Minnesota Property Tax Exemptions – Partial Exemption by Churches.

Minnesota Property Tax Exemptions

Minnesota Property Tax Exemptions;

Partial Exemption by Churches

The general rule for real property tax exempt status in Minnesota is that in order for church owned real property to qualify for Minnesota property tax exemptions under Minn.Stat. 272.02 and Art. X, Section 1 of the Minnesota Constitution, the property must:

(1)     be owned by the exempt institution, and

(2)     be used for exempt purposes.

Christian Bus. Men’s Comm. of Mpls., Inc. v. State, 228 Minn. 549, 554, 38 N.W.2d 803 (Minn.1949);

State v. Board of Foreign Missions of Augustana Synod, 221 Minn. 536, 541, 22 N.W.2d 642, 645 (1946);

See also Victory Lutheran Church v. County of Hennepin, 373 N.W.2d 279, 280 (Minn.1985);

Ideal Life Church, 304 N.W.2d at 313.

However, if only part of the real property owned by a church is used for qualifying purposes, a part of the value of the real property can still qualify for property tax exempt status:

 If property is used

  • in part for exempt purposes and
  • in part for non-exempt purposes,

 it can be apportioned and taxed pro rata according to its uses.

See Christian Bus. Men’s, 228 Minn. at 559.

Minnesota Property Tax Exemptions

The Minnesota Supreme Court has repeatedly held with respect to Minnesota property tax exemptions that:

All property is presumed taxable, and the taxpayer has the burden of proving entitlement to a specific exemption.

Living Word Bible Camp v. County of Itasca, 829 N.W.2d 404 [2], [3] (Minn. 2013), citing Under the Rainbow Child Care Center, Inc. v. City of Goodhue, 741 N.W.2d 880, 884 (Minn. 2007), and Camping and Educational Foundation v. State, 282 Minn. 245, 250, 164 N.W.2d 369, 372 (1969).

Allocation of Real Property Valuation

In 2003, the Minnesota Tax Court issued a decision relating to the allocation of real property valuation between:

  • exempt property, and
  • non-exempt property,

 See Country Bible Church v. County of Grant, 2003 WL 21359537 (Minn.Tax).

The case is less important for its decision – which was in favor of the church – than in its analysis of existing Minnesota case law, addressing not only:

  • eligibility for complete tax-exempt status generally,
  • but also eligibility for partial tax-exempt status:
  • when part of the property is used for exempt purposes,
  • while other parts are used for nonexempt purposes.

The Tax Court decision recited the following judicial authority with respect to Minnesota property tax exemptions:

All property is presumed taxable and exemptions are to be strictly construed.

Mayo Found. v. Commissioner of Revenue, 306 Minn. 25, 236 N.W.2d 767 (1975);

Camping & Educ. Found. v. State, 282 Minn. 245, 164 N.W.2d 369 (1969);

Ideal Life Church of Lake Elmo v. County of Washington, 304 N.W.2d 308, 313 (1981).

The burden to prove entitlement to the exception rests with the party seeking the exemption, . . . .

Camping & Educ. Found., 282 Minn. at 250, 164 N.W.2d at 372;

Ideal Life Church, 304 N.W.2d at 313.

Article X, Section 1 of the Minnesota Constitution provides that

“all churches, church property, houses of worship, institutions of purely public charity, and public property used exclusively for any public purpose, shall be exempt from taxation.”

This exemption is echoed in Minn.Stat. 272.02, subd. 6, which provides that

“[a]ll churches, church property, and houses of worship are exempt.”

Church Property – Minnesota Property Tax Exemptions – Partial 

In order for property to qualify for Minnesota property tax exemptions under Minn.Stat. 272.02 and Art. X, Section 1 of the Minnesota Constitution, the property must:

(1)     be owned by the exempt institution, and

(2)     be used for exempt purposes.

Christian Bus. Men’s Comm. of Mpls., Inc. v. State, 228 Minn. 549, 554, 38 N.W.2d 803 (Minn.1949);

 State v. Board of Foreign Missions of Augustana Synod, 221 Minn. 536, 541, 22 N.W.2d 642, 645 (1946);

 See also Victory Lutheran Church v. County of Hennepin, 373 N.W.2d 279, 280 (Minn.1985);

 Ideal Life Church, 304 N.W.2d at 313.

