Religious groups have wide latitude for property tax breaks
At 5,400 square feet with meticulously manicured grounds, a three-car garage and four soaring white pillars gracing its porch, the house on D’Angelo Drive is remarkable even by the standards of its affluent Penfield neighborhood.
But it also stands out because it is exempt from property taxes as the parsonage for a church nearly 12 miles away in an impoverished section of northeast Rochester.
Owned by New Born Fellowship Church, the parsonage is valued at $595,000 and is the residence of the church’s husband-and-wife founders and pastors, the Rev. Warren and Perdita Meeks, who bought it in 2006 for $542,550 and deeded it to the church for $1 nine months later.
“That’s a business move that I’ve seen a lot of pastors do to save money,” Warren Meeks said in an interview. “It’s an option available to clergy.”
Last year, the town of Penfield granted a full exemption to the property on religious grounds after the town was sued for denying the church’s plea for a tax break.
The property transfer saved the Meekses, who records show still hold the mortgage on the house, $19,670 in taxes annually, and the legal settlement between the church and town made the parsonage by far the most expensive in the county.
By contrast, the church building, at North Clinton Avenue and Norton Street, is assessed by the city of Rochester at $230,000, although many improvements have been made to the 32,000-square-foot building since it was bought in 2005.
In Monroe County, the value of properties exempted from taxes for religious purposes totaled nearly $756 million in 2008, the last year for which complete data is available.
While most are traditional houses of worship, the tax-free properties included vacant land held for years by churches miles away and houses considered parsonages for churches that hold no other property, a Democrat and Chronicle examination of tax rolls found.
The reason is a state real property tax law that provides wide latitude for religious groups to claim tax breaks and does not define “religious purposes.”
The nonprofit test
At Joshua’s Paintball Jungle in Grace&Truth SportsPark in Greece, you can pay $20 to rent a Piranha model semiautomatic paintball gun, facemask and 100 paintballs and fire away at opponents over eight acres of woodlands. Private youth and adult soccer clubs can rent athletic fields in the park. Yet the 56-acre expanse of paintball arenas, soccer fields and baseball diamonds, valued at $190,000, is tax exempt because it is owned by, and considered a ministry of, First Bible Baptist Church. In addition to renting out the park to private interests, the church runs its own athletic leagues for adults and children.
Even if the church turns a profit, explained Greece Assessor Leo Carroll, the land remains tax-free as long as the revenue it generates is invested in furthering the church and its ministries.
“What the nonprofit test of the Real Property Tax Law says is they may accrue revenues in excess of expenditures in the course of carrying out exempt activities,” Carroll said.
How much revenue church ministries generate is difficult to discern because, unlike most secular nonprofits, religious groups are not required to file public financial statements with the Internal Revenue Service.
But the Rev. George Grace, the longtime pastor of First Bible, summarized its latest annual financial report for the Democrat and Chronicle. He said the church lost almost $43,000 on the park last year, spending about $216,200, including capital improvements, and generating nearly $173,200 in income.
“Everything we get and more ends up going back into the park,” Grace said. “Its number one purpose is church ministry. Every time the kids come (through the church programs) they are taught some kind of Bible lesson or Bible truth intermingled with their athletics.”
‘In good faith’
Under the law, churches receive full exemptions on property used for religious purposes. But they can also get a tax break on vacant real estate if they “in good faith contemplated” using the property for religious purposes.
For example, a vacant 70-acre parcel at Winton and Westfall roads in Brighton valued at $2.9 million and owned by Faith Temple Church has been exempt for the last few years because the church has standing plans to build a church, school and housing on the land.
How long a religious organization can contemplate the future of vacant land before its tax-free status is questioned or revoked is open to interpretation.
“The statute doesn’t establish a time frame,” said Joseph Hesch, spokesman for the state Office of Real Property Services, which supports fairness in local taxes but has no regulatory authority. “It’s kind of horses for courses. It’s entirely within the local assessors’ discretion as to whether a property is exempt and for how long.”
St. Vincent DePaul Roman Catholic Church in Churchville has owned 43 acres of untouched woodland in Riga tax-free since 1986.
Riga Assessor Joan Brundage last year valued the “abandoned agricultural” land on Bridgeman Road at $68,500 and deemed it tax exempt on religious grounds. Yet she acknowledged having no record of why the property deserved the tax break of about $2,250 a year.
“It’s been exempt forever,” said Brundage, who has been the assessor since 1989. “When we do updates we do review these properties, but it was exempt before I got here.”
Charlotte Bruney, a pastoral administrator at St. Vincent DePaul, said the site was willed to the church and that it is a Native American burial ground. She said determining whether the site could be developed would require an archaeological inspection at a cost of $2,000 an acre.
“We have not been able to do anything with that property,” Bruney said. “It’s considered holy ground.”
George McIntosh, director of collections at the Rochester Museum & Science Center, verified that human remains had been found on the parcel in 1938 and 1961, but he said that they were excavated and that it was unclear whether the land was still a burial ground.
Philip Perazio, an archaeologist at the state Office of Parks, Recreation and Historic Preservation, said burial grounds can be developed by private owners with no consideration to their historical value, and that such sites are subject to property taxes.
“There is no automatic exemption for archaeological sites of any type,” Perazio said.
While the law does not provide a deadline for churches to use idle property or lose an exemption, Ogden Assessor Robert Criddle interprets the time frame to be “the reasonable foreseeable future.”
