Church of Christ v. Linn County Assessor ( 2017 )

IN THE OREGON TAX COURT
MAGISTRATE DIVISION
Property Tax
CHURCH OF CHRIST, )
)
Plaintiff, ) TC-MD 160332N
)
v. )
)
LINN COUNTY ASSESSOR, )
)
Defendant. ) FINAL DECISION1
Plaintiff appeals Defendant’s denial of its property tax exemption application for property
identified as Account 321816 (subject property) for the 2016-17 tax year. A trial was held on
January 19, 2017, in the Oregon Tax Court, Salem, Oregon. Tab Gay (Gay), member of
Plaintiff, appeared and testified on behalf of Plaintiff. Janna Sanders (Sanders), appraiser,
appeared and testified on behalf of Defendant. Plaintiff’s Exhibits 1 to 4 and Defendant’s
Exhibits A to J were received without objection.
I. STATEMENT OF FACTS
Gay testified that Plaintiff purchased the subject property from Life Bible Church in
2016. He testified that the offer to purchase the subject property was accepted in April 2016, and
provided a copy of an email dated April 12, 2016, so stating. (See Ptf’s Ex 1.) A memorandum
of Contract of Sale for the subject property was signed August 5, 2016, and recorded August 9,
2016. (Def’s Ex I.) The Contract of Sale shows the sale of the subject property to Tab Gay,
Terrell Gay, Cameron Hollis, Corey Gay, and Ted Gay. (Def’s Ex I at 1.) Gay testified that
Plaintiff moved into the subject property immediately after the closing date.
1
This Final Decision incorporates without change the court’s Decision, entered May 16, 2017. The court
did not receive a statement of costs and disbursements within 14 days after its Decision was entered. See Tax Court
Rule–Magistrate Division (TCR–MD) 16 C(1).
FINAL DECISION TC-MD 160332N 1
Plaintiff filed an application for property tax exemption of the subject property under
ORS 307.140 for the 2016-17 tax year.2 (Ptf’s Ex 2.) On August 9, 2016, Defendant issued a
letter denying Plaintiff’s application for property tax exemption for the 2016-17 tax year because
Defendant “never received a lease that was in effect on July 1, 2016.” (Ptf’s Ex 3.) Gay testified
that Defendant had suggested Plaintiff and Life Bible Church enter into a lease prior to July 1,
2016, so that Plaintiff would have use of the subject property prior to that date. However,
Plaintiff did not end up executing any lease with Life Bible Church.
Sanders testified that the key date for determining the taxable status of the subject
property is July 1. She testified that Life Bible Church had previously received property tax
exemption for its use of the subject property as a school and that it was exempt for the 2015-16
tax year. Sanders testified that Life Bible Church ceased using the subject property as a school
in August 2015. She provided an email dated June 22, 2016, from Matt Dockery (Dockery),
Administrative Pastor of Life Bible Church, stating that Life Bible Church moved its school “last
August” so it “shut the school down as of the end of this last school year and will no longer have
a Harris Private School.” (Def’s Ex C.) Sanders testified that she concluded the subject property
was no longer exempt from taxation because Life Bible Church stopped using it as a school in
August 2015. She testified that Defendant sent a disqualification letter to Life Bible Church, but
she did not provide a copy of that letter or know the date of the letter. Sanders testified that Life
Bible Church did not appeal its exemption disqualification.
Gay testified that the prior owner of the subject property, Life Bible Church, continued
using the subject property up until the sale to Plaintiff. He provided an email dated January 18,
2
It is not clear when Plaintiff actually applied for exemption. Plaintiff provided an application for
exemption dated September 30, 2016. (Ptf’s Ex 2.) That date is well after August 9, 2016, the date of Defendant’s
notice denying Plaintiff’s application. (Ptf’s Ex 3.) Presumably, the denial was either based on some other
application, or Plaintiff’s application was incorrectly dated.
FINAL DECISION TC-MD 160332N 2
2017, from Dockery stating that the subject property “was still owned and maintained by Life
Bible Church, used for activities in the gymnasium and some off-site storage[,]” from August 1,
2015, until the closing date of its sales agreement with Plaintiff. (Ptf’s Ex 4.)
II. ANALYSIS
The issue in this case is whether the subject property qualified for property tax exemption
for the 2016-17 tax year.
