Tax-exempt religious organizations are generally exempted from paying property taxes. To avail itself of this exemption, the religious organization must show that: (1) the owner of the property is organized exclusively for a tax-exempt purpose; (2) the property is actually and exclusively used for the tax-exempt purpose; and (3) the owner’s operation and use of the property is not for profit.
This test was recently applied by the Appellate Division of the Superior Court of New Jersey in City of Newark of the County of Essex v. (148) Block 1861, Lot 24, 605-611 Central Avenue, 2010 WL 3932996 (N.J. Super. A.D. September 27, 2010). In 2007, the City of Newark filed suit against Yes Lord Ministries, Inc. (“Yes Lord”) for back taxes. In 2008, Newark rejected that application. The trial court then granted summary judgment in favor of Newark, allowing it to foreclose on the property for failure to pay taxes. Yes Lord appealed to the Appellate Division.
In rendering its decision, the Appellate Division noted that the building was purchased by Yes Lord in 2004 and consisted of approximately 20,000 square feet. The warehouse portion of it was structurally intact; but the offices were completely unusable due to roof leakage and dangerous wiring. Yes Lord intended to renovate the property for church activities, but that work was delayed by financial obstacles. Yes Lord never paid property taxes on the property and it owed more than $120,000 in delinquent taxes and redemption fees when Newark started the lawsuit.
Yes Lord claimed that the warehouse portion of the property was being used for meetings of men’s and women’s auxiliary groups related to church activities and for other prayer services. However, the property was not open to the public for regular church services and Yes Lord did not possess a Certificate of Occupancy for the property. Newark conceded that Yes Lord was organized exclusively for a recognized tax-exempt purpose and that its use of the property was not for profit. However, Newark claimed that Yes Lord was not “actually using” the property for the tax-exempt purpose.
The Court relied heavily upon the decision in Grace & Peace Fellowship Church, Inc. v. Cranford Twp., 4 N.J. Tax 391 (Tax 1982). In Grace & Peace, the Tax Court determined that “an uncompleted church building was not exempt from taxation because occasional meetings of church auxiliary and prayer groups were being held in the building during the construction work.” Grace & Peace Fellowship Church at 394-95, 401. The Tax Court also noted that the church did not receive a Certificate of Occupancy until after the date of tax assessment, despite using the property for religious services. The Tax Court reasoned that “the public benefit underlying the tax exemption had not yet begun and that denying tax exemption was both consistent with the language of the statute (N.J.S.A. 54:4-1) and an appropriate incentive for the exempt organization to complete the construction.” Id. at 397-401.
The Appellate Division held that Yes Lord was not “actually using” the property for the tax-exempt purpose. It further held that New Jersey law (N.J.S.A. 54:4-1 et seq.) implied that the “actual use” of the property must be legally authorized. Thus, a Certificate of Occupancy was required to use the warehouse. Yes Lord did not have a Certificate of Occupancy, so its use of the property was not legally authorized and it was not entitled to exemption from property taxes on it.
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Interesting case. I did not realize religious organizations had to be using the property for a specific purpose to get their property tax exemption. Is this true of all non-profits? Thanks.
Posted by: Property Tax Loan Guy | 03/01/2011 at 08:29 PM