsylvania law Case # 1553 (Pa. Commw. Ct.)

Church owned two parcels of land which adjoined but were separated from the church building. One parcel contained a Family Life Center consisting of an all-purpose room, a kitchen, a dining area, several classrooms, an office and restrooms. The other property contained a residential house used for Sunday school classes, fellowship classes, and as a temporary residence for visiting missionaries. Both parcels, in their entirety, were entitled under the facts, to a tax exemption. Pennsylvania law Case # 1488 (Pa. Commw. Ct.)

Catholic Diocese entitled to tax exemption for building in which it operated a job center to assist displaced workers. The job center occupied 5% of the Center's space. The remaining space was available to for-profit and non-profit entities (the licensees) whose missions involved helping the unemployed and generating new businesses for the local economy. The licensees paid fees at below market rates for occupancy. The Diocese provided maintenance and utilities and the fees from the licensees did not equal the Diocese’s operating expenses. The for-profit entities occupied 16% of the building’s space and the non-profit entities occupied 79% of the space. The Diocese also allowed various local groups and governmental units to use space in the Center at no cost. Discussion of charitable exemption under Pennsylvania law Case # 1257 (Pa. Commw. Ct.)

Decedent bequeathed her house a Church to be used for the temporary housing and convenience of the Church’s missionaries. In the present case, using the house for overseas missionaries temporarily returning to the United States was not a use which was directly incidental to or reasonably necessary for the Church to accomplish its missionary work. In addition, under the facts, the house was not used purely and exclusively for religious purposes. Court also reviews cases as they pertain to parsonage. Tennessee law Case # 1471 (Tenn. Ct. App.)

The Church had not secured a religious exemption from taxes for its property from the County Appraisal District and had not applied for such a tax exemption, believing that completing the forms required to obtain an exemption from taxation would violate the Church’s religious principles. In the taxing unit’s claim for unpaid taxes, the church had no right to assert, and the trial court had no jurisdiction to consider, the church's claim of entitlement to an exemption. The Church asserted as an affirmative defense that there was no need for it to apply for a tax exemption because, as a church, it already was “immune” from taxation. The Church’s asserted defense could have been presented to the appraisal review board and because the tax-protest procedure set forth in the Tax Code was the exclusive means to assert these arguments, they were not legally-cognizable defenses in a tax collection proceeding and the court was without jurisdiction to consider them Case # 3362 (Tex. Ct. App.)

Rollback tax provision of Tex. Tax Code Ann. § 23.55(a) provided that if the use of land that had been appraised as open-space land changed, an additional tax was to be imposed on the land; enactment of § 23.55(j), effective June 12, 1995, which exempted religious organizations from the rollback taxes if the religious organization converted the land to a use for which the land was eligible for a religious exemption within five years was not retroactive; church which purchased open-spaced land in 1991, but converted it to an exempt religious purpose within one year in 1992, was subject to the rollback tax; this result was not changed by the legislatures amendment of § 23.55(j) in 1997, when it relettered the provision, without substantive change, as § 23.55(l) Case # 628 (Tex. Ct. App.)

The rule in Vermont in respect to real property is that there can be no freedom from taxation unless the property is both owned by a qualified body and used by such a body in pursuit of one of its exempt purposes, even though the plain language of applicable exemption makes no mention of use. This case concerned the exemption for "lands owned or leased by colleges, academies or other public schools." Seminary operating private high school was held entitled to tax exemption for off campus property used as the living quarters of the headmaster. The headmaster’s residence was not only owned by the seminary, but also used for educational purposes such as meetings, dinners and parties for faculty, students, trustees and staff. Property that had formerly served as a dormitory, but was being commercially rented pending sale, was not entitled to an exemption. Court does not address question whether the properties were exempt from taxation under the "public, pious or charitable uses" clause of the applicable statute Case # 1164 (Vt.)