If property is used

  • in part for exempt purposes, and
  • in part for non-exempt purposes,

it can be apportioned and taxed pro rata according to its uses.

          See Christian Bus. Men’s, 228 Minn. at 559.

The Tax Court then proceeded to apply the relevant authority to the facts of the case:

(1)     Ownership of the property by the exempt institution

We must first determine whether the entire property is being used by the exempt institution for its own purposes.

“[T]here must be a concurrence of

  • ownership of the property by an institution of the type prescribed by the constitution and
  • a use of the property for the purpose for which such institution was organized.”

Christian Bus. Men’s, 228 Minn. at 554.

CBC owns and operates the Destiny Center.

CBC is a church.

Therefore, the property is owned by a church.

(2)     Use of property by the exempt institution

If property is

  • owned by a church,
  • but not used for church purposes,

the exemption must be denied.

State v. Union Congregational Church, 173 Minn. 40, 216 N.W. 326 (1927).

The use of the property means

“a direct, immediate, and actual application of the property itself to the purposes for which the charitable institution is organized.

It is the direct and immediate use of the property, and not the use of the income therefrom, that is determinative of whether the property is used for tax-exempt purposes.”

                        Christian Bus. Men’s, 228 Minn. at 555.

Thus, if portions of the property are leased to third parties, those portions are not entitled to tax exemption.

Christian Bus. Men’s, 228 Minn. at 555, at 555-57.

 The Minnesota Supreme Court has stated that the test for exemption is “whether the property is

  • devoted to and
  • reasonably necessary for

 accomplishment of church purposes.”

Victory Lutheran, 373 N.W.2d at 280.

CBC argues that the Destiny Center is used by adult and youth for meetings, services, prayer, weight training, tanning, reading and purchasing books.

These uses and the use of each portion of the building, CBC argues, help CBC in spreading its religious message.

Respondent argues that CBC has failed to show that these uses of the Destiny Center are sufficient to qualify for the exemption.

Apportionment

The remaining question is whether the tanning room

  • is sufficiently substantial
  • to justify apportionment and pro rata taxation of the non-exempt portion of the property.

Under the principle established by the Minnesota Supreme Court in Christian Business Men’s Committee, property is subject to apportionment and pro rata taxation when

  • one substantial part of the building or property is used for exempt purposes and
  • another substantial part is used for non-exempt purposes.

Christian Bus. Men’s, 228 Minn. at 559, 38 N.W.2d. at 811.

The test for apportionment of the property is whether both the taxable and exempt portions

  • are “substantial” and
  • can be accurately determined.

Christian Bus. Men’s, 228 Minn. at 559-60, 38 N.W.2d at 811;

 Abbott-Northwestern Hosp., Inc. v. County of Hennepin, File No. TC-3294, at 7-8 (Minn. Tax Ct. Oct. 22, 1985);

 City of St. Louis Park v. Commissioner of Revenue, Dckt. No. 2379, at 4-5 (Minn. Tax Ct. June 15, 1973).

If one portion is not substantial, it is absorbed into the taxable or exempt status of the substantial portion, which determines the tax status of the entire building.

The Court adopted the rule that:

[W]hen a building is owned by a charitable or other tax-exempt institution and

  • one substantial part thereof is directly, actually, and exclusively occupied by such institution for the purposes for which it was organized and
  • another substantial portion thereof is primarily used for revenue by rental to the general public,

such building with the grounds thereof is pro rata exempt from taxation and pro rata taxable according to its separate uses.

Id. (emphasis [italics] in the original).

In order to determine if the area is sufficiently substantial to justify pro rata taxation, the property must first be apportioned between its exempt and non-exempt use.

In determining apportionment of property for exemption purposes, the court has considered several factors.

 See Abbott-Northwestern, at 10. (stating that in addition to proof of physical allocation and designation, “proof of allocation by time used or by revenues produced is also valid”).

The most important factor is the physical allocation of space.

In several cases, physical allocation is the only factor analyzed by the court.

