Timely Topics

Religious institutions have come to expect property tax exemption. Until recently, a faith-based organization’s charitable or religious status virtually assured the exemption, as long as the institution maintained its federal tax-exempt status without private inurement. Times have changed. As the first case below points out, agencies and courts are examining ever more closely the bona fide charitable use to which an institution puts property. This was perhaps always the case for vacant and auxiliary lots, but now also for the lot where the institution is located. Another departure that we have recently reported on (see Religious Institutions Update, December 14, 2009) is that religious institutions are no longer necessarily construed as charitable institutions on the theory that, for example, worship is not charity. The religious property tax exemption ordinarily also requires that the primary or even exclusive purpose of a property be religious. Thus, religious institutions that hope to maintain property tax exemption and potentially other types of exemption will need to articulate carefully, with the aid of church-state counsel, their religious purposes in governance and real estate documents and to record the extent of their legally recognized charitable activities on all of their properties.

Key Cases

Hospital Not Entitled to Charitable or Religious Property Tax Exemption

A splintered court in Provena Covenant Med. Ctr. v. Dep’t of Revenue, No. 107328, 2010 WL 966858 (Ill. March 18, 2010), denied a charitable and religious property tax exemption to Provena Hospitals, associated with the Roman Catholic Church. Although a 501(c)(3) organization exempt from federal income tax and various state taxes, such as retail taxes, the court held that the director of revenue reasonably determined that the hospital failed three prongs of a five-prong test for a charitable institution:

  1. the hospital’s funds derived mainly from fee-paying patients, rather than private and public charity;
  2. the number of uninsured patients receiving free or discounted care and the dollar value of the care they received were de minimis; and
  3. there was little to distinguish the hospital’s treatment of bad debt from a for-profit institution’s, thus, showing, according to the court, that the hospital placed obstacles in the way of those who need and would avail themselves of charitable benefits.  

Specifically, the hospital did not advertise the availability of charitable care, unpaid bills were routinely referred to collection agencies and hospital charges were discounted or waived only after it was determined that a patient had no insurance coverage. The court refused to deem as charitable the hospital’s treatment of Medicare or Medicaid patients, subsidies provided for ambulance service, a long-term land lease for a nominal rate to a crisis nursery, donations made to other not-for-profit entities, volunteer initiatives, support for graduate education where it was not clear whether the university or hospital benefited more, support for runaway teen shelters located off-campus, and emergency services training.

About many of these, the court noted that the critical issue is the use to which the property itself is devoted – not the use to which income derived from the property is employed. Last, the court agreed that the hospital was not entitled to a religious property tax exemption, because the property was not used exclusively for religious purposes. The court held, “[M]edical care, while potentially miraculous, is not intrinsically, necessarily, or even normally religious in nature.” Concurring in part and dissenting in part, Justice Burke, joined by Justice Freeman, said that the plurality was mistaken in imposing a monetary threshold for evaluating charitable use and requiring the hospital to specifically demonstrate some burden of government it relieved. He hastened to add that the court’s discussion of charitable use lacked a majority of the court and, therefore, is not binding under the doctrine of stare decisis. Two justices (JJ., Kilbride and Garman) took no part in the case.

“Called” Teacher and “Commissioned Minister” Deemed Not a Ministerial Employee Under “Primary Duties” Test

The Lutheran Church-Missouri Synod employs “lay” and “called” teachers. “Called” teachers must complete colloquy classes focusing on different aspects of faith, receive a certificate of admission into the teaching ministry, and, once selected by a congregation in need of a teacher, receive the additional title of “commissioned minister.” Nevertheless, in Equal Employment Opportunity Comm’n v. Hosanna-Tabor Evangelical Lutheran Church and Sch., No. 09-1134, 09-1135, 2010 WL 770190 (6th Cir. March 9, 2010), the court held that the primary duties of the teacher controlled and, in this case, disqualified the church and school from asserting the so-called “ministerial exception” defense to her claim of disability discrimination and retaliation. The plaintiff took disability leave in June 2004, and requested the opportunity to return to work in February 2005, but the school advised her that it had retained a substitute teacher whose contract ran through the end of the year and expressed concern for the safety of students who would be in her care. The church rescinded her call after she threatened legal action. The plaintiff taught math, language arts, social studies, science, gym, art and music. She also taught a religion class four days per week, attended chapel with her class once per week, led the chapel service twice a year, prayed with her class three times a day and led devotionals.

The district court granted summary judgment in favor of the church and school on the grounds that the court could not inquire into her claims of retaliation because they fell within the “ministerial exception” to the Americans with Disabilities Act (ADA). But the appeals court disagreed that she was a “ministerial employee,” emphasizing that her religious activities consumed 45 minutes out of a seven-hour day, the plaintiff used some of the same books as the local public school, the plaintiff had responsibilities similar to those of lay teachers working in the school, not all of whom were Lutheran, and the plaintiff rarely introduced religion into secular subjects. Examining other cases, the court held, “[T]he overwhelming majority of courts that have considered the issue have held that parochial school teachers … who teach primarily secular subjects, do not classify as ministerial employees for purposes of the exception.” Concurring, Judge White found the relevant cases “more evenly split,” but she concurred: “Tipping the scale … is that … there is evidence here that the school itself did not envision its teachers as religious leaders, or as occupying ‘ministerial’ roles” (emphasis original). The common duties of the lay and called teachers were for her the most “telling.”

