Minnesota Church Day Care Centers.

Minnesota Church Day Care Centers

Minnesota Church Day Care Centers

Property Tax Exemption

Minnesota law provides a number of possible sources of authority for real property tax exemptions of on-site Minnesota Church Day Care Centers, including:

  • several constitutional sources, and
  • one statutory source,

based upon three possible eligibility categories:

  1. church property;
  2. institutions of purely public charity; and
  3. academies or seminaries of learning.

Constitutional Sources – Minnesota Church Day Care Centers

Article X Section 1 of the Minnesota Constitution provides in part as follows:

Taxes shall be uniform upon the same class of subjects and shall be levied and collected for public purposes, but

  • academies . . . seminaries of learning. . .
  • all churches, church property, . . . , [and]
  • institutions of purely public charity,

 shall be exempt from taxation except as provided in this section.

. . . The legislature may authorize municipal corporations to levy and collect assessments for local improvements upon property benefited thereby without regard to cash valuation.

The legislature by law may define or limit the property exempt under this section other than

  • churches,
  • houses of worship, and
  • property solely used for educational purposes by academies, colleges, universities and seminaries of learning.

Ministry – Minnesota Church Day Care Centers

While Article X Section 1 of the Minnesota Constitution provides a firm basis for church owned real property tax exemptions – including when appropriate, on-site Minnesota Church Day Care Centers – the scope of such exemptions is subject to interpretation, and limitation, by the Minnesota courts.

While Minnesota Church Day Care Centers alone do not constitute churches, it can be argued that on-site Minnesota Church Day Care Centers which advance the churches’ religious purposes are extensions of, and ministries of, the church.

One of the primary references available to local County assessors is the Minnesota Property Tax Administrator’s Manual – with Module #5 thereof addressing exempt property, including churches, church property – and indirectly – Minnesota Church Day Care Centers.

Church-Owned Property and Property of Religious Corporations

All churches, church property, and houses of worship are exempt per Minnesota Statutes.

However, the Department of Revenue has consistently advised that to be exempted, the property must be used by the church for church purposes.

For example, the department has advised that vacant land purchased by a church but not used for any church purpose should not be granted an exemption.

Prior to 1906, the Minnesota Constitution read that “all churches, church property used for religious purposes, and houses of worship” were exempt.

The constitution now states “churches, church property, and houses of worship.”

In State v. Board of Foreign Missions of Augustana Synod, 221, 1946 (Minn. 536, 22 N.W.2d 642), the court held that the elimination of the words “used for religious purposes” was intended to extend the benefits of tax exemption to larger classifications of church property.

In the case of properties owned by religious corporations used for religious purposes, exemption is also granted unless the property

  • is not being used for a church purpose; or
  • is being leased or used for profit.

For example, church property including the parsonage is not exempt

  • if it is rented out to private individuals or corporations, or
  • when the property is used for purposes other than those for which the church was established.

The Minnesota Supreme Court concurs that the test for determining entitlement of church owned property for a tax exemption is whether the property is devoted to, and reasonably necessary for accomplishment of church purposes.

The Court has granted exemption in a case where a duplex located 30 feet from a church sanctuary and owned by the church, but occupied by a part-time janitor in one unit and the director of church music, the church liturgist, and the director of Christian education at the church occupied the other unit.

The exemption was granted in this case on the basis that the duplex was devoted to and reasonably necessary for the accomplishment of church purposes (St. John’ Lutheran Church v. County of Hennepin, 1985, 373 N.W.2d 281).

. . . [a] Threshold question in determining whether real property is [a] “church” entitled to tax exemption is whether entity claiming exemption is [a] “church” within meaning of statute.

In re Collection of Delinquent Real Property Taxes, State of MN v. American Fundamentalist Church, 1995, 530 N.W.2d 200 rehearing denied.

Test for determining whether organization is [a] “church” entitled to tax exemption is subjective one, focusing on sincerity of belief and taking into account evidence on objective issues.

