Property tax exemptions for churches

Property tax exemptions for churches

Questions concerning property tax exemptions have increased in recent weeks. In several instances, they have arisen in the wake of denials by the Board of Equalization over language in a church’s Articles of Incorporation that mirrors the language of the Internal Revenue Code but does not exactly match the language in California’s Revenue & Taxation Code.

Max Herr, CSBC ministry specialist for Human Resources and Church Compliance is actively working to get a determination on this particular matter from the legal counsel for the Board of Equalization.

There are three exemptions from property tax that apply to churches: church, religious and welfare. Depending on the uses of your church property, one, two or all three exemptions may be needed to reduce the amount of property tax paid by the church to the county. The exemptions apply not only to the real property of the church, but also to the business “personal” property — all the “stuff” other than land and buildings owned by the church. In this limited space, I’ll touch on all three ... but the welfare exemption is perhaps the most important.

A church exemption applies to the worship center and structures contiguous to that building — in other words, everything under the one roof that covers the worship auditorium. This could include offices and classrooms.

Alternatively, a religious exemption could be applied to the same or separate buildings and the parking lot and grounds that make up the church’s property. Both apply to property uses that further the “exempt purposes” of the church.

Those exemptions are administered by the county assessor and must be recertified annually, generally before the middle of February. When granted, the church will pay only the “special taxes” imposed on property owners by entities other than the county itself. This saves churches thousands to tens of thousands of dollars annually ... money that should be devoted to Kingdom causes.

Church-owned residential property, such as a parsonage, does not qualify for either exemption, but may qualify for a welfare exemption. The church must apply to the Board of Equalization for an Organizational Clearance Certificate, which requires a fair amount of documentation along with the application.

The same holds true for property the church uses for exempt purposes but rents or leases to others that are not churches or tax-exempt religious organizations. However, if any of these other “tenants” are for-profit organizations, the church will lose some or all of its church, religious or welfare exemptions.

Land rented to operators of cell phone towers loses all exemption from property taxes without affecting the whole property; the impact is a few hundred dollars of increased tax.

The real problem comes when the church rents space to for-profit schools or daycare businesses. Depending on the amount of space and time of use, this can result in a significant or total loss of tax exemptions — costing the church more than the rent received. Max will cover this aspect the December issue of the CSBC newsjournal, the California Southern Baptist.

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