How Do You Solve a Problem Like Maria?

washington-mormon-temple(Assuming, of course, that Maria is a full-time ordinance worker at the Washington, D.C., temple.1)

Did you know that the Church owns an apartment building in Maryland? That it houses temple ordinance workers there? And that the apartment building is, legally, a convent?

Some Background

The Church bought the 44-unit apartment complex sometime in the 1970s, after the Washington, D.C., temple was built. The apartment building is about a mile from the temple, and the Church rents apartments to ordinance workers at below-market prices.2

In 1980, the Church convinced3 the Property Tax Assessment Appeals Board to grant it a property tax exemption on the apartment building. The Board believed that the the apartments were used to foster a religious purpose, and the rents were low enough to be considered a subsidy, not unlike the subsidy involved in convents and parsonages.

In 2008, in the course of a periodic review of exempt properties, the Supervisor of Assessments informed the Church that the apartment complex shouldn’t be exempt from the property tax. This time, on appeal to the Board, the Board agreed that the apartment complex didn’t qualify for an exemption. On appeal, the Circuit Court reversed, and the Supervisor appealed that court’s decision.

The Law

Like other states, Maryland imposes a property tax. But the property tax has a number of exemptions, including an exemption for certain property owned by religious groups. To qualify for this exemption, the property must be used exclusively for (a) public religious worship, (b) a parsonage or convent, or (c) educational purposes.4

The Case

The Church appealed the Board’s decision to the Court of Appeals of Maryland (which is the highest state court in Maryland). The court, in Green v. Church of Jesus Christ of Latter-day Saints, spends no time on the apartment complex’s use for public religious worship or educational purposes (and the Church doesn’t push those, either). Clearly, if the apartment complex is going to qualify for a property tax exemption, it must be because it is a parsonage or convent.

There’s a certain amount of pressure on these definitions. The property tax law requires exemptions to the property tax to be “strictly construed.”5 Strict construction means that the interpretation of the law “considers only the literal words of a writing.”6 So not only does the apartment building have to be a convent, but it has to literally be a convent.

Which is why the parties bring dueling dictionaries to bear on the question. The Supervisor cited five dictionary definitions, from various editions of Webster’s, to support its contention that the apartment complex was not a convent. Meanwhile, the Church cited some of the same definitions, plus an additional Webster’s definition and a 1910 Black’s Law Dictionary definition to support its contention that the apartment complex did qualify.

In the end, though it recognizes its obligation to strictly construe the statute, the court admits to taking a common-sense approach to religious property tax exemptions to arrive at fair decisions. As such, it rejects the idea that a convent houses unmarried individuals who have taken lifelong vows of poverty, chastity, and obedience to a superior. Such a definition, the court says, is in line only with certain religious traditions.

The court decides, instead, that a religiously-owned housing complex must have several basic qualities to be eligible for the property tax exemption as a convent. It must consist of a community of people who

  • live together;
  • follow strict religious vows; and
  • devote themselves full-time to religious work.

Under this definition (and solely for purposes of the property tax), the apartment complex qualified for the property tax exemption as a convent.

Some Final Thoughts

Ultimately, I think the court came to the correct conclusion.7 Where a legislature writes a tax law using language applicable to specific religions, an expansive reading is better (and, probably, more constitutionally permitted) than a narrow reading. In the federal income tax, there’s a special tax provision that applies to housing provided to “ministers of the gospel.” That provision has been read broadly to apply to, inter alia, certain rabbis and Muslim clerics, as well. So reading “convent” into Mormon real estate is not a huge stretch, even though we don’t use that language.

So why not just exempt all church-owned real property from the property tax? A couple reasons leap to mind.

First, it turns out that, on average, property tax accounts for about 35% of state and local revenue. That means that any property that falls off of the property tax rolls represents a real revenue loss for state and local governments.

Moreover, if you had such a blanket rule, you’d lose more property tax revenue than just the occasional church-owned recreation center (or whatever). Businesses would have a huge incentive to sell their real property to a church and then lease it back. That way, they wouldn’t pay property tax (and, presumably, could deduct their rent payment). Such tax structuring could potentially decimate a state’s property tax base.