See Christian Bus. Men’s, 228 Minn. at 559-60; City of St. Louis Park, at 3-4.

However, as noted above, in Abbott-Northwestern, this court found that allocation by time used or by revenues produced was also valid.

Abbott-Northwestern at 10.

If the physical allocation is difficult to determine, the court also considers

  • the revenues generated by the non-exempt purpose and
  • the time the space is used for the non-exempt purpose.

See Abbott-Northwestern, at 10.

Not every factor will be determinative in each case.

The relevant factors depend on the facts of each case.

See Abbott-Northwestern, at 10 (considering the physical allocation and financial data, but disregarding unreliable time surveys).

Minnesota Property Tax Exemptions;

Partial Property Tax Exemption

If only part of real property owned by a church is used for qualifying tax exempt purposes, a part of the value of the real property can still qualify for Minnesota property tax exemption if such property is used:

  • in part for exempt purposes, and
  • in part for non-exempt purposes.

For additional information on Minnesota Chapter 315 churches, see also Dahlelaw.com, or also https://dahlelawchurches.com/minnesota-chapter-315-churches/

For additional information on Minnesota Chapter 317A churches, see also Dahlelaw.com, or also https://dahlelawchurches.com/minnesota-chapter-317a-corporations/

Minnesota Church Attorney

Since 1992, Attorney Gary C. Dahle has represented a variety of Minnesota churches – Baptist, Evangelical, Lutheran, Pentecostal, Presbyterian, and independent churches, with respect to:

Attorney Gary C. Dahle has represented churches located in the Minnesota cities of Arden Hills, Blaine, Bloomington, Brooklyn Park, Burnsville, Chaska, Corcoran, Coon Rapids, Eden Prairie, Fridley, Glencoe, Minneapolis, Mounds View, Roseville, St. Louis Park, St. Paul and Wyoming.

Topics of Interest:

Copyright 2018

Gary C. Dahle – Attorney at Law

2704 Mounds View Blvd., Mounds View, MN 55112

Phone:  763-780-8390     Fax: 763-780-1735

[email protected]

Legal Disclaimer

Information provided herein is only for general informational and educational purposes. The laws relating to Minnesota churches and non-profit corporations involve many complex legal issues. If you have a specific legal problem about which you are seeking advice, consult with legal counsel. Gary C. Dahle, Attorney at Law, is licensed to practice law only in the State of Minnesota, and in the State of North Dakota, in the United States of America. Therefore, only those persons interested in matters governed by the laws of the State of Minnesota or the State of North Dakota should consult with, or provide information to, Gary C. Dahle, Attorney at Law, or take note of information provided herein.

Accessing the web site of Gary C. Dahle, Attorney at Law – https://dahlelawchurches.com – may be held to be a request for information. However, the mere act of either providing information to Gary C. Dahle, Attorney at Law, or taking note of information provided on https://dahlelawchurches.com, does not constitute legal advice, or the establishment of an attorney/client relationship. Nothing herein will be deemed to be the practice of law or the provision of legal advice. Clients are accepted by Gary C. Dahle, Attorney at Law, only after preliminary personal communications with him, and subject to mutual agreement on terms of representation.

If you are not a current client of Gary C. Dahle, Attorney at Law, please do not use the e-mail links or forms to communicate confidential information which you wish to be protected by the attorney-client privilege. Please use caution in communicating over the Internet. The Internet is not a secure environment and confidential information sent by e-mail may be at risk. Gary C. Dahle, Attorney at Law, provides the https://dahlelawchurches.com web site and its contents on an “as is” basis, and makes no representations or warranties concerning site content or function, including but not limited to any warranty of accuracy, completeness, or being current.

Related Topics:

For a discussion of Minnesota probate law, see https://dahlelawprobate.com/ and also http://www.dahlelawminnesota.com/ and also https://dahlelaw.com/minnesota-probate/

For information on North Dakota Probate law, see http://www.dahlelawnorthdakota.com/

For information on Minnesota Cemetery Law, see http//:www.dahlelawcemeteries.com

For information on North Dakota Transfer on Death Deeds, see als0  http://northdakotatransferondeathdeeds.com/