January 30, 2021

Are places of religious worship exempt from paying property taxes in Texas?

A place of religious worship is exempt from paying any property taxes. This includes the clergy residences owned by qualifying religious groups.

Read on to know what property qualifies for such an exemption.

What is a ‘place of worship’?

A ‘place of worship’ is an organization operated by an individual, corporation or an association. It must be organized and operated primarily for the purpose of engaging in religious worship or promoting the spiritual development or well-being of humans.

To qualify as a place of worship, an organization must operate in such a way that does not result in accrual of distributable profits, the realization of private gain resulting from payment of compensation in excess of a reasonable allowance for salary or other compensation for services rendered, or the realization of any other form of private gain.

A qualified religious organization is only allowed to use its assets in performing the organization's religious functions or the religious functions of another religious organization. To qualify, a place of worship is also required to declare that on discontinuance of the organization by dissolution or otherwise, the assets are to be transferred to this state, the United States, or a charitable, educational, religious, or other similar organization that is qualified as a charitable organization. Such a declaration is considered valid if directed by a charter, bylaw or other regulation adopted by the organization to govern its affairs.

What qualifies for ‘religious worship’?

‘Religious worship’ may be an individual or a group ceremony. It includes meditation, education, and fellowship, the purpose of which is to manifest or develop reverence, homage, and commitment on behalf of any religion's faith.

Can property owned by any religious group claim the ‘place of worship’ qualification?

Under the American tax law , 'Churches' are exempt from having to pay any taxes, including federal, state, and local income and property taxes. The law classifies 'churches' as public charities for carrying out the charitable activities of religious advancement.

The law further clarifies the definition of a 'church' to be a place of worship, which includes Christian Churches, Temples, Mosques, Synagogues, and other places of worship. Conventions, associations and integrated auxiliaries of churches are also included.

A place of worship of any religion can qualify for the exemption, provided it is organized to fulfil all the other requirements.

What kind of property owned by a religious organization is exempt?

Generally, a qualified organization may exempt property of the following types:

  • Actual places of religious worship.
  • Personal property used at the place of worship.
  • Residences for clergy and,
  • Personal property used at the residences.

Public property owned by the state or a taxing unit and leased to a religious organization may receive the religious organization exemption if the property is used as a place of regular religious worship and meets other mandatory requirements.

A property owned by a religious organization and leased for use as a school may be exempt as a school.

The exemption also applies to partially complete improvements or for physical preparation. Such real property must be designed and intended to be used by the religious organization as a place of regular religious worship when complete. The exemption for incomplete improvements lasts for three years.

Endowment funds owned by a qualified religious organization is also exempt from taxes if they are used exclusively for the support of the religious organization and are invested exclusively in bonds, mortgages, or property purchased at a foreclosure sale for the purpose of satisfying or protecting the bonds or mortgages. However, foreclosure-sale property that is held by an endowment fund for longer than the two-year period immediately following purchase at the foreclosure sale is not exempt from taxation.

The land exemption has a limit of six years for contiguous property and three years for non-contiguous property. A tract of land is considered to be contiguous with another tract of land if the tracts are divided only by a road, railroad track, river, or stream.

What happens to property taxes when a religious organization sells some property?

If land owned by a religious organization with an intention to expand the place of regular worship or construction of a new place of regular religious worship is sold or transferred to another individual in a year in which the land receives an exemption, an additional tax is imposed on the land. This is equal to the tax that would have been imposed on the land, had the land been taxed for each of the five years preceding the year in which the sale or transfer occurs. Additional interest at an annual rate of 7% calculated from the dates on which the taxes would have become due is also levied. This is applicable only to the part sold or transferred if only a part of the complete property is sold or transferred.

A tax lien in favor of all the taxing units for which the tax is imposed is attached to the land on the date the sale or transfer occurs to secure payment of the tax, interest and any penalties incurred.

The taxes and interest become delinquent if not paid before the next February 1, that is at least 20 days after the date the bill is delivered to the owner of the land. Interests and penalties are incurred in such a case.

The sanctions do not apply if the property's sale or transfer occurs as a result of:

  • A sale for right-of-way.
  • A condemnation.
  • A transfer of property to the state or a political subdivision of the state to be used for a

public purpose or,

  • A transfer of property to a religious organization that qualifies the property for an exemption, for the tax year in which the transfer occurs.

Are tax exemption provisions lost if religious organizations use property for secular purposes?

Use of property that qualifies for the exemption for occasional secular purposes other than religious worship does not result in loss of the exemption, if the primary use of the property is for religious worship and all income from the other use is devoted exclusively to the maintenance and development of the property as a place of religious worship.

Religious place property tax exemption

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