All real property in Oregon is subject to taxation unless specifically exempted. ORS
307.030;3 see also Living Enrichment Center v. Dept. of Rev., 19 OTR 324, 328 (2007) (citations
omitted). Such exemptions are a “matter of legislative grace.” Christian Life Fellowship, Inc. v.
Dept. of Rev., 12 OTR 94, 96 (1991). Tax exemption statutes are therefore “strictly construed in
favor of the state and against the taxpayer.” Mult. School of Bible v. Mult. Co., 218 Or 19, 27,
343 P2d 893 (1959) (citation omitted). This rule of construction has been described as “strict but
reasonable[,]” which “requires an exemption statute be construed reasonably, giving due
consideration to the ordinary meaning of the words of the statute and the legislative intent.”
North Harbour Corp. v. Dept. of Rev., 16 OTR 91, 95 (2002) (quoting Eman. Luth. Char. Bd. v.
Dept. of Rev., 263 Or 287, 291, 502 P2d 251 (1972)).
In property tax exemption cases, the paramount question is whether the taxpayer has met
all of the statutory requirements that allow the property to qualify for exemption. Living
Enrichment Center, 19 OTR at 329. As the party seeking affirmative relief, it is Plaintiff’s
burden to establish by a “preponderance of the evidence” that the subject property is entitled to
exemption. See ORS 305.427. A “[p]reponderance of the evidence means the greater weight of
evidence, the more convincing evidence.” Feves v. Dept. of Revenue, 4 OTR 302, 312 (1971).
3
The court’s references to the Oregon Revised Statutes (ORS) are to 2015.
FINAL DECISION TC-MD 160332N 3
A. Statutory Framework
ORS 307.140 exempts from taxation property that is “owned or being purchased by
religious organizations * * *.” Exemption is provided for “[a]ll houses of public worship and
other additional buildings and property used solely for administration, education, literary,
benevolent, charitable, entertainment and recreational purposes by religious organizations, the
lots on which they are situated, and the pews, slips and furniture therein.” ORS 307.140(1).
Only the portions of a parcel that are actually used for qualifying activities or are reasonably
necessary to accommodate those qualifying activities will be granted exemption. Golden Writ of
God v. Dept. of Rev., 300 Or 479, 484, 713 P2d 605 (1986).
Exemption is not automatic, however. A religious organization that owns or is
purchasing property must file an application under ORS 307.162 before exemption can be
granted. ORS 307.140. An organization otherwise qualified for exemption that leases, rather
than owns, property may also seek exemption for that property. See ORS 307.166 (application
and requirements for property leased by exempt institution from exempt owner); ORS 307.112
(application and requirements for property leased by exempt institution from taxable owner).
Generally, applications for exemption in the following tax year must be made by April 1,
although in certain situations applications may be made after that date. See, e.g., ORS
307.162(1), (2). The tax year is a 12 month period beginning July 1. ORS 308.007(1)(c).
ORS 311.410 addresses the effect of a change in ownership or use on the exempt status
of property. That statute states, in pertinent part:
“(1) Real property or personal property that is subject to taxation on July 1 shall
remain taxable and taxes levied thereon for the ensuing tax year shall become due
and payable, notwithstanding any subsequent transfer of the property to an
exempt ownership or use. * * * Real or personal property exempt from taxation
on July 1 shall remain exempt for the ensuing tax year, notwithstanding any
transfer within the tax year to a taxable ownership or use.”
FINAL DECISION TC-MD 160332N 4
*****
“(4) Real or personal property is taxable for the ensuing tax year if the property is
transferred or changed at any time before July 1 of any tax year from an exempt
ownership to a taxable ownership or taxable use.”
July 1, the start of the tax year, is the critical date in this statutory scheme. If a religious
organization acquires or leases property before July 1 of a given tax year, then exemption may be
granted for that tax year, provided that all of the statutory prerequisites have been met. If,
however, a religious organization first acquires or leases property after the start of the tax year,
July 1, then no exemption for that tax year may be granted. The same holds true for changes in
the use of the property. A change in the use of property, whether from exempt to taxable or
taxable to exempt, will not change the status of that property for the current tax year. Instead,
the effect of the change in use will take hold in the ensuing tax year, on July 1.