Discussion of tax exemption pursuant to 32 Vt. Stat. Ann. § 3802(4) for lands "granted, sequestered or used for public, pious or charitable uses" Case # 1315 (Vt.)

Taxes; exemption from taxes afforded real property under Vermont Law; analysis of 32 Vt. Stat. Ann §§ 3802(4) and 3832(2); what constitutes a “religious society” for purposes of the statutes. A married couple had established a nonprofit corporation to which they deeded 81.7 acres of land. The bylaws described it as a “private institution which exists for the purpose of nurturing the spiritual growth and development of all those who come into association for religious services, periods of meditation, and spiritual retreats.” In its application to the IRS for tax-exempt status, the corporation represented itself as a church without membership and open to persons of all faiths. Plaintiff religious society further indicated that it held services for weddings, Stations of the Cross, rosary, catechism, and occasional meetings for visiting priests. There were several buildings on the property, including a main barn, a smaller barn, three sheds and an abandoned sugarhouse. In 2001, the west end of the main barn was converted into a small chapel. Another part of the barn served as an indoor riding ring. Next to the small chapel was a meditation garden and pathway with the Stations of the Cross. The main part of the property was open and undeveloped. The entire property was not exempt under 32 V.S.A. § 3802(4). Rather the religious society was subject to the limiting provision of 32 V.S.A. § 3832(2) and only part of the property was exempt, i.e., the portion of the barn renovated as the small chapel, its lawn, the meditation garden and the pathway containing the Stations of the Cross. Accordingly, the religious society was only entitled to an exemption for 10% percent of the barn’s total value and its accompanying well and septic system, and for six acres containing the garden, lawn, and Stations of the Cross. Court discusses propriety of allocating space within a building between tax exempt and nonexempt areas. Court also holds that superior court did not improperly use a “quantum-of-use” test to determine whether particular parts of the property were tax exempt. The superior court had held that that the use of a property or a section of the property for pious purposes must be “substantial” to qualify for property tax exemption. The statutory scheme required that the property be assesses as of April 1 for the ensuing year. There was no statutory authorization for a rebate if property became exempt from taxation after that date but within the same tax year. Thus, for example, whatever qualified for exemption on April 1, 2001 would be exempt in the year 2002. If, between April 2, 2001 and December 31, 2001, the property were modified so as to expand the quantum of exempt property by, for example, construction of a large chapel, said property would not be exempt in 2002, but would first be qualified on April 1, 2002 for the tax year 2003. Rooming units constructed and reserved for visiting priests did not qualify for parsonage exemption Case # 1927 (Vt.)