Even assuming you don’t have such structuring, though, it’s not just government (and those—meaning all of us—who receive benefits from government) that would be hurt. Imagine, for example, that a church-owned Deseret Book went in down the street from the temple. If it didn’t have to pay property tax on the land on which it sat, its expenses would be lower. With lower expenses, it could easily undercut the prices at, for example, This Is the Place Bookstore.

Which is to say, there are good reasons to limit the scope of the property tax exemption for church-owned property.


Show 7 footnotes

  1. I’m indebted to Kevin Barney for his, frankly, transcendent suggestion of pulling the title for this post from The Sound of Music. Also, thanks Marc, Kent, and Kevin for bringing this case to my attention!
  2. This makes a lot of sense; from what I can find, Montgomery County, MD, has an above-average cost of living; subsidizing rent for senior missionaries makes being in Montgomery County less burdensome for them to serve in an expensive area. What’s more, until very recently, they would have had to bear the full cost of their mission, meaning the added expense could be a significant hardship.
  3. By “convinced,” I don’t mean any kind of arm-twisting; it looks like the Church appealed a negative determination successfully in the ordinary course of becoming a property-owner.
  4. Cite.
  5. Cite.
  6. Blacks Law Dictionary, 7th ed.
  7. Though I confess I’m not a state tax guy or a Marylander.

19 comments for “How Do You Solve a Problem Like Maria?

  1. The Washington D.C. stake also bought a real Catholic convent from genuine Dominican Nuns, maybe four miles south of the temple apartments. The nuns needed more room and moved out to Virginia, and sold their old place to the LDS Church. It was immediately demolished, and then after several years of legal hurdles, a new meetinghouse was constructed on the site and dedicated last fall.

  2. Across the street from the church-owned apartments for temple workers is another building where several units are leased for temple visitors’ center missionaries. With the reduction of operations in the D.C. temple, many of the temple apartments are vacant, but those are temple apartments, not missionary apartments, so the church continues leasing space across the street for missionaries instead of putting missionaries in temple apartments.

  3. Even without the sale-leaseback transactions that you refer to, the exemption from taxation of existing property owned by religious institutions would have severe effects on property tax collections. Trinity Parish of the Episcopal Church owns Trinity Church at the corner of Wall Street and Broadway, and other land in lower Manhattan. The total holdings are about 15 acres.

    That makes Trinity Parish one of the largest landowners in New York City, with millions of dollars in annual rents received, and millions of dollars in property taxes paid. It makes City Center, and any income from that development, look like chump change.

  4. So do missionary apartments and the MTC qualify for similar exemptions? Seems like they meet the same test.

  5. Missionary apartments are usually leased rather than owned, so a tax exemption wouldn’t be applicalbe. And I have no knowledge, but I assume the MTC enjoys a property tax exemption.

  6. Dave K,
    Like Kevin said, in very few cases of which I’m aware does the Church own missionary apartments. As such, they generally wouldn’t be exempt from the property tax.

    As to the MTC, two answers: first, it’s pretty irrelevant. The law at play here is specifically Maryland law. I don’t know Utah tax law at all, but I suspect it looks different than Maryland property tax law.

    I suspect, too, that the MTC has a property tax exemption, but I suspect that it is as a result of being an educational institution (as it’s technically part of BYU, I believe). Of course, that’s purely conjecture on my part.

  7. Thanks. That makes sense. I’ve got one more. Is there any chance that a family who houses missionaries in their home could claim a credit or deduction? That would certainly help encourage more member participation.

  8. It seems pretty clear that a narrow definition of convent is unconstitutional. I’m actually a bit surprised they spent money fighting for that narrow meaning.

    In marriage law too, “minister” includes Temple sealers and LDS bishops.

  9. Property Tax laws (and building permit fees) vary dramatically between jurisdictions. I know of certain places in California where the Church has been unable to construct a building because of prohibitive fees and taxes. Those members end up traveling further to attend services outside of city limits.

    There is currently a big proposal to overturn Prop 13 in California to raise more property taxes. The biggest projected loser would be School districts which would have to pay taxes to the state.

    Sam, your final comment about a corporate shell game to make a profit doesn’t make sense. In the case of this religious convent argument, the landlord is subsidizing rents to below market rates. He is renting space at a loss.