B. Plaintiff’s Claim for 2016-17 Property Tax Exemption
Guided by that framework, the court now turns to the status of the subject property—
exempt or taxable—for the 2016-17 tax year. At the outset, it is worth noting that Plaintiff’s
status as a religious organization entitled to exemption under ORS 307.140 is not at issue before
the court. Rather, this appeal specifically concerns whether the subject property qualifies for
property tax exemption even though Plaintiff did not own or use the subject property until after
July 1, 2016. Because the issue was raised by Plaintiff, the court will also consider whether the
property remained exempt for the 2016-17 tax year by virtue of the exemption granted to its
previous owner, Life Bible Church.
1. Plaintiff’s property tax exemption application
Plaintiff appealed from Defendant’s letter, dated August 9, 2016, which stated that
Plaintiff’s application for exemption was denied because Defendant “never received a lease that
FINAL DECISION TC-MD 160332N 5
was in effect on July 1, 2016.” (Ptf’s Ex 3.) Standing alone, Defendant’s denial letter is not a
model of clarity. Adding to the confusion is the fact that the exemption application Plaintiff
offered into evidence was dated September 30, 2016, close to two months after the date of the
denial letter. Gay testified that Defendant had suggested that Plaintiff enter into a lease with Life
Bible Church, but Plaintiff never did so. Presumably, the denial letter refers to that suggested
lease. In any event, there is no dispute that Plaintiff did not enter into any lease of the subject
property prior to July 1, 2016. Moreover, there is no dispute that Plaintiff did not take
possession of the subject property, or use the subject property, until after the sale of the property
closed in August 2016.
Defendant’s position is that, because “there was no qualifying use of the subject property
prior to July 1, 2016,” exemption for the 2016-17 tax year cannot be allowed. (Def’s Ex Ltr, Dec
12, 2016.) Defendant’s argument is well taken, and to it the court would add that some legal
right to possess the property is also a requirement for exemption. See OAR 150-307-0140(1)(b).
As described above, when property is first acquired or leased by an exempt organization after the
July 1 start of the tax year, no exemption is available for that tax year. See, e.g., Christian Life
Fellowship, Inc., 12 OTR at 96 (property purchased by religious organization in December 1988
did not qualify for exemption for the 1988-89 tax year); Christ Light Unity v. Multnomah County
Assessor, TC-MD 100368B, WL 646577 at *2 (Or Tax M Div, Feb 22, 2011) (“Plaintiff is not
entitled to a property tax exemption for the 2009-10 tax year because it did not own the subject
property before July 1, 2009[.]”). The parties agree that Plaintiff did not own,4 occupy, or use
4
Property that is “owned or being purchased by” a religious organization qualifies for exemption under
ORS 307.140. (Emphasis added.) An April 12, 2016, email to Gay shows that an offer on the subject property was
accepted at that time. (Ptf’s Ex 1.) Arguably, then, the subject property was “being purchased” by Plaintiff as early
as April 12, 2016. However, there are at least two reasons why that does not change the outcome in this case. First,
the property that is owned or being purchased by an organization must be actually used by the organization to
qualify for exemption. ORS 307.140(1); see also Reorganized Church of Jesus Christ LDS v. Dept. of Rev., 6 OTR
510, 511–512 (1976) (examining “use” of property by church delayed from occupying buildings due to zoning
FINAL DECISION TC-MD 160332N 6
the subject property until August 2016. Because Plaintiff did not acquire or use the subject
property until after July 1, Defendant was required to deny Plaintiff’s property tax exemption
application for the 2016-17 tax year.
2. Life Bible Church’s Exemption
Plaintiff also argued at trial that Defendant improperly disqualified the exemption that
had been previously granted to Life Bible Church.5 As described above, Life Bible Church had
used the subject property as a school until August 2015; although, reportedly, it continued to use
the subject property for “activities in the gymnasium and some off-site storage” after that date.
(Ptf’s Ex 4.) That change in use led Defendant to conclude that the subject property no longer
qualified for exemption.
Again, the key date in the analysis is July 1, and the court must determine whether the
subject property was “subject to taxation” or “exempt from taxation” as of July 1, 2016. See
ORS 311.410(1). Under Plaintiff’s theory, if Life Bible Church continued its exempt use of the
subject property through July 1, 2016, then the subject property would remain exempt for the
remainder of the 2016-17 tax year.6
Defendant’s decision to disqualify the subject property from exemption made the
property “subject to taxation” as of July 1, 2016. That is true even if Defendant did not decide to
disqualify the property or notify the owner of the disqualification until after July 1, 2016. See
restrictions). Second, the Memorandum of Contract of Sale lists Tab Gay and other individuals as the buyers; thus,
it is not clear that the subject property was actually being purchased by Plaintiff at that time. (Def’s Ex I.)
