Government Regulations and

Church Property Part I

....The Church is the People of God. We know and celebrate that.
But the “Church,” the People of God, also needs a home. And the care and tending of the Church’s buildings are second only to the your care and tending of the People themselves – but its importance cannot be minimized. Any congregation’s property is almost always its largest fiscal asset and should be cared for to preserve its use for ongoing ministry. It is equally important that your buildings protect the health and safety of all who use them.
....In this article, I will deal with issues of government regulation – tax exemption, zoning, landmarking – as they apply to religious property. Other important issues, left for another time, include building maintenance, energy efficiency, liability and insurance, etc.

Property Tax Exemption

....New York State’s Constitution mandates tax exemption for real property which is used for religious, educational and charitable purposes and which is owned by nonprofit organizations with one or more of those same purposes. All other states have similar, though not identical laws; our discussion will be specific to New York regulations. Administratively, the process for obtaining and maintaining a tax exemption is a function of the local tax collector; in New York City it is the NYC Tax Commission and the Department of Finance.
....To qualify for an exemption, three tests must be met: 1) The property must be owned by a nonprofit organization which is formed for one or more qualified purposes (religious, educational, charitable, etc.); 2) the property must be used by a qualified organization (whether that is the owner or a tenant); and 3) the property must be used for one or more qualified purposes. If it fails any one of these tests, it is not qualified for a property tax exemption.

Renting to Others

....If the building is occupied in whole or in part by an entity other than the property owner, the same tests apply as well to the tenant’s organizational purposes and the tenant’s use of the property. In addition, the owner may not receive an amount as rent which exceeds the actual cost of maintaining and operating the building. In other words, the nonprofit owner cannot make a “profit” on the rental of tax exempt property. If there is a non-exempt use in only part of the building, the law provides for a partial exemption which is allocated on the basis of the space usage within the structure, between exempt and non-exempt uses. Also, understand that any payment for use of space under a lease arrangement is “rent” regardless of any attempt to call it a “contribution” or “donation.”
....If you are considering a non-exempt (taxable) rental, you should know that a quirk in the law creates a 6 to 18 month tax liability for you should apply in the future to reclaim full exemption. Your rental calculations in such cases should include consideration, not only of the ongoing tax amount that you will be responsible to pay, but to cover the additional period after the non-exempt tenant leaves.
....A tenant must meet the qualified purposes test and not be merely a nonprofit organization. In particular, a government agency (with limited exceptions, such as the Department of Education) is tax exempt under different sections of the law and, therefore, government agency occupancy of church property will trigger property tax liability.

Water/Sewer Tax Exemption

....Religious property generally is entitled to an exemption from Water Charges and Sewer Taxes. A separate application must be made for this exception to the NYC Water Board (an EPA agency). To qualify, the property must be fully exempt from property taxes. If the property has only a partial tax exemption, or if there is any residential use of the property (such as a parsonage/rectory, or a custodian apartment in the church building), there will be no water/sewer exemption available unless there are separate water meters to isolate the non-exempt use.

Building Inspection Fees

....There are a number of fees which the City of New York routinely issues when its makes an inspection of buildings. These may come from the Departments of Buildings, Environmental Protection, Fire, Health, etc. In general, a full property tax exemption also supports exemption for these inspection fees. If you receive notice or a bill for such fees, make inquiry of the Department of Finance to determine if it was properly assessed.

Continue on Government Regulations and Church Property Part II