Tax Type
Local Taxes
Property Tax
Description
Religious or Charitable Exemption; Real Property Taxation
Topic
Exemptions
Local Power to Tax
Local Taxes Discussion
Property Subject to Tax
Date Issued
11-07-1989
[Opinion - Virginia Attorney General: 1989 at 342]
REQUEST BY: Honorable David L. Berry Commissioner of the Revenue for Rockingham County Courthouse Harrisonburg, Virginia 22801
OPINION BY: Mary Sue Terry, Attorney General
OPINION:
You ask several questions concerning exemption from real property taxation for three organizations claiming religious or charitable exemptions.
I. Applicable Statutes
Section 58.1-3617 establishes the religious or charitable organization's exemption from property taxation, subject to certain use restrictions:
Any church, religious association or religious denomination operated exclusively on a nonprofit basis for charitable, religious or educational purposes is hereby classified as a religious and charitable organization. Notwithstanding § 58.1-3609, only property of such association or denomination used exclusively for charitable, religious or educational purposes shall be so exempt from taxation.
Section 58.1-3281 provides, in part, that "[t]he commissioner [of the revenue], before making out his land book, shall assess the value of any building and enclosure not previously assessed, found to be of the value of $ 100 and upwards. The value shall be added to the value at which the land was previously charged."
Otherwise exempt property is taxable pursuant to § 58.1-3603(A) when a tax exempt building or land, or part thereof, is leased or otherwise is a source of revenue or profit. If only a portion of the property is a source of revenue or profit and the remainder is used by an exempt organization for tax exempt purposes, only the portion of the property which is the source of revenue or profit is taxable.
Section 58.1-3650(A) provides:
The real and personal property of an organization designated by a section within this article [Article 4, Chapter 36 of Title 58.1] and used by such organization exclusively for a religious, charitable, patriotic, historical, benevolent, cultural or public park and playground purpose as set forth in Article X, § 6(a)(6) of the Constitution of Virginia, the particular purpose for which such organization is classified being specifically set forth within each section, shall be exempt from taxation so long as such organization is operated not for profit and the property so exempt is used in accordance with the purpose for which the organization is classified.
II. Property of Massanetta Springs, Inc. Conference Center of the Synod of the Virginias (P.C. U.S.A.)
A. Facts
Massanetta Springs, Inc. Conference Center of the Synod of the Virginias (P.C. U.S.A.) ("Massanetta Springs")1 owns over 100 acres of real estate in Rockingham County, on portions of which 60 cottages have been built. You state that Massanetta Springs typically leases an unimproved lot, and the sample lease you provide permits the lessee to construct and maintain a cottage and other improvements on the lot, in addition to authorizing the lessee to sell the cottage with the permission of the lessor. Some of the cottages are built and used as a full-time residence by the lessee. Other cottages are used as rental property. Several of the cottages have been built by churches that use them for church-related activities, such as summer Bible conferences, youth ski trips and weekend retreats.
You ask whether either the land or the cottages in the facts you present are taxable and, if so, whether Massanetta Springs or the lessees who built the cottages are liable for the tax.
B. Value of Buildings and Improvements Constructed by Lessee on Land of Lessor Assessed to Lessor
Pursuant to § 58.1-3015, real property is taxed to the owner of the property. § 58.1-3281 provides that the value of previously unassessed improvements in excess of $ 100 shall be added to, and included in, the value of the land previously assessed.2
A prior Opinion of this Office concludes that the value of buildings and improvements constructed by a lessee upon the real property of a lessor should be added to the value of the land and assessed to the lessor, as the owner of the land. See 1968-1969 Att'y Gen. Ann. Rep. 224. The analysis of your property tax exemption inquiries, therefore, begins with the premise that the cottages and land are assessed to Massanetta Springs as the owner (lessor) of the property.
C. Property Used Exclusively for Religious Purposes Is Exempt from Taxation; Property Used as Permanent Residences, Vacation Homes or Rental Property Is Not Exempt
Exemption from property tax pursuant to § 58.1-3617 requires that the property be used exclusively for charitable, religious or educational purposes. In the facts you present, two categories of property use must be examined. Some of the lots contain cottages that are constructed by churches and used for church-related activities. Other lots contain cottages constructed by private individuals for use as permanent and vacation residences, as well as rental property.
With respect to the cottages constructed by churches, the use of this property for Bible conferences, youth ski trips and weekend retreats would qualify as an exempt use. It is my opinion, therefore, that the provisions of § 58.1-3617 apply to exempt this property from taxation.3 Tax exemption pursuant to § 58.1-3617, however, is subject to the limitations in § 58.1-3603, discussed below.
With respect to the land with cottages built and used by private individuals, the use does not appear to be for a religious or charitable purpose. It is my opinion, therefore, that such property is taxable and that Massanetta Springs is liable for real property taxes on the value of land and buildings used by individuals as permanent residences, vacation homes and rental property.4
D. Otherwise Exempt Property of Massanetta Springs Is Taxable if it Generates Substantial Net Profits
The property tax exemption granted pursuant to § 58.1-3617 is limited by § 58.1-3603(A), which provides that, if tax exempt land or a part thereof becomes a source of revenue or profit for its owner, it loses its tax exempt status. Leasing by the tax exempt owner does not automatically subject the otherwise tax exempt property to taxation. The Supreme Court of Virginia has construed the terms "revenue" and "profit" to mean "substantial net profit." Norfolk v. Nansemond Supervisors, 168 Va. 606, 620, 192 S.E. 588, 594 (1937); Newport News v. Warwick County, 159 Va. 571, 593-98, 166 S.E. 570, 578-79 (1933). As a result, the property loses its tax exempt status only if the owner derives a substantial net profit from a lease after deducting all expenses. See Att'y Gen. Ann. Rep.: 1987-1988 at 601; 1975-1976 at 339, 340; 1973-1974 at 399.
Whether an owner has derived a substantial net profit is a question of fact for the commissioner of the revenue to determine. See 1987-1988 Att'y Gen. Ann. Rep., supra, at 602-03. If you determine that Massanetta Springs derives a substantial net profit from its leases on property exempt pursuant to § 58.1-3617, it is my opinion that the value of the land and buildings would be taxable to Massanetta Springs.
III. Property of Sunnyside Presbyterian Home and Retirement Village Ltd.
A. Facts
The second organization your inquiry concerns is Sunnyside Presbyterian Home ("Sunnyside"), which recently built a retirement apartment complex in which it sells the right to lifetime occupancy in complex units. A third organization, Retirement Village Ltd. (the "Village"), operates a "life lease" village in which it leases homes for occupancy, or allows individuals to build homes on village real estate. You state that both Sunnyside and the Village are exempt from income taxation pursuant to § 501(c)(3) of the Internal Revenue Code (West Supp. 1989).
You ask whether Sunnyside is exempt from real property taxation on the apartment complex and whether the Village also is exempt from this taxation on the "life lease" homes.
B. Property Owned by Organization Exempt