January/February 2018 Issue

Also in this issue: Legislature Approves Options for Providing Financial Assistance for Private Lead Service Line Replacements     |     Court of Appeals Addresses the Disciplinary Process for Police and Fire Commissions

New Law Exempts Religious Organizations from Paying Property Taxes when a Church Burns Down

02.07.18

On September 21, 2017, the Wisconsin Legislature enacted 2017 Act 59, which modified the necessary-for-building requirement for religious organizations under Wis. Stat. § 70.11(4)(a) to allow religious institutions to claim the property tax emption when the religious building has been destroyed due to arson or natural disaster.

Property Tax Exemption for Religious Organizations

Wisconsin law generally provides property tax exemptions for qualified religious organizations. To be exempt from property taxes, a religious organization’s property must meet several requirements. First, the property must be ​“used exclusively” by a religious association. Second, the property must be ​“necessary for location and convenience of buildings.” Wis. Stat. § 70.11(4)(a).

Under old Wisconsin law, churches that owned vacant land devoid of any buildings did not qualify for the property tax exemption. Deutsches Land, Inc. v. City of Glendale, 225 Wis. 2d 70, 591 N.W. 583 (1999) (analyzing Wis. Stat. § 70.11(4) (1995−96)). Therefore, if a church owned land but failed to construct any buildings on its property, it was liable for property taxes. Id.

Under the new Wisconsin law, religious associations can meet the ​“necessary-for-building” requirement for property tax exemption if they plan to construct or replace a building that was destroyed by fire, natural disaster, or criminal act, regardless of whether preconstruction planning or construction has begun. 2017 Wis. Act 59; Wis. Stat. § 70.11(4)(a). In other words, if a religious organization owns property with a building on it and that building is subsequently destroyed due to arson or a natural disaster, the religious organization may still obtain the property tax exemption if it plans to reconstruct or replace the building. This applies even if the construction has not yet begun in the relevant tax year, so long as the building was destroyed within the last 25 years. 

St. Raphael’s Congregation v. City of Madison

This legislative change was recently analyzed by the Wisconsin Court of Appeals in St. Raphael’s Congregation v. City of Madison, 2017 WI App 85, 2017 WL 5953075. St. Raphael’s Congregation, a Roman Catholic church located in the City of Madison, owned 1.31 acres of land in downtown Madison, which includes the site of the former St. Raphael’s Cathedral that was destroyed by an arson fire in 2005. The Church planned to rebuild the cathedral, but as of the 2014 tax year, was unable to raise the necessary funds to begin construction. Thus, the lot did not have any building structures on it that would exempt it from property taxes in 2014. 

The Church placed a ​“Way of the Cross” station on the vacant land and sought a property tax exemption from the City of Madison for the 2014 tax year. The City denied the Church’s request. The Church then sued the City, claiming it met the exclusive use and necessary-for-building requirements to obtain a property tax exemption. The Church argued that a ​“totality of the circumstances” test applied. Therefore, the fact that the property was necessary for the planned cathedral should satisfy the test. The Church also argued that the Way of the Cross station constituted a building. The Wisconsin Court of Appeals disagreed and held that there must be an actual building on the property in the tax year at issue. Because the dispute concerned the 2014 tax year, Wisconsin’s old statute applied and the Church was required to pay the property taxes. 

Takeaways

This legislative change means other religious organizations are no longer on the hook for property taxes if their buildings are destroyed. However, this exemption may be subject to future legal challenges. The U.S. Supreme Court has held that, under the Establishment Clause, a state law cannot treat churches more favorably than other charitable organizations. Texas Monthly, Inc. v. Bullock, 489 U.S. 1 (1989). The legislative carve-out here exists only for religious associations, while the broader tax emption applies to religious, educational and nonprofit organizations. 

— Kathryn A. Pfefferle