A retirement community owned by Virginia Baptist Homes (VBH) was held entitled to a property tax exemption under legislation that granted VBH an exemption for any of its property used exclusively for non-profit religious or benevolent purposes even though it appeared that all residents paid 100% of the cost of their care and that the facility was not used to house the indigent. In Virginia there was a distinction between exemption from taxation by classification and exemption from taxation by designation. Property exempt from taxation by classification encompassed general categories of property, for example, property owned by churches or religious bodies exclusively occupied or used for religious worship and hospitals conducted exclusively as charities. See Va. Code § 58.1-3606. This case did not involve exemption from taxation by classification, but exemption by designation wherein the General Assembly designates by name certain specific organizations entitled to a tax exemption provided they met the terms of the legislation applicable to them. The General Assembly created this classification-designation dichotomy so as to be able to grant exemptions where entitlement under the stricter terms of the classification statutes might be doubtful. Thus, for example, one residential home for the aged may not be entitled to a tax exemption by classification, while a second home, otherwise indistinguishable from the first, may be entitled to tax exemption by designation. VBH was a not-for-profit corporation organized by the Baptist General Association of Virginia to provide a home for aged Baptists in Virginia. In 1976 the Virginia General Assembly (A) classified and designated VBH as a religious and benevolent organization and (B) provided that property owned by VBH was exempt from state and local taxation provided it was “used by it exclusively for religious or benevolent purposes on a nonprofit basis.” See Va. Code § 58.1-3650.33(A) and (B). At the time that VBH was designated a tax-exempt corporation, its sole purpose was to establish and provide retirement communities for the elderly. In 1998, The Glebe, Inc. was formed as a non-stock, not-for-profit corporation with VBH as its sole member. VBH purchased real property upon which a new retirement community, called “The Glebe,” was to be built. Advertisements emphasized that The Glebe was a “resort” community or “resort-style retirement living.” The entrance fees for The Glebe were above average for the market. Initially, applicants were not considered unless they were calculated to be able to pay for all of their lifetime care. Because of this requirement, only about 20% of the age-eligible population could be admitted. As of 2006, The Glebe changed its policy so that an applicant could be admitted if his financial forecast indicated that he would run out of assets within two years of the end of his life expectancy. VBH and The Glebe offered no financial assistance or gratuitous care for those applicants who did not meet the financial requirements to be admitted to The Glebe. There were two relatively small charitable funds developed for The Glebe; however, they were not currently being utilized. However, there was testimony that although The Glebe did not presently accept residents who lacked the ability to pay, it planned to do so in the future and that VBH was already conducting an ongoing fundraising campaign to build an endowment fund to help such people enter The Glebe. The Glebe included a chapel for private prayer and meditation and weekly services were held by visiting clergy in one of The Glebe’s other rooms. The trial court held that VBH and The Glebe were not exempt from taxation under the provisions of Code § 58.1-3650.33 because The Glebe was not used exclusively for religious or benevolent purposes. The Virginia Supreme Court reversed. Knowing that VBH’s only purpose was to provide and manage retirement facilities for the aged, the General Assembly designated VHB as a “religious and benevolent” organization that was tax-exempt. See Code § 58.1-3650.33(A). Therefore, the General Assembly already determined that operation of retirement communities for the elderly by VBH, and by extension The Gleb, qualified as both a religious and benevolent purpose. The trial court had examined the operation of The Glebe, including its practice of admitting residents regardless of religious beliefs; having no requirement that staff practice or adhere to any specific religion; having a chapel but using it for independent meditation/prayer and not using it for specific religious services; and offering only religious services from visiting clergy of various backgrounds. While this rigorous examination may have been necessary in a case involving tax exemption by classification, it was not the correct inquiry in a case involving tax exemption by designation. The plain meaning of Code § 58.1-3650.33, strictly construed, demonstrated that the General Assembly, in designating VBH as a “religious and benevolent organization,” considered VBH’s operation of retirement homes for the elderly as qualifying as a religious and benevolent purpose. Therefore, the only question to be answered was whether The Glebe, in fact, operated a retirement community for the elderly on a nonprofit basis as required by Code § 58.1-3650.33(B). There was no evidence that The Glebe provided any service other than operating a retirement community for the elderly or of its performing any other function on the premises such as the operation of some unrelated commercial venture. And although the County argued that The Glebe did not operate on a nonprofit basis, the trial court actually made no finding on this issue. But compare the dissent, arguing, inter alia, that The Glebe was essentially operated as a business enterprise in which the residents purchased their desired housing and care and was not operated either for a religious or benevolent purpose Case # 3405 (Va.)