In re Collection of Delinquent Real Property Taxes, State of MN v. American Fundamentalist Church, 1995, 530 N.W.2d 200 rehearing denied.

Principal motivation for organizing religious corporation was tax minimization and, therefore, organization was not [a] “church” and, therefore was not entitled to real property tax exemption in view of evidence

  • that most of financial contributions to organization came from individual founder,
  • that most of founder’s income came from taxpayer,
  • that founder was primary beneficiary of organization’s financial actions, and
  • that founder and his wife, who was cofounder, dominated meetings of organization’ board of trustees.

 In re Collection of Delinquent Real Property Taxes, State of MN v. American Fundamentalist Church, 1995, 530 N.W.2d 200 rehearing denied.

Many traditional churches would not be disqualified by reason of the above criteria.

Church Property –  Minnesota Church Day Care Centers

On-site Minnesota Church Day Care Centers are better identified as church property, rather than as churches.

As such, the Minnesota Legislature is authorized by the Minnesota Constitution to define or limit the criteria for providing tax exemptions to church property – which can generally be understood to be all real property owned by a church – other than the building(s) used for worship, and the land underneath such building(s).

Gloria Dei Lutheran Church v. County of Stearns – 2012

A fairly recent Minnesota Tax Court decision relating to requested church real property tax exemptions for a church owned day care center was issued on April 3, 2012, in regards to the Gloria Dei Lutheran Church in Stearns County.

Gloria Dei Lutheran Church v. County of Stearns, 2012 WL 1161507 (Minn.Tax Regular Div.)

In that case, the church had purchased real property adjacent to another parcel it already owned on which its main church building was located.

An existing for-profit Minnesota Church Day Care Center was operating on the parcel purchased by the church.

After its purchase of the property:

  • the church attempted to obtain tax-exempt status for the two parcels on which the day care center was operating,

but

  • the County assessor denied the application, on the grounds that the day care center:
    • was being operated virtually the same – as a for profit enterprise – after the church had purchased the building,
    • as it had been operated before the church’s purchase of the property.

The church claimed that:

  • it had converted the day care center into a “religious” day care center,

and

  • therefore it was an extension of the church’s ministry.

However, evidence was lacking before the Tax Court that any significant change had been made with respect to the operation of the day care center, from its prior secular operation.

Therefore, even though:

  • the church now owned the property – and it was in a sense “church property“,
  • it was not being operated for the religious purposes identified in the Church’s Articles of Incorporation.

Procedurally, the case involved a certain legal action known as a motion for summary judgment, which the court declined to issue due to unresolved factual questions.

Therefore, the Tax Court did not give any direction as to how it would actually rule on the question before it.

The parties may have reached some kind of settlement after the hearing, or else the church may have just abandoned its application.

According to information obtained from the Stearns County property tax web site, the parcels at issue were continuously subject to taxation from 2011 through 2014:

  • one parcel as Commercial/Industrial property valued in 2014 at $340,800,

and

  • the other parcel as Residential Non-homestead property valued in 2014 at $41,100.

Nevertheless, the court record identified certain relevant factors the Tax Court considered to be important in deciding matters involving Minnesota Church Day Care Centers – including the following:

In order to obtain an exemption from property taxes for a church under Minnesota law,

MINN. CONST. art. X, Minn.Stat. 272.02, subd 6.

we must determine “whether the property

  • is devoted to  and
  • reasonably necessary to

the accomplishment of church purposes.”

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

The exemption depends upon ownership and use of the property for church purposes.

State v. Fundamentalist Church, 530 N.W.2d 200, 203 (Minn.1995);

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

State v. Union Congregational Church, 173 Minn. 40, 43, 216 N.W. 326, 327 (1927);

Country Bible Church v. County of Grant, File No. C5–02–65 (Minn. Tax Ct. June 9, 2003).

Institutions of Purely Public Charity

If an on-site church owned and operated day care center cannot qualify for a real property tax exemption as either a church, or church property, it may be able to qualify as an institution of purely public charity.