That standard is being applied to 22 acres of tax-exempt vacant land on Lyell Road owned by the Church of the Risen Savior, a nondenominational church in Chili. The church avoids paying the $3,630 in taxes on the land, valued at $91,500, because it plans to build a church there.
“In a couple of years, if they haven’t done anything, I would have to take a serious look at the exemption,” Criddle said.
According to its application for an exemption filed in February 2008, the church “will be building a church on the land within the next year.”
Risen Savior Co-Pastor Judith Garcia said the church was raising money from its roughly 35 congregants and struggling to secure financing for construction.
“It has to sit vacant right now because you can’t get a loan to build a church,” Garcia said. “If you had to pay tax on the land it would probably hurt the small churches.”
2 percent of tax base
Religious exemptions equaled just 2 percent of Monroe County’s total property tax base last year and represented about $6.8 million in potential county tax revenue.
Tax rolls show there were 105 tax-exempt parsonages valued at about $15 million in Monroe in 2008. Nearly all of them were owned by area churches or religious orders.
But there were exceptions.
A two-story house on Fulton Avenue in Rochester was granted a parsonage exemption last year after it was acquired by Gaudiya Mission, a Hindu religious organization based in Kolkata, India, and became the home of two of its priests.
“Absent a place of worship or organized congregation, could this be considered a parsonage?” read an e-mail from Rochester Deputy Assessor Thomas Fess to a department lawyer kept in the property’s assessment file.
“This is a difficult call,” read an unsigned note in the file. “We could go with no exemption, part, conditional part or conditional full.”
A full exemption was ultimately granted on the house, valued at $44,000, on the conditions that the group obtain a certificate of occupancy and register as a charity in the United States. Both conditions have been met.
Diliv Basak, one of the priests, said in a brief interview that the house is his residence and used for worship by followers.
Elsewhere in Rochester, on Seward Street, a $43,000 house owned by Rock of Ages Spiritual Church is considered a parsonage even though it has not been used as a clergy residence for years.
Florence Cuthrell, the church’s co-pastor, said no one has lived in the house since the church’s founder, Ophelia Holmes Bernard, died in 2002. But when the church applied to renew its exemption in 2004, it stated that the building was used solely as the clergy residence, assessment records show. In subsequent applications, the church reported no changes.
Cuthrell said the house is primarily a gathering place for members, who sometimes hold Bible studies there on Saturdays.
“It’s kind of like our headquarters,” Cuthrell said. “If one of our members were homeless, or something, we could let them stay there until they find a home.”
Culling the exemptions
Although religious exemptions must be renewed annually, assessors do not inspect every exempt property each year. To renew most exemptions, assessors rely on information provided by the property owner on state Board of Real Property Services forms.
The forms ask whether there have been any changes in the function of the organization. Most property owners report no change and their exempt status continues.
The cursory nature of the forms and the potential for fraud prompted the city of Rochester last fall to begin scrutinizing the 1,095 tax-exempt properties owned by nonprofits, including churches.
Appraisers have examined 306 of the properties to date and revoked 14 exemptions worth nearly $3 million in assessed value. Only $1.3 million of that is taxable today because the Board of Assessment Review reinstated some exemptions or property owners sold to other nonprofits.
“They say ‘No change,’ but seeing is believing for us,” said Rochester Assessor Thomas Huonker, noting that the vast majority of exemptions were legitimate.
The revocations included a $249,000 building owned by the defunct Offspring Spiritual Church, a parking lot and house owned by The Church of Jesus Christ of Latter-day Saints, a vacant lot owned by Glad Tidings Church, and a $154,600 residential building that housed the Teoronto Lodge of the International Order of Odd Fellows, a fraternal order.
Ann Kemper, associate pastor of Covenant United Methodist Church, said the church maintained its tax-exempt status on a $39,000 house on Culver Road for years after it closed a day care center there by using it for periodic church meetings and temporary housing for a homeless woman and her daughter. The exemption was pulled when the church listed the house for sale.
“Once we made the decision to put it on the market, we stopped trying to find short-term uses for it,” Kemper said.
Dispute resolved
New Born Fellowship Church applied for a full property-tax exemption on its D’Angelo Drive parsonage two weeks after the Meekses deeded the house to the church in February 2007.
Penfield Assessor Ann Buck denied the exemption that May, saying the church “failed to satisfy the requirement(s)” and that the “property does not qualify” for a tax break under the law, according to court documents contesting the denial.
In a recent e-mail exchange, Buck called the 12-mile distance between the church and house “unusual” for a parsonage but said she rejected the application because “not enough information was given.”
The Penfield Board of Assessment Review, which took up the denial, asked the church for a list of church-related events that were scheduled to be held at the house between February and December 2007. The church complied, but the review board upheld the assessor’s decision, stating, “your request for an exemption was denied because you do not qualify for that exemption.”
Warren Meeks, the senior pastor and founder of New Born Fellowship Church, disputed the town’s account of the church’s exemption application.
“We gave them everything they needed,” Meeks said. “They didn’t believe we were a real church.”
J. Phillip Martin, deputy chief executive of the Texas-based National Association of Church Business Administration, a Christian organization that promotes sound governance of churches, said such property transfers between pastor and church are uncommon and raise ethical concerns.
“This certainly raises the question, ‘What is the motive?’” Martin said. “If the intent is to shelter the pastor from property tax on personal property, then it raises a significant ethical question. The law is not intended for that purpose.”
DANDREAT@DemocratandChronicle.com
FINDINGS
What’s at stake
Tax revenue in Monroe County and the potential gray area between the separation of church and state.