Sales, Occupancy and Use Tax

A Colorado continuing care retirement community operated by a religious organization affiliated with the Roman Catholic Church to whom providing housing and care for the elderly was a religious activity was entitled to an exemption from City sales and use taxes. The entire operation of the facility was a religious activity, not just those facets of its operation that were obviously religious in nature, such as the operation of the chapel. Although plaintiff’s religious motivation in operating the facility did not, alone, control the court’s decision as to whether operation of the facility was a religious activity, motivation had to be considered along with analysis of the organization’s actual activities and the use to which the property was put. The fact that fees were charged for use of the facility was not fatal to the claim for tax exemption so long as the amounts received did not exceed the expenses, the institution was not maintained for gain or profit, and the sums paid or contributed were devoted to the purpose for which the charity was founded. A court may also consider whether the activity is an integral part of the organization’s ministry or a mere fund raiser to support other charitable or religious activities. Here, the facility was operated by a religious organization affiliated with the Catholic Church; it operated at a loss; its activities were religiously motivated; it provided services consistent with its mission; it made a chaplain available seven days a week who provided a spiritual assessment for residents in the assisted living and skilled nursing units; it had a chapel available for worship and provided regular religious services; the use of the property for religious worship and reflection was integrated into daily activities; managers were trained regarding the religious mission and ministry and employees were instructed and required to support that mission and follow religious directives of the Catholic Church. Hence the sales and use of all tangible personal property at issue were within the “conduct of [the facility’s] regular religious functions” as the term was used in the City’s municipal code Case # 2976 (Colo. Ct. App.)

Georgia tax provisions exempting from taxation any religious paper in the state owned and operated by a religious institution or denomination, as well as Bibles and other “Holy Scripture,” declared unconstitutional under both the establishment and free speech/ press clauses of the First Amendment. Plaintiffs, a purchaser and a seller of publications that did not qualify for the exemptions, had standing to challenge the tax exemptions and the federal Tax Injunction Act did not deprive the federal court of jurisdiction over plaintiffs’ challenge Case # 2212 (N.D. Ga.)

Plaintiff New Orleans Secular Humanist Association, Inc. (NOSHA), a non-profit corporation seeking to raise public awareness about the values of secular humanism, granted preliminary injunction banning enforcement of Louisiana statutes (1) exempting from the payment of any sales tax the Society of the Little Sisters of the Poor, an organization affiliated with the Roman Catholic Church that provided food, clothing and shelter to the elderly poor and (2) exempting churches and synagogues from payment of sales taxes for the purchase of bibles, songs books and literature used for religious purposes. Federal district court was not barred by the federal Tax Injunction Act from exercising jurisdiction. Court denies the grant of a preliminary injunction enjoining enforcement of state statutes exempting the payment of sales, use and occupancy taxes at hotels and places of amusement at camp and retreat facilities operated by religious organizations for religious purposes. although the text of these statutes granted tax exemptions to religious groups at the time plaintiff’s lawsuit was filed, all of these statutes were subsequently amended to provided tax exemptions for the payment of sales, use and occupancy taxes for hotels, overnight lodging, and places of amusement at camp and retreat facilities operated by all nonprofit organizations exempt from federal income tax under Section 501 of the Internal Revenue Code, provided that the net revenue derived from the organization’s property was devoted wholly to the organization’s purposes Case # 2287 (E.D. La.)

Pennsylvania’s sales tax exemption for “the sale at retail or use of religious publications sold by religious groups and Bibles and religious articles” violates the Establishment Clause Case # 497 (Pa.)

Rhode Island statute exempting Bibles and other canonized religious scriptures from state sales tax was unconstitutional as it violated the free press clause of the First Amendment Case # 476 (R.I.)