5
A question remains whether Plaintiff is aggrieved by Defendant’s determination that Life Bible Church’s
use of the subject property failed to qualify for property tax exemption for the 2016-17 tax year. See ORS
305.275(1)(a). Sanders testified that the disqualification letter was sent to Life Bible Church, suggesting that Life
Bible Church is the aggrieved entity. However, to the extent that Plaintiff is obligated to pay the property taxes on
the subject property for the 2016-17 tax year, then Plaintiff is aggrieved. ORS 305.275(1)(b).
6
So long as the ownership of the property does not change, an exempt owner is not required to reapply for
exemption each year. ORS 307.162(1)(b).
FINAL DECISION TC-MD 160332N 7
Multnomah County Assessor v. Portland Devel. Comm., 20 OTR 395, 398 (2011) (“[T]he
assessor is permitted to alter position as to exemption or valuation without notice to the property
owner prior to the issuance of the tax statement.”). The court cannot be sure of exactly when
Defendant decided to disqualify the subject property or the form of the notice of disqualification;
however the court is satisfied that Defendant had the authority to do so. The court also finds that
Life Bible Church did not appeal that decision. It is therefore Plaintiff’s burden to prove that
Defendant’s decision to disqualify the property—based on a change of use in the property—was
incorrect. ORS 305.427.
Exemption cases that turn on the qualifying use of property require a fact-intensive
analysis, and “[i]n close cases this court will deny exemption.” St. Mary Star of the Sea Catholic
Church v. Dept. of Rev., TC 5248, WL 7373961 at *8 (Or Tax, Dec 19, 2016) (citations omitted).
In some cases, the use of certain portions of the property will qualify those portions for
exemption while other portions of the property will be taxable. See, e.g, Vedanta Society of
Portland v. Multnomah County Assessor, TC-MD 140420N, WL 3653589 at *6 (Or Tax M Div,
June 12, 2015). When examining the use of a property, the court must consider how that use fits
within the taxpayer’s entire enterprise. See Habitat for Humanity v. Dept. of Rev., 360 Or 257,
267, 381 P3d 809 (2016) (applying ORS 307.130).
In this case, both parties acknowledge that the use of the subject property changed in
August 2015 when Life Bible Church stopped operating its school there. The question the court
must answer is whether that change was from an exempt use to a taxable use. Unfortunately,
there is not enough evidence before the court to make that determination. Although an email
from Dockery stated that Life Bible Church continued to use the property for some “activities”
and “off-site storage,” there is no way for the court to determine the frequency of those uses or
FINAL DECISION TC-MD 160332N 8
the portions of the subject property necessary to support those uses. Moreover, there is no
information from which the court could determine how those uses fit within Life Bible Church’s
charitable or religious enterprise. Habitat, 360 Or at 267. Plaintiff has failed to sustain its
burden of proof on this issue.
This court has previously observed that despite “the good things exempt organizations
do, their encounters with the property tax system have often been difficult and have produced
seemingly harsh results.” Erickson v. Dept. of Rev., 17 OTR 324, 327 (2004). Plaintiff may find
this outcome to be harsh; however, the court is bound to apply the law as it is written.
III. CONCLUSION
The court concludes that Defendant correctly denied Plaintiff’s application for property
tax exemption for the 2016-17 tax year because Plaintiff did not own, lease, or otherwise occupy
or use, the subject property as of July 1, 2016. The court further concludes that Plaintiff failed to
prove by a preponderance of the evidence that Life Bible Church’s use of the subject property
qualified the subject property for exemption for the 2016-17 tax year. Now, therefore,
IT IS THE DECISION OF THIS COURT that Plaintiff’s appeal is denied.
Dated this day of June 2017.
ALLISON R. BOOMER
MAGISTRATE
If you want to appeal this Final Decision, file a complaint in the Regular
Division of the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR
97301-2563; or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.
Your complaint must be submitted within 60 days after the date of the Final
Decision or this Final Decision cannot be changed. TCR-MD 19 B.
This document was filed and entered on June 6, 2017.
FINAL DECISION TC-MD 160332N 9