NJ Tax Court Delivers Big Victory for Church
Churches in NJ usually don’t have a problem maintaining property tax exempt status as long as they continue to be used for religious purposes. But in one case, the United Methodist Church was hit with added and omitted assessments by the Borough of Stratford’s tax assessor. In other words, the assessor not only took the church’s exemption away but also increased its assessment!
The parties found themselves in the Tax Court of New Jersey where the church sought to reverse the county board’s decision affirming the 2022 omitted assessment. The court ultimately granted the motion and rendered the assessment void. Let’s take a look at the case and see how the court rendered its decision.
Background
The Greater New Jersey Annual Conference of the United Methodist Church is a religious organization located in the Borough of Stratford. Recognized as a tax exempt religious entity by the Internal Revenue Code and under NJ law, it is exempt from income taxes as well as property taxes.
For the 2022 tax year, the borough’s assessor classified the property as 15D, meaning it was actually used in the work of religious and charitable organizations. In order to continue upholding the exemption, the assessor asked the church to complete and file a Further Statement certifying that the criteria for tax-exempt status were still satisfied. The church never submitted the statement. The assessor notified the church that it was going to impose both an omitted assessment for 2022 and an added assessment for 2023.
The matter was first brought before the County Board which affirmed the assessments. The church then appealed to the NJ Tax Court where it filed the motion seeking to reverse the county board judgment. The borough opposed the motion based on, among other reasons, the failure of the church to file a Further Statement and that the property may have changed use or ownership.
Religious Exemptions
To qualify for property tax exempt status in NJ, a church must:
- Be legally organized under New Jersey law.
- Own the property outright (must hold legal title; long-term leases do not qualify).
- Use the property exclusively for religious purposes, such as:
- Worship services
- Religious rituals
- Storage of religious artifacts
- Housing clergy
Tax exempt entities generally must file two forms with the state. The Initial Statement is filed first and is due by November 1 of the year before the exemption is sought. Further Statements are due every three years to maintain the exemption; these confirm that the property is still used for tax exempt purposes.
Court’s Analysis
The court addressed Further Statements and recognized that they aren’t required to maintain tax exemptions. It rejected the borough’s argument that the lack of a Further Statement rendered the church ineligible for the tax exemption.
The court then addressed whether the property changed use. When a property is no longer used for tax exempt purposes, it loses its exempt status. NJ statutes allow tax assessors to impose omitted assessments, but there must be a demonstrable change in use or ownership. In this case, there was no evidence of a change in use or ownership during tax year 2022.
Conclusion
The court held that the omitted assessment for the 2022 tax year was invalid. Notably, the court emphasized that Further Statements aren’t required to be filed in order to maintain property tax exemptions. Rather, there must be an actual change of use or ownership which would cause a property to lose its tax-exempt status.
To read the court’s full opinion, click here.
