Religious property tax exemption may be applied to portions of property based on actual use

Appeal of Liberty Assembly of God
Appeal of Liberty Assembly of God
No. 2011-368
Tuesday, May 22, 2012

This case confirms prior Court decisions holding that the property of a religious organization may be partially tax-exempt and partially taxable, depending upon its actual use. The religious organization in this case challenged the City’s grant of a tax exemption on only sixty percent of the property.

The organization’s initial argument was that RSA 72:23, III fully exempts houses of worship from taxation (an “all or nothing” approach). That section of the law exempts “…houses of public worship, parish houses, church parsonages occupied by their pastors, convents, monasteries, buildings and the lands appertaining to them owned, used and occupied directly for religious training or for other religious purposes by any regularly recognized and constituted denomination….” The organization argued that all of the structures listed in the statute are completely tax-exempt, except for the last phrase, “buildings and the lands appertaining to them owned, used and occupied directly for religious … purposes.” The Court gave this significant consideration, going so far as to examine the legislative history of the statute. Noting that the legislature has made the exemption language more restrictive over time, the Court determined that the legislative intent is to modify all of the listed structures by the requirement that they be owned, used and occupied directly for religious purposes. In other words, it was proper for the City to examine the actual use of each structure to determine whether it met this test.

Having made this determination, the Court concluded logically that, if parts of the property are used and occupied directly for religious purposes and other parts are not, the City could deem the first parts exempt and the second parts taxable. The organization objected, claiming that the City’s examination of the religious use of the property was tantamount to judging the validity of the organization’s religion and thus violated the Establishment Clause of the First Amendment to the U.S. Constitution and the Equal Protection Clause of the Fourteenth Amendment. However, the Court did not agree because the City was not passing judgment on whether the religion was legitimate. Instead, it was proper for the City to look to the organization’s charter and organizational statements to determine what its religious purposes were, and then examine the actions taken pursuant to those purposes on the various parts of the property. Actual use is required; merely designating a space for a religious purpose is not enough. “A tax exemption is not warranted when the asserted [use] is no more than slight, negligible or insignificant, indefinite and prospective, or theoretical.” Thus, some portions of the organizations’ property which were set aside for certain purposes but almost never actually used were not covered by the exemption.

The lesson from this case is that a municipality validly may consider the specific, actual use of property owned by religious institutions. To the extent the actual use furthers the institution’s stated religious purposes in more than a negligible or insignificant way, that portion of the property may be exempt. The facts in this case may also provide useful guidance in evaluating and apportioning specific uses and categories of structures.