Generally speaking, owners of real property pay property taxes each year. However, most states recognize an exemption from property tax for land or buildings owned by a religious organization and used for religious purposes.
Around this time every year, we endeavor to remind our religious organization clients about real property that they may own that may not be actively used for religious purposes (i.e., land purchased for future improvement but not yet in use, or property donated to the church during the previous year). Many of the factors a religious organization should consider to qualify for an exemption from real estate taxes are as follows:
- A parcel in many states must be used (not simply owned) for religious purposes as of the relevant listing date to qualify for tax exemption for the upcoming tax year.
- The relevant listing date may differ per jurisdiction. In other words, the use of the property for religious purposes may have to be occurring on a certain date of the year.
- There are varying rules for use of all or a portion of the applicable parcel (and how that partial use may impact the exemption). For example, does the organization have to pay a portion of the tax or does non-use impact the entire exemption?
- Is the exemption automatic or must the organization apply proactively to receive the exemption?
- Do you need to apply every year or only once?
- Can you assign the exemption to another organization?
- Do parsonages or real estate leased by a faith-based organization to a third party qualify?
- Must the property be developed?
- What is the appeals process for a denial of the exemption?
We’ve had many religious organization clients receive an unexpected (and unbudgeted for) tax bill in the mail. We’ve worked with those clients to help them think through these issues, and brainstorm non-traditional religious uses of property that may result in exemption from real estate taxes. We recommend Executive/Administrative Pastors calendar this topic annually at the relevant time as a reminder so this issue is top of mind.
Below is some specific information on a few states where we have a high concentration of religious organization clients:
North Carolina: North Carolina recognizes an exemption from property taxation for "buildings, the land they actually occupy, and additional adjacent land reasonably necessary for the convenient use of any such buildings" if and only if the property is owned by a church or religious body AND either:
1. wholly and exclusively used by its owner for religious purposes; or
2. occupied gratuitously by a third party and wholly and exclusively used by that party for religious, charitable, or nonprofit educational, literary, scientific, or cultural purposes.
See the exemption statute for NC HERE.
Tennessee: Tennessee’s Assessment Act codified in the Tennessee’s State Constitution makes clear that “real and personal property owned by any religious, charitable, scientific, or nonprofit educational institution which is occupied and used by such institution or its officers purely and exclusively for carrying out one or more of the purposes for which the institution was created shall be exempt from property taxation.” This exemption, however, is not automatic. To obtain this exemption, an owner of real or personal property claiming an exemption must file an application for the exemption with Tennessee’s State Board of Equalization and supply such information as the Board of Equalization requires to make a determination as to the property tax exemption. A separate application must be filed for each property for which the exemption is claimed. Once the exemption is approved, it is not necessary to reapply each year; however, the exemption is not transferable or assignable. See the statute HERE.
Georgia: In Georgia, all places of religious worship and all property owned and operated exclusively as a church, an association or convention of churches, when such entity is qualified as an exempt religious organization under Section 501(c)(3) of the Internal Revenue Code and such property is used in a manner consistent with such exemption under Section 501(c)(3) of the Internal Revenue Code are exempt from property taxes. Further, all property owned by religious groups and used only for single-family residences when no income is derived from the property is exempt from property taxes in Georgia. See the statute HERE.
Texas: In Texas, personal property as well as developed and undeveloped real property, and residential property for clergymen can be exempted from taxation. A summary of the relevant portion of the statute reads: “an organization that qualifies as a religious organization is entitled to an exemption from taxation of: (1) the real property that is owned by the religious organization, is used primarily as a place of regular religious worship, and is reasonably necessary for engaging in religious worship; (2) the tangible personal property that is owned by the religious organization and is reasonably necessary for engaging in worship at the place of worship specified in (1) above.” See the statute HERE.
Please let us know if we can be helpful to your organization on this important topic. Our team at Michael Best is well-versed with these types of matters and can help guide your organization through the relevant issues and process.