(i)      M.S. Section 272.02, Subd. 7

M.S. Section 272.02, Subd. 7(a) identifies that institutions of purely public charity are exempt from taxation:

Subd. 7. Institutions of purely public charity

Institutions of purely public charity

  • that are exempt from federal income taxation under section 501(c)(3) of the Internal Revenue Code
  • are exempt if they meet the requirements of this subdivision.

In determining whether real property is exempt under this subdivision,

the following factors must be considered:

(1)     whether the stated purpose of the undertaking is to be helpful to others without immediate expectation of material reward;

(2)     whether the institution of public charity is supported by material donations, gifts, or government grants for services to the public in whole or in part;

(3)     whether a material number of the recipients of the charity receive benefits or services at reduced or no cost, or whether the organization provides services to the public that alleviate burdens or responsibilities that would otherwise be borne by the government;

(4)     whether the income received, including material gifts and donations, produces a profit to the charitable institution that is not distributed to private interests;

(5)     whether the beneficiaries of the charity are restricted or unrestricted, and,

  • if restricted,
  • whether the class of persons to whom the charity is made available is one having a reasonable relationship to the charitable objectives;

and

 (6)     whether dividends, in form or substance, or assets upon dissolution, are not available to private interests.

A charitable organization must satisfy the factors in clauses (1) to (6) for its property to be exempt under this subdivision, unless

  • there is a reasonable justification for failing to meet the factors in clause (2), (3), or (5),

and

  • the organization provides to the assessor the factual basis for that justification.

If there is reasonable justification for failing to meet the factors in clause (2), (3), or (5), an organization is a purely public charity under this subdivision without meeting those factors.

Many of the above criteria were derived from a 1975 Minnesota Supreme Court Decision – North Star Research Institute v. County of Hennepin, 236 NW2d 754, 306 Minn. 1 (1975) – the requirements of which were effectively codified in 2009 in the above provision.

Whether on-site Minnesota Church Day Care Centers can satisfy all of the above requirements in order to qualify for a real property tax exemption as institutions of purely public charity will be determined on a case by case basis.

Seminary of Learning

If on-site Minnesota Church Day Care Centers cannot qualify for real property tax exemptions under the church, church property, or institution of purely public charity categories, they may be able to qualify as seminaries of learning.

(i)      M.S. Section 272.02, Subd. 5

M.S. Section 272.02, Subd. 5 identifies that certain educational institutions are exempt from taxation:

Education institutions.

All academies, colleges, and universities, and all seminaries of learning are exempt.

Kids Corner Educare Center, Inc. v. County of Steele – 1998

In 1998, the Minnesota Tax Court determined that a non-church affiliated day-care center was entitled to real property tax exemption by reason of its operation as a seminary of learning.

Kid’s Korner Educare Center, Inc. v. County of Steele, 1998 WL 898828 (Minn.Tax 1998)

Article X Section 1 of the Minnesota Constitution identifies that a seminary of learning is entitled to real property tax exemption:

The Minnesota Constitution art. 10, Section 1 and Minn.Stat. 272.02, subd. 1(4) declare that

“All academies, colleges and universities, and all seminaries of learning” are exempt from property taxation.

Whenever a tax exemption is claimed based on the seminary of learning exemption the court must determine:

  1. whether the institution is truly of an “educational” nature;
  2. whether it provides at least a significant part of the educational training which would otherwise be required to be furnished by publicly supported institutions thereby reducing in some way the public burden; and
  3. the training provided be “readily assimilated as an integral part of the public school system . . . .”

 Eyota Kid’s Korner, Inc., File No. C5-92-1513 (Minn. Tax Ct. Dec. 29, 1992) slip op. at 14 citing Northwestern Preparatory School, 249 Minn. at 558, 83 N.W.2d at 246.

We find the evidence admitted at trial, particularly the testimony of the Owatonna Public School officials, ample to support the conclusion

  • that KKEC is an educational institution,
  • that its curriculum is designed to be readily assimilated by students preparing for kindergarten,

and

  • that by providing this private alternative, KKEC is reducing the burden on the public system in several important ways.

