NJ Supreme Court Rules Church Can Claim Property Tax Exemption

In Christian Mission John 3:16 v. Passaic City, (A-33-19/083487) (Decided July 15, 2020), the Supreme Court of New Jersey held that a Passaic church was entitled to a property tax exemption, even though it had not yet received a certificate of occupancy. “The issuance of a certificate of occupancy, temporary or final, does not establish a bright line that must be crossed before a tax exemption is granted,” Justice Lee A. Solomon wrote.

NJ Supreme Court Rules Church Can Claim Property Tax Exemption

Facts of Christian Mission John 3:16 v. Passaic City

In 2009, Christian Mission purchased a warehouse (the property) on a lot adjacent to its church building and sanctuary in the City of Passaic (the City). Christian Mission used the warehouse for storage of religious items and church-related activities from 2009 to 2011. In 2012, Christian Mission began converting the warehouse to a sanctuary and applied for a religious tax exemption for that property for tax year 2013. That application was denied because the City found that, as of October 1, 2012, the valuation date for the 2013 tax year, the property was not “actually used” for an exempt purpose as required by N.J.S.A. 54:4-3.6 and was without a certificate of occupancy or the exemption because morning prayer services were held for church members working at the construction site and because church items were stored there.

N.J.S.A. 54:4-3.6 exempts from taxation “all buildings actually used for” specific enumerated purposes, including “the work of associations and corporations organized exclusively for religious purposes,” subject to certain restrictions. A religious tax exemption under N.J.S.A. 54:4-3.6 is granted for a building if: (1) the property owner is organized exclusively for the exempt religious purpose; (2) the building on the property is actually used for that exempt purpose; and (3) the owner’s operation and use of the property are not conducted for profit.

The Tax Court upheld the City’s denial of the 2013 exemption. It concluded that any use of the property for prayer services was merely incidental and unsafe because the property was a construction site without a certificate of occupancy and not open to the public. The court therefore granted summary judgment against Christian Mission.

The Appellate Division affirmed, agreeing with the Tax Court that Christian Mission did not meet its burden of proving actual use based on the uncontested facts. “[T]here was no evidence the warehouse was available for public use or was being used for the public benefit as of October 1, 2012,” the court wrote. “This is particularly the case because there was no certificate of occupancy, which implied that the building was not actually in use for religious activities at the relevant time.”

NJ Supreme Court’s Decision in Christian Mission John 3:16 v. Passaic City

The New Jersey Supreme Court reversed. “We hold it was error to grant summary judgment because, construing all inferences in Christian Mission’s favor, there is evidence that the property might have been used in a manner that could satisfy the actual use requirement — storage of religious items and/or other church-related activities at the property before construction began, during construction, and as of the valuation date in 2012,” Justice Solomon wrote on behalf of the unanimous court. 

As explained in the court’s opinion, the case hinges on whether the property was “actually used” for the exempt purpose at the pertinent times. In analyzing whether Christian Mission satisfied the requirement, Justice Solomon addressed the “continued exempt character” exception to the actual use requirement. It provides that interruptions in an exempt actual use — when the exempt actual use precedes and follows the period of disuse — do not result in a loss of tax exemption status.

With regard to Christian Mission’s contention that the building was “actually used” for storage, the New Jersey Supreme Court noted that storage of documents and artifacts of a religious nature or related to the operation of the church has been deemed a religious purpose consistent with the exemption granted by N.J.S.A. 54:4-3.6. The court went on to conclude that viewed in a light most favorable to Christian Mission, the Reverend’s certification evidences storage of religious items at all times during the construction in 2012 and thereafter. It also evidences storage of religious items and other ostensibly exempt uses of the property during the period before construction, from 2009 to 2011, which may support its “continued exempt character.”

“We acknowledge that this application of ‘continued exempt character’ exceeds prior use of the doctrine, since the property had never before been granted a religious use tax exemption. Indeed, as noted above, Christian Mission applied at some earlier point for an exemption, but the City denied that application,” Justice Solomon wrote. “Christian Mission did not seek judicial review of that denial, but neither the denial nor the decision not to challenge it precludes consideration of the prior usage of the property in this case. The prior usage of the property in this case is relevant to whether a religious tax exemption should be granted here.”

Based on the foregoing, the court remanded the matter to the Tax Court to develop the record. “On remand the court should consider whether actual use of the property for an exempt religious purpose as of the valuation date in October 2012 satisfied the actual use requirement of N.J.S.A. 54:4-3.6, entitling Christian Mission to a religious tax exemption,” Justice Solomon explained. “In doing so, the court should consider the uses from 2009 to 2011, before construction, and whether they were reasonably necessary to an exempt purpose.”

The New Jersey Supreme Court agreed with the Tax Court and Appellate Division that morning prayer services for parishioner-construction workers as described in the Reverend’s affidavit were insufficient on their own, as a matter of law, to constitute “actual use.” It further found that the Appellate Division neither engaged in a “quantum of use” analysis nor placed undue emphasis upon the absence of a certificate of occupancy.

“We note that the issuance of a certificate of occupancy, temporary or final, does not establish a bright line that must be crossed before a tax exemption may be granted,” Justice Solomon explained. “The lack of a certificate of occupancy is germane, however, to the issue of whether a property’s condition renders it unsafe — a factor to be considered in determining actual use for tax-exemption purposes.”

The court also clarified that the public good served in exchange for a tax exemption does not demand that the facility or services rendered by the exempt institution be available to the general public. Rather, the public good underlying a religious tax exemption may be satisfied even where services are offered only to a limited group, such as the members of a congregation.

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