Due to a substantial influx of Orthodox Jews into the Village of Lawrence in Nassau County, New York, a majority of the members of the local school board were Orthodox Jews who had been elected on a platform of keeping local real estate taxes, which supported the public school system, down. Most Orthodox Jews with school age children did not send their children to public school, but to private parochial schools. In furtherance of the goal of keeping the public school district’s expenditures under control, the school board majority voted to close one of the district's school buildings and sell the property as part of a Consolidation Plan which, among other things, would move fifth graders to a middle school that presently housed the sixth through eighth grades. Plaintiffs, residents of the school district and the parents of children who attended the district’s public schools, sued the school district and individual members of the school board claiming that defendants were, inter alia, violating the Establishment Clause of the First Amendment because the intent and effect of their actions were to enable Orthodox Jews to have more disposable income available to pay for sending their children to private religious schools. Plaintiffs went further, claiming that defendants were somehow establishing Orthodox Judaism as Lawrence’s official religion. The court, after noting that plaintiffs’ complaint was replete with stereotypical and often false allegations about Orthodox Judaism and Jews, termed plaintiffs’ legal assertions completely frivolous and dismissed the complaint for failure to state a claim. The Consolidation Plan had a secular purpose: to save money and thereby facilitate lower tax rates. It was irrelevant that the individual defendants were not public school parents, that their election was publicly supported by local Orthodox Rabbis or that the Consolidation Plan may not have served a valid educational “purpose.” Elected officials do not just represent beneficiaries of government programs, such as public school students; they also represent taxpayers and there is no First Amendment or Equal Protection problem involved with preferring taxpayers’ interests over those of beneficiaries. The Consolidation Plan’s principal effect neither advanced nor inhibited religion. The Plan and the resulting tax savings would confer no benefits on Orthodox Jews or Orthodox Jewish institutions not shared by other local taxpayers. The court observed, inter alia, that: “Plaintiffs do not claim, nor could they, that supporting lower taxes and less school spending by itself violates the First or Fourteenth Amendment. Thus, under Plaintiffs’ reasoning, no claim would lie against political conservatives who ideologically disfavor spending on public schools, or retirees who have no children in the public school system and want lower taxes to boost their discretionary income. Rather, Plaintiffs believe that the School Board’s actions are problematic entirely because the School Board members are Orthodox Jews who are motivated, in part, to help other Orthodox Jews pay yeshiva tuition by lowering their tax burden. In short, Plaintiffs seek to deny Orthodox Jews political rights possessed by every other group in the United States: the right to mobilize in support of religiously neutral government policies, and then have those policies enacted through normal democratic processes. And Plaintiffs seek to do so because, Plaintiffs allege, the School Board’s religiously neutral government actions are motivated by the Jewish faith, instead of anti-tax sentiment generally. [¶] Plaintiffs thus ask this Court to discriminate against Orthodox Jews by finding that lower taxes and smaller government are unconstitutional because many of the tax cut’s beneficiaries would choose to allocate their tax savings to Jewish education rather than secular pursuits. But if the First Amendment means anything, it is that the Government cannot prohibit individuals from spending their own money to fulfill the obligations of their religious faith.” Case # 3785 (E.D.N.Y.), affirmed, Case # 4026 (2d Cir.) (but note, the panel’s equal protection analysis was different than that of the district court). Subsequently, the district court awarded defendants attorneys’ fees in the amount of $ 5,000, to be assessed equally against plaintiffs and their attorney given the frivolous nature of plaintiffs’ claims. Defendants sought attorneys’ fees not only on the basis that plaintiffs’ complaint was frivolous, but on the ground that plaintiffs should be sanctioned for including numerous “stereotypical and harassing allegations” about Orthodox Jews in their complaint. The court found that “by themselves” these allegations did not warrant awarding attorneys’ fees, costs, or other sanctions, but the court said “to a limited extent,” said allegations augmented the suggestion that plaintiffs and their attorney litigated in somewhat less than good faith. Plaintiffs’ attorney was ordered to share in the payment of the attorneys’ fees because the complaint was “completely without merit” and sought “to create, not cure, First Amendment and Equal Protection violations” by depriving defendants and Orthodox Jews of their constitutional rights. Given the constitutionally-offensive nature of the complaint, the court inferred that plaintiffs’ lawyer acted in bad faith. In addition, the lawyer “misrepresented” at least one fact. Finally, plaintiffs’ attorney included several unnecessary and, to some degree, inaccurate generalizations about Orthodox Jews, for which see the court’s opinion. While not necessarily bad faith by itself, the court found that the attorney’s decision to plead these kinds of stereotypical allegations augmented the court’s bad faith finding. Defendants sought $ 120,000 in attorneys’ fees against plaintiffs and their attorney. The court found such an award would be wholly unreasonable and awarded $ 5,000 in attorneys fees to be assessed equally against plaintiffs and their attorney. While this case was novel, it was neither difficult nor required any particular legal skill. The court said, in part, that: “[G]iven the time sensitive nature of plaintiffs’ claims, the court proceeded to largely draft its Order denying a preliminary injunction and dismissing plaintiffs’ claims before defendants ever filed their response brief. Defendants’ submission ultimately led only to minor revisions in the court’s decision. In short, it did not take a $ 735/hr attorney, such as . . . [defendants retained], to defend this case. Quite the contrary, . . . in this case even a terse, barely decipherable submission would have resulted in a substantively identical victory. So, ironically, the same utter frivolity that entitles defendants to attorneys’ fees also precludes them from collecting more than a mere fraction of what they expended to retain Mr. Butler’s high-priced services. [¶] . . . Additionally, the court takes judicial notice that two non-profit organizations filed amicus curiae on defendants’ behalf at the appellate level. This suggests that, had defendants inquired, they might have been able to obtain perfectly competent pro bono counsel. [¶] . . . [I]n deterring frivolous cases, such as this one, the court does not want to inadvertently deter potentially meritorious suits.” Case # 4034 (E.D.N.Y.)

