Nonprofit Newswire | Tax Exemption—Use It or Lose It

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August 23, 2010; Source: Leagle.com | This writer is not a lawyer and doesn’t play one on TV, but reading court decisions is sometimes very useful both for their text and subtext. In this case brought by the Asbury United Methodist Church against the city of LaCrosse, Wisc., there’s no question that the federal district judge who heard the case was exasperated with both sides.

The Church and the city were fighting over a tax bill of $4,039.95—the lawsuit undoubtedly cost both sides many times more than that to bring to court. As the judge noted in his opening line, “To no one’s credit, the parties have barely managed to make a federal case out of a dispute over $4,039.95 in property taxes.” It must be that both sides thought that the principle at stake was worth more than the tax bill.

The case was this: The church had been using a building as a tax-exempt parsonage, that is, a home for the pastor, until July 2007. At that time, a new pastor decided not to live in the parsonage. The church says it approached the city with the intent of using the home as the Asbury Hospitality House—temporary housing for family members of patients being treated at the Lutheran and St. Francis hospitals in LaCrosse who couldn’t afford the costs of hotel or motel rooms for extended visits.

Because the property was vacant in early 2008, the city slapped the church with a tax bill for parsonage, which the church paid under protest. While it seems like the hospitality house might qualify for a tax exemption, because the church did nothing with the home during 2008, the court ruled that the City was right to declare that the property was, for that time, not tax exempt.

Had the church been “readying” the property for use as a hospitality house, it might have gotten the exemption, but mere conversations with city officials about it didn’t qualify as readying. Nonprofits have to remember that tax exempt properties depend on the use of the property, not just the ownership. If they aren’t actively using property for tax exempt purposes, they might not want to make a federal case out of it.—Rick Cohen