Oct. 6, 2009 – Church property used as a residence for the congregation’s custodian can be taxed, the Wisconsin Court of Appeals held today.

In Wauwatosa Ave. United Methodist Church v. City of Wauwatosa, 2009AP202, the court rejected the church’s argument that it is entitled to the tax exemption of Wis. Stat. section 70.11 (4) because its custodian is “integral to the functioning of the church.”

The court held that the tax exemption is restricted to church-owned residences of those religious persons who occupy official leadership roles in the church, such as pastors and their ordained assistants.

A taxed residence

United Methodist’s building at 1513 Wauwatosa Ave. in the City of Wauwatosa had been the residence of the church’s associate pastor until 1994. After that, the church required its custodian to live at the property so that he would be available on short notice, 24 hours a day, for maintenance, security, and opening and closing the church.

When the city reviewed its tax-exempt property, it sought the church’s application for tax exemption. The church complied and asked for a hearing before the Wauwatosa Common Council on its application. The city did not offer a public hearing and denied the application.

The church filed a declaratory judgment complaint to establish its entitlement to the tax exemption and a motion for summary judgment seeking a refund of its 2007 taxes on the property. The circuit court denied the motion for summary judgment.

No new test

In an opinion authored by Judge Kitty Brennan, the court of appeals rebuffed United Methodist’s effort to expand section 70.11 (4) beyond the statute’s inclusion of church-owned housing for “pastors and their ordained assistants, members of religious orders and communities, and ordained teachers.”

United Methodist cited to Midtown Church of Christ, Inc. v. City of Racine, 83 Wis. 2d 72 (1978). Although the Wisconsin Supreme Court held in Midtown that the church-owned residence occupied by the pastor’s widow was not tax exempt because she was not within the listed groups of section 70.11 (4), United Methodist seized on some of the court’s language suggestive of a broader statutory interpretation. Specifically, the justices in Midtown reasoned that the Legislature intended to apply the exemption to “housing occupied by that limited group of people whose employment is integral to the functioning of the church.” United Methodist argued that the custodian’s duties are integral to the church operations.

But the court of appeals said that United Methodist misapplied this language. In context, that phrase is meant to constrain the statute’s reach beyond the listed categories of persons contemplated by the Legislature, the court of appeals said.

Further, “[t]he importance of the exemption’s religious component is reinforced by the court’s statement that the ‘list of religious persons whose housing is exempt includes only those persons who have official leadership roles in the activities of the congregation,’” the court of appeals noted, quoting Midtown.

In this case, the court of appeals said, United Methodist’s custodian “serves no religious leadership purpose of any kind and is clearly not included within § 70.11 (4)’s list of individuals granted tax exemptions.”

Similarly, the court of appeals dismissed United Methodist’s reliance upon Sisters of Saint Mary v. City of Madison, 89 Wis. 2d 372 (1979), in which the Wisconsin Supreme Court held a hospital chaplain was included within the meaning of “pastor” despite the fact that he was not a traditional pastor of a permanent congregation.  The justices explained the chaplain “performs significant official religious functions for the sisters and patients at St. Mary, administering to their religious needs and providing spiritual guidance when requested.”

“That part of the Sisters holding does not support United Methodist’s claim for the exemption for the custodian, however, because … the church custodian performs no ‘significant official religious function’ at all,” the court wrote.

Further, the court of appeals said that the second part of Sisters’ analysis is against United Methodist. The Sisters court looked to see if the property in question is used “exclusively” for the purposes of the religious organization. That inquiry, the court of appeals explained, borrows from Columbia Hosp. Ass’n v. City of Milwaukee, 35 Wis. 2d 660 (1967), which asked what is “reasonably necessary to the efficient functioning of the hospital as an organization.”

“United Methodist’s argument, that the custodian’s residence is ‘used exclusively’ for the purposes of the church fails,” the court of appeals wrote. “The purpose of a church is spiritual formation and guidance. It cannot be said that the church custodian is reasonably necessary to the functioning of the church.”

Procedural objections

The court of appeals discounted United Methodist’s objection that the city failed to prove the use of the custodian’s residence had changed from 2006 to 2007. Quoting from Sisters, the court of appeals said that the burden is on United Methodist – not the city – to demonstrate that it is “within the exact terms of the exemption statute.”

United Methodist also unsuccessfully argued that under Wis. Stat. section 74.35, it was improperly denied a public hearing for a determination of its tax exemption claim. The court of appeals found that section 74.35 is the exclusive procedure for a taxpayer seeking a return of tax money paid to the city, but it is not a required procedure for the city to follow in determining whether to grant an exemption.