Sewer; Storm Drainage; and Water Charges

City’s storm water service charge was a fee; it was not a tax on real property from which plaintiff churches were exempt; case of first impression in Illinois Case # 1926 (Ill. App. Ct.)

Real estate owned by a religious corporation located in the City of New York “actually dedicated and used by such corporation exclusively as a place of public worship” was exempt from the payment of City water and sewer charges. The City agencies responsible for implementing the water exemption statute gave a narrow reading to the exemption, allowing an exemption from water charges only that portion of a religious corporation’s property in fact used for public worship, plus a single caretaker residence on the property. Such incidental uses as additional caretaker residences and guest rooms for visiting clergy were not exempt. Nor were clergy residences exempt, unless the clergy doubled as the caretaker. Where non-exempt and exempt uses coexisted on the same property, the agencies afford a partial exemption to the religious corporation, subject to some mechanism, such as separately metering the water service to the non-exempt portion, so that the exempt and non-exempt volumes of water consumed could be separately identified. The petitioner church asserted that the size its facility, the property’s maintenance and security needs, and insurance requirements, required that a caretaker be on the premises 24 hours a day, seven days a week, thereby necessitating that two caretakers live on the premises. By a vote of 4 to 3, New York’s highest court held: (1) Having opened the door a crack for a single caretaker residence – an interpretation neither mandated nor prohibited by the statute – the agencies were not compelled to fling it wide open to welcome additional incidental uses, such as an exemption for second caretaker’s residence. (2) While the agencies might legitimately have chosen to read the statute more generously, they did not act irrationally by limiting the exemption to premises devoted exclusively to public worship plus the residence of a single caretaker. (3) The agencies did not have to interpret the water exemption in the same manner as the real property tax exemption afforded to buildings used exclusively for religious purposes. But compare the dissent arguing that the administrative ruling that the water and sewer exemption was allowed only for a single caretaker residence was arbitrary, capricious and unreasonable Case # 3337 (N.Y.)

Tax Credits and Deductions For Students Attending Sectarian School

See State Aid to Religious Education and Other Programs, "Tax Credits and Deductions"

Tax Fraud by Use of a Sham Church

IRS suspected that tax payer was impermissibly filtering income through a sham church to avoid paying taxes and, thus, records from the church accounts were directly relevant to the IRS investigation; court discusses, inter alia, legitimate scope of the summons of the church’s records and dismisses First Amendment challenges Case # 526 (9th Cir.)

Tax Injunction Act

See Tax Injunction Act

Tax Lien and Foreclosure on Realty Used For Religious Purposes

Delinquent taxpayer’s transfer of home to church held fraudulent and set aside; foreclosure on home would not burden taxpayer’s free exercise of religion; while taxpayer may at one time have held religious services in the home there was no evidence that he currently did so Case # 208 (E.D. Cal.)

In 1977 plaintiff transferred her homestead to a religious corporation controlled by her children; the property was subsequently transferred to other religious corporations controlled by her children; beginning in 1987, notices of federal tax liens were filed against the property; the liens pertained to the tax liability of two of the corporations as the alter egos of plaintiff’s children; in 1996 the I.R.S. seized the property, which was sold at a tax sale; plaintiff was estopped from attacking the validity of the 1977 deeds and the religious organization to which the initial transfer was made possessed the capacity to take title; Minnesota law Case # 697 (D. Minn.)

Taxpayer's Gratuitous Transfers to Church Ahead of Payment of Back Taxes Due

A chapter 7 debtor had a federal tax liability totaling approximately $600,000 as of the time of trial, with respect to two groups of tax years – for tax years 1980, 1981 and 1982 (the 1980s Taxes), and for tax years 1993, 1994 and 1995 (the 1990s Taxes). Owing to proceedings before the Tax Court and higher courts that took nearly 10 years to decide, the debtor’s tax liability for the 1980 taxes were not finally resolved until the second half of the 1990s, during which time substantial interest accrued. The court found that if it were not for substantial discretionary expenditures that the debtor made in the period 1996 - 1999, she would have been able to satisfy in full the 1990s Taxes owing to the IRS, and to substantially, but not entirely pay, the 1980s Taxes. The substantial discretionary expenditures included payments for a luxury apartment at a cost of more than $6,000 per month; eating dinner in restaurants four days a week; traveling considerably, to California, China and Paris; running up credit card bills; and making “huge gratuitous transfers to her church,” all ahead of payment of the back taxes due. The court held that such knowing expenditures, even if not made within the intent to defraud the government, disqualified the debtor from receiving a discharge of her tax obligations because 11 U.S.C. 523(a)(1)(C) provided that an individual may not be discharged from any debt for a tax with respect to which the debtor willfully attempted in any manner to evade or defeat such tax. The debtor’s knowing allocation of resources to obligations other than taxes constituted the requisite willful attempt to evade or defeat a tax. By reason of the debtor’s conduct, and her failure to pay the 1990s Taxes (which she easily could have paid in full), she was deemed to have willfully attempted to evade or defeat payment of the 1990s Taxes. And by reason of her conduct, and her failure to pay the portion of the 1980s Taxes that she could have afforded to pay, she had to be deemed to have willfully attempted to evade or defeat the 1980s Taxes. The latter finding resulted in the court reluctantly concluding that all of the 1980s Taxes debt was nondischargeable, and not just the portion of the 1980 taxes the debtor could have afforded to pay in the absence of the large discretionary expenditures in the period 1996-1999 Case # 1683N (Bankr. S.D.N.Y.)

Tax Sales; Vacating the Tax Deed Judgment

Church property was deemed not to be tax-exempt during the period from 1986 to 1995, and so real estate taxes, totaling over $100,000, were assessed by the County against the property. The property was acquired by Cook County at a "scavenger sale." The County assigned its certificate of purchase to the City of Chicago, which filed a petition to obtain a tax deed. However, before a tax deed could issue the owner whose taxes were delinquent was entitled to notice of the right to redeem the property by paying the full amount of taxes and penalties. However, the City mistakenly addressed the notice to the Church to the wrong address. Five years after securing the tax deed, the City filed an application in the Circuit Court of Cook County seeking actual possession of the property. At this point, the Church filed a petition in state court under § 2-1401 of the Ill. Code of Civil Procedure seeking to vacate the tax-deed on the ground that "the tax deed had been procured by fraud or deception." The court held that the City's mistake in addressing the notice of the Church’s right to redeem the property did not amount to fraudulent concealment of the tax sale and that the petition to vacate the tax deed had to be dismissed because it had not been filed within the applicable two year limitations period, This decision was affirmed by the Appellate Court of Illinois and the Supreme Court of Illinois denied leave to appeal. Thereafter, the City renewed its application for possession of the property. At this point, the Church filed a complaint in U.S. district court. The complaint raised claims under 42 U.S.C. § 1983 for violation of the free exercise clause of the First Amendment and violation of procedural due process, as well as claims under the Religious Land Use and Institutionalized Persons Act (RLUIPA) and the Illinois Religious Freedom Restoration Act. The Church then moved for a preliminary injunction barring the City from possession of its property. Held, the U.S. district court did not have subject matter jurisdiction of the Church’s claims. Under the Rooker-Feldman doctrine, lower federal courts lack subject-matter jurisdiction when, after state proceedings have ended, a losing party in state court files suit in federal court complaining of an injury caused by the state-court judgment and seeking review and rejection of that judgment. Rooker-Feldman also applies to bar federal claims that are "inextricably intertwined" with a state-court judgment, except where the plaintiff lacked a reasonable opportunity to present those claims in state court. In this case, the Church sought all along to retain possession and regain title to the property. The Church never identified any injury separate from the tax deed judgment. It did not allege, for example, that the City's very act of misaddressing the notice violated a state or federal statute, Thus, the Church’s injury was caused by – and its federal due-process claim arose directly out of – the tax deed judgment. The Church's underlying gripe about the tax sale (aside from lack of notice) stemmed from its belief that the property was always tax exempt. The Church could have – and should have – argued in the state § 2-1401 proceeding that the tax-deed judgment was void because the property sold was tax exempt. But the Church simply never made the argument in the state court proceedings. Because the Church could have argued in the § 2-1401 proceeding that the property sold was tax exempt, the state-court system was not closed to the Church and under Rooker-Feldman the federal court did not have jurisdiction. Whether the Church could still retroactively apply for a tax exemption and void the tax deed was governed by the Illinois law on successive petitions under § 2-1401. However, the federal court was not the place for the Church to obtain the relief it sought Case # 2841 (7th Cir.)

Two parcels of land belonging to a church were sold for delinquent taxes. One parcel housed the church’s sanctuary, while the other was the church's parking lot. Both parcels were tax exempt from 1976 to 1998, but from 1999 through 2003 they were mistakenly listed as taxable on the county's assessment rolls. The sale of the church sanctuary parcel for delinquent taxes was subsequently vacated, but the church did not seek a vacation of the tax sale of the parking lot. After a forfeiture tax sale, the parking-lot parcel was assigned to Discount Inn, which later secured an order from the Illinois circuit court directing the county clerk to issue a tax deed. The church filed a petition under § 2-1401 of the Ill. Code of Civil Procedure seeking to vacate the circuit court's order. On respondent’s motion to dismiss, the Appellate Court, reversing the circuit court, held that the church had a meritorious defense to the tax sale because the parking lot should have been exempt from taxation, it having been used solely and continuously for church purposes and without a view to profit. The church was held sufficiently diligent in bringing its petition to vacate the tax deed judgment Case # 2840 (Ill. App. Ct.)

Tithing expenses for purposes of determining taxpayer's ability to pay outstanding tax liabilities

Addressing for the first time, in the context of an offer in compromise, the treatment of a minister’s tithing expenses for purposes of determining ability to pay outstanding tax liabilities, the Tax Court held that in evaluating an offer in compromise, a taxpayer’s tithing expenses should not be taken into consideration in determining whether he has the ability to pay outstanding tax liabilities, unless tithing is a condition of employment. The disallowance of tithing expenses for this purpose does not violate the First Amendment right to free exercise of religion Case # 1739N (U.S. Tax Ct.)

Tuition Payments for Religious Education Not Entitled to Charitable Deduction on Federal Tax Return

Unemployment Insurance Taxes

See Unemployment Insurance Benefits and Taxes