  10. Sam, I was hoping you would pick up on this one. Thanks for the post.

    John Mansfield, here in NYC the church also purchased a former convent — vacant because the order had dwindled to so few nuns that they had to sell. The sale was a bit controversial, some property developers tried to horn in on it.

    The Church renovated one of the convent buildings and it now houses the Union Square Ward. The rest of the buildings (older and in poorer shape) now house the local Church Employment Center. Since these buildings once housed runaways and “girls in trouble,” they could easily house many, many missionaries.

    However, I think something like this has happened in the apartment tower that adjoins/is part of the building that houses the Manhattan Temple. Missionary couples and even CES personnel have lived there — so perhaps the Church gets some tax benefit there (although NY state and city laws are, of course, different from Maryland). Regardless, I’m sure tax is a consideration in every Church real estate transaction, and if it is possible to get an exemption in a way that is completely legal, with few potential complications.

    Oh, and Mark B., didn’t Trinity Church at one time oversee a once small college called Kings College? It and its successors are also now rather large Manhattan landowners: Columbia University, Columbia Presbyterian Hospital, etc. I suspect none of them pay much in property taxes, since education and hospitals are common exemptions.

  11. Roland, I’m not sure what your question is; I’m not talking about any corporate shell game.

    You’re right that the Church is probably not making any money on the apartment building. (In fact, it said in court that the rents don’t cover the operating expenses.) But if there were no limitation—that is, if any real property owned by a church were exempt from property tax—then it would make sense for real property owners to sell their land to churches, which would lease the property back to them. And a church that owned a store would have lower fixed expenses (because the store wouldn’t pay property taxes) and, as a result, could sell the same product at a lower price than a non-church-owned store, which would have to pay property taxes before it could make a profit.

    And I don’t understand your assertion about school districts being losers—schools would actually do better in CA without Prop. 13. State government generally does not pay taxes to the state. Which is to say, I’m not aware of anywhere where public schools must pay property taxes. (It’s possible that there is such a place, but unlikely.) That said, schools are largely funded through property taxes. To the extent that they rise, there’s more money available for the schools. (FWIW, though, that’s a total tangent to the post.)

  12. Kent, when I was a NYC missionary 1978-1980, the mission offices, the mission president, 6 office missionaries, and the Visitors’ Center couples were all housed in 2 Lincoln Square. Do they have any apartments there now for the temple president or temple workers?

  13. Sam – I reassert my point on Prop 13 in California. It is the School Districts leading the opposition to property tax increases and it is making big news out here.

    Why? You are correct that they are funded by tax dollars, but they are also the largest property owners in many communities out here and the tax they would pay is much greater than the benefit that they get back from the state.

    Chalk it up to goofy lawmaking.

  14. Left Field – I was a NYC missionary briefly in 1981 (before getting my Visa and heading to Brazil). It was my understanding that the church owned the giant skyscraper at Lincoln 2 that housed the Visitor Center (1st Floor), Mission Office (2nd Floor), Stake Center (3rd & 4th Floor), missionaries apartments (17th floor). The reason being that was the only way to get a real estate footprint in the major urban area. (Today it is the location of the NYC Temple?)

    It my understanding it is the only way to get a church into a high density area such as Hong Kong, etc.

  15. Roland, schools may be significant landholders in some California communities, but, as I said above, I strongly, strongly doubt that they pay property taxes. According to the state property tax and the state constitution, land owned by local governments (which seems to include land owned by public schools) is exempt from the property tax. I confess to not being a CA attorney, so I could be wrong, but I seriously doubt it.

    Also, I can’t find any news about school districts leading opposition to the repeal of Prop. 13.

  16. Local property taxes are a relic of the past when most wealthy people held their wealth in land. Now days this is not the case. A much fairer (but not perfect) plan would be for the locality to levy an income tax as a percentage of state or federal income. That way each locality could let go the army of property assesors that each employs. Also, the property tax route is unfair in those cases where neighbors with varying incomes, but who live in houses of similar values pay the same amount. That seems unfair.

  17. Roland, considering that Prop 13 is often considered to have set off the long decline of California’s educational systems, it would be very odd if schools were opposing its repeal. I can’t find evidence that California public schools even pay property tax, or examples of an educational organization opposing repeal of Prop 13, which seems to be in early stages of discussion rather than a concrete plan in any case. Could you point to something that would help explain these things that don’t seem to make sense right now?

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