First, the public system has financial and physical capacity limits as do most public educational programs.

KKEC supplements that capacity at minimal cost to the taxpayer.

Second, it has become generally recognized that early childhood development can be a significant factor in improving subsequent school performance, behavioral issues and later life accomplishments.

By providing a structured learning environment at this early stage, KKEC is reducing the potential need for future and more costly intervention or remediation by the public school system.

We therefore find that KKEC meets the criteria of a seminary of learning under Minn.Stat. 272.02 subd. 1(4) and is exempt from property tax for the January 2, 1998 assessment year.

As a result, we need not reach the issue of whether KKEC qualifies as an institution of purely public charity.

 Kid’s Korner Educare Center, Inc. v. County of Steele, 1998 WL 898828 (Minn.Tax 1998)

However, since the Kid’s Korner Educare Center, Inc. v. County of Steele decision was issued by the Minnesota Tax Court, rather than by the Minnesota Supreme Court, the extent to which the Minnesota Department of Revenue and the County Assessors, will recognize a day care center as a seminary of learning remains to be seen.

The Minnesota Property Tax Administrator’s Manual addresses the subject of educational institutions – including seminaries of learning – as follows:

Educational Institutions

All academies, colleges, universities, and all seminaries of learning are exempt, even private educational institutions which may be operated for profit.

However, to meet the exemption requirements, the curriculum must parallel that of a public education institution.

Cosmetology schools, barber colleges, dancing academies, and riding schools, for example, are not exempted.

The department has issued opinions on organizations that lease space to educational institutions for education purposes.

In such a scenario, we rely on the concurrency of ownership and use.

In a situation such as this, if the property were not owned by the educational institution, it is not exempt under these guidelines.

The institution which owns the property would need to prove to the assessor whether they qualify for exemption under one of the other provisions.

The Minnesota Supreme Court decided in State v. Northwestern Preparatory School, 1957 (83 N.W.2d 242) that for purposes of meeting exemption requirements as a “seminary of learning,” an educational institution must meet the following three guidelines:

  1. The institution is truly of an “educational” nature.
  2. The institution provides at least part of the educational training that would otherwise have to be provided by publicly-supported institutions.
  3. The public schools do, or would, give credit for educational credits earned at the institution.

No Exemption for Special Assessments – Minnesota Church Day Care Centers

Even if on-site Minnesota Church Day Care Centers are otherwise tax exempt entities, they will still be subject to charges for special assessments.

In 1961, the Minnesota Supreme Court addressed the rights of an otherwise tax exempt entity to be exempt from special assessments, by providing in part as follows:

Exemption from special assessments for local improvements is not granted by the constitution and must be found, if at all, in statutory enactments.

State v. Roselawn Cemetery Ass’n, 259 Minn. 479, 108 N.W.2d 305, MINN 1961 (Syllabus by the Court).

The Minnesota Property Tax Administrator’s Manual addresses the subject of special assessments by providing in part as follows:

Unless specifically stated in statute, if a property is exempt from property tax, it is still subject to special assessments.

Special assessments are a fee for a service, they are not a traditional “tax”.

Therefore, they are levied in a different manner and exempt property must pay them unless specifically exempted from them by law.

This was confirmed in a 1956 Attorney General opinion which stated that though churches, church property, and houses of worship are exempt from general taxation, they are not exempt from special assessment.

 Op.Atty.Gen., 408C, Aug. 22, 1956.

Conclusion – Minnesota Church Day Care Centers

Minnesota law provides a number of possible sources of authority for real property tax exemptions of on-site Minnesota Church Day Care Centers, including:

  • several constitutional sources, and
  • one statutory source,

based upon three possible eligibility categories:

  1. church property;
  2. institutions of purely public charity; and
  3. academies or seminaries of learning.

Whether an on-site church owned day care center can satisfy all of the requirements in order to qualify for a real property tax exemption will be determined on a case by case basis.

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 or completeness.

Related Topics:

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