Court Rejects “Primary Duties” Test and Dismisses Overtime Wage Claim

In Alcazar v. Corp. of Catholic Archbishop of Seattle, No. 09-35003, 2010 WL 917200 (9th Cir. March 16, 2010), the court held that it lacked jurisdiction under the ministerial exception doctrine over the overtime wage claims of seminarians in a Catholic Church who alleged that they suffered retaliation for claiming sexual harassment. As contrasted with the court in Hosanna-Tabor, the court in Alcazar rejected and criticized the “primary duties” test for deciding whether a person is a minister and chose instead the “functional approach” for a variety of reasons: (1) examining the number of hours worked creates “the very government entanglement into the church-minister relationship that the ministerial exception seeks to prevent”; and (2) “the underlying premise of the primary duties test – that a minister must ‘primarily’ perform religious duties – is suspect.” The court explained that a court “can constitutionally require its ministers to take a vow of poverty” as in this case “to spend a year ‘mostly clean[ing] sinks’ without overtime pay.” Even lay persons “can act as the functional equivalent of a minister.” The functional test holds that “if a person (1) is employed by a religious institution, (2) was chosen for the position based ‘largely on religious criteria,’ and (3) performs some religious duties and responsibilities, that person is a ‘minister’ for purposes of the ministerial exception.”

Loud Music Complaint Leading to Police Inquiry at Church Not Actionable

In Faith Baptist Church v. Waterford Twp., No. 08-11028, 2010 WL 746362 (E.D. Mich. March 2, 2010), the court dismissed a suit that First Baptist Church filed against Waterford Township and other defendants alleging constitutional violations as a result of visits made by the police to the church in response to a neighbor’s complaint of loud music. Several times, officers entered the church during band practice, questioned the pastor and band members, and asked for identification, but left without issuing citations or preventing the band from playing. A pastor alleged that on one occasion an officer advised the church to quit playing “rock music” or tickets would issue, but the court considered the allegation unsupported. The prosecutor’s office sent a letter to three band members asking them to come downtown to speak with him about another noise complaint. But on the advice of counsel, they declined to be interviewed. Nothing happened. The neighbor sued the church in state civil court, then the church sued the township in federal court. The federal district court found no evidence that the township had infringed the church’s freedom of speech or assembly rights and no violation of the Fourth Amendment as a result of the officers’ conduct or their entry onto the church premises open to the public.

Judgment on Demurrer in Favor of Denomination Resolves Dispute

In Episcopal Church Cases, No. G042454, 2010 WL 1171067 (Cal. 4th Dist. March 26, 2010), a divided court held that the California Supreme Court’s judgment in favor of the national Episcopal Church and Los Angeles Diocese in a property dispute on the disaffiliating local parish’s demurrer and denial of their motion to strike under the anti-SLAPP (strategic lawsuit against public participation) statute essentially resolved the dispute in the general church’s favor. The local church had argued that when deciding the dispute before it the Supreme Court was procedurally required to accept the general church’s allegations as true, whereas the actual evidence was that the general church had waived its right to assert a claim of ownership over its property. But the court of appeals held that the waiver letter was in the record reviewed by the Supreme Court and the Supreme Court made clear that the general church, not the local church owned the property. Judge Fybel pointedly dissented as follows: “[T]his is the only case in the history of California where entry of judgment has been ordered upon overruling a demurer and denial of anti-SLAPP motion” (emphasis original). He said that the court found only that the general church stated a cause of action, so it reversed the dismissal of the complaint entered in the trial court and remanded for further proceedings without entering judgment for plaintiffs. He also noted that the general church opposed the local church’s petition for writ of certiorari, because “no final judgment or decree has been rendered.”

Religious Institutions in the News

The White House Advisory Council on Faith-Based and Neighborhood Partnerships released its final report of recommendations to the President. See http://www.whitehouse.gov/sites/default/files/microsites/ofbnp-council-final-report.pdf 

For items relating explicitly to religion and religious liberty in the Health Care Reform law, see http://www.bjconline.org/index.php?option=com_content&task=view&id=3398&Itemid=134.

Allegations of sexual abuse by Catholic clergy declined in the United States in 2009, while the scandal widened in Europe. See http://www.usatoday.com/news/religion/2010-03-23-Catholic-Abuse-down-in-USA_N.htm;

http://www.nytimes.com/2010/03/26/world/europe/26church.html?scp=2&sq=pope&st=cse 

http://www.nytimes.com/2010/04/01/world/europe/01vatican.html?scp=5&sq=pope&st=cse;

http://online.wsj.com/article/SB10001424052702304252704575156441829440682.html?KEYWORDS=faith.

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