Court considers church property tax-exempt status

By Paul Pfeifer

Should land that is owned by a church and is open to public recreation be tax exempt? That’s the question that we had to answer in a case that came before us here – at the Ohio Supreme Court.

The case involved a church in Akron called The Chapel. Founded in 1934, The Chapel established itself as a nonprofit corporation in 1953, and it holds certification as a tax-exempt entity. After years of expanding its congregation and activities, The Chapel opened a second church. It acquired almost 80 acres in the city of Green, just south of Akron, for that purpose.

In 2001, The Chapel built a large church building with classrooms on part of the land. The property also has areas devoted to recreation, including two softball diamonds, a soccer field, and a jogging path around the property’s circumference.

The Chapel views itself as conducting a sports ministry in connection with the recreational portions of the property and holds 14 events, including church-sponsored soccer teams and flag football games. Most of the people involved in those events are community members who aren’t congregants.

The city of Green also has sports leagues that use the property, plus FedEx and Chick-Fil-A conduct company events on the fields. During the summer, the church stages a day camp for children age six through eighth grade with several hundred participants. And the general public can us the jogging path without restriction.

All of it adds up to this: about 3000 people participated in activities on the recreational property in 2008, most of whom were not congregants of The Chapel.

Even though The Chapel paid the costs to develop and maintain the property, it doesn’t charge the public to use the facilties. The softball league does have a $25 registration fee for uniforms and umpire fees, but the property doesn’t generate income for the church.

Nevertheless, when The Chapel filed an application for tax-exempt status for the church and property, it ran into difficulty. The tax commissioner granted the portion of the application relating to the “house of public worship” – which included about 57 acres – but denied exemption to the remainder of the property.

The Chapel appealed that decision to the Board of Tax Appeals (“BTA”). The BTA affirmed that commissioner’s denial of exemption for the land based on its finding that the use of the land was ancillary to the public worship performed on the other part of the land.

The Chapel contended that the recreational land should be exempted because holding the land open to the public constitutes a charitable use of real property. Indeed, the mayor of Green testified that the city itself benefited because the church developed that property and made it available for public use, thereby providing public recreation facilities that the city would otherwise have to pay for itself.

After the BTA affirmed the commissioner’s decision, the case came before us for a final review.

There are two types of exemption at issue here. One is the house-of-public-worship exemption. The other is the charitable-use exemption. The tax code says that “real and tangible personal property belonging to institutions that is used exclusively for charitable purposes shall be exempt from taxation.”

In a case from 1994, our court ruled that to qualify for exemption under that provision the property must belong to an institution and be used exclusively for charitable purposes.

It’s undisputed that The Chapel qualifies as an “institution” as defined by the tax code. And we have held in other cases that making property accessible to institution members and to the general public for recreational purposes without charge is a charitable use of property. These two factors together compel the conclusion that the property should be exempt under the charitable-use exemption. The commissioner, however, reached a different conclusion.

Against this straightforward reasoning, the commissioner denied the exemption on the grounds that “merely holding the property open to the public and allowing various third parties to use it” is not a charitable use and “does not qualify the property for exemption.”

But when his decision on this case was appealed to the BTA, the commissioner took a different tack. He argued that The Chapel “should be precluded from seeking exemption” under the charitable-use exemption for property that wouldn’t otherwise qualify under the house-of-public-worship exemption.

That’s when the BTA concluded that the commissioner had properly denied the exemption because the “recreational fields and jogging path are ancillary to” the public worship being performed on other parcels of the property.

The commissioner defended the BTA’s decision by arguing that church ownership and the church’s motivation to use its property in accordance with its faith-based sense of mission are consequential elements of the exemption claim. But prior decisions by our court have established that they are not.

Granted, in past cases we have stated that “uses which are merely supportive of public worship may not be exempted.” But that statement occurred only in the context of a claim of exemption under the house-of-public-worship law, which exempts “houses used exclusively for public worship…and the ground attached to them that is not leased or otherwise used with a view to profit and that is necessary for their property occupancy, use, and enjoyment.”

That term – “merely supportive of public worship” – characterizes land use that is not sufficiently linked by necessity to public worship and therefore does not qualify the land for the house-of-public-worship exemption. But we have never employed that phrase to deny a charitable-use exemption where, as in this case, the use is of a kind that has already been held to constitute an exempt use under the charitable-use exemption.

Quite simply, the fact that a church is the institution that owns the property and that puts it to an established charitable use is usually irrelevant to a claim for a charitable-use exemption.

Therefore, by a vote of seven-to-zero, we reversed the decision of the BTA. The property in question should be tax exempt.