Information on Property Taxation of Church Real Estate


This information was compiled by Dawn Hammond, Associate Conference Minister for Policy & Finance, July 10, 2017

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I. Information on Property Taxation of Church Real Estate

A.   Basic Information

 

“A church’s house of worship, the parsonage occupied by its ordained minister, and a reasonable amount of surrounding land are exempt from local property taxes, provided these properties are being used exclusively for religious purposes.

Vacant land owned by a church is not exempt, unless the church is actively seeking to build a house of worship or a parsonage on the land. Parsonages and church buildings under construction are exempt.

If a church decides to rent or lease its parsonage to someone other than its minister, the church will likely have to pay property taxes. Similarly, if a church leases its steeple to a cellular telephone company, the church may be assessed property tax on the steeple. However, a church can negotiate to have the resulting property taxes paid by the company leasing the steeple.

In order to maintain their property tax exemption, nonprofit organizations are required to file an annual form 3ABC, due March 1st, although some towns waive this requirement for churches. Check with your town’s board of assessors to find out your requirements.

Many churches lease or rent space to day care centers or other community groups. Leasing or renting church property to individuals or to other organizations, including non-religious non-profit organizations, could result in a full or partial loss of the property tax exemption. Much seems to depend on the local taxing authority, which has some discretion as to how stringently to apply the law” (MACUCC Church Finance Handbook, 2010,  p. 14).

 

B.  Recent Developments

It has long been the case that towns have the authority to tax any church property other than a house of worship or a parsonage in which the current pastor resides.   Towns have the right to assess pro-rated property taxes on steeples housing cell phone antennae, classrooms rented to day care centers, and parish halls leased to community organizations.  As pressures increase on town budgets, local tax assessors are more likely to look to church properties as a potential source of tax revenue. 

Also, a recent Massachusetts Supreme Judicial Court ruling may encourage some tax assessors to take a closer look at church properties.  This SJC case concerned an attempt by the town of Attleboro to tax much of the property belonging to a Catholic shrine to Our Lady of LaSalette. 

Briefly, the SJC ruled that Attleboro could not tax the shrine on their gift shop, restaurant, maintenance building and other ancillary structures which were necessary to support the primary religious mission of the shrine. However, the town is permitted to levy property tax on the parts of the LaSalette property which are leased to unrelated nonprofit organizations. (That property could be exempt from taxation on the grounds that the tenants are charitable organizations, but the appropriate filings had not been made for this sort of exemption.)

The MA Council of Churches recently published a helpful article including links to further information:

http://www.masscouncilofchurches.org/wp-content/uploads/2017/03/La-Salette-Shrine-Amicus-Ruling-3.22.17.pdf

 

C.  Recommendation

Mass. Conference, UCC legal counsel recommends that any church which rents property to an entity outside the church have a written lease with the tenant.  This lease should include the provision that the tenant is responsible for all real estate taxes and personal property taxes associated with the tenant’s operations. 

That puts the burden on the tenant to handle the taxes.  Specifically, if the tenant is a non-profit charitable organization, the tenant must either:

a) claim a charitable exemption and file the appropriate paperwork with the city or town to avoid the assessment of real estate taxes on church property, or

b) pay the taxes for failure to do so. 

If the tenant is a for-profit organization or individual, the lease clause would simply require that the tenant pay the taxes.
 

II.  Information on Rentals and Unrelated Business Income Tax

 

Rental of church property will not normally result in liability for Unrelated Business Income Tax.  Provided the church owns the property outright (i.e. there is no mortgage on the property), the resulting income is seen as ‘passive rental’ . It is viewed by the IRS in the same way income on any other investment (such as a bank account) would be viewed. 

 

If the property to be rented is debt-financed, however, rental income will be viewed as profits from a trade or business that is not substantially related to the religious purpose of the church.  It will, therefore, be subject to Unrelated Business Income Tax.   However, this will not jeopardize the tax-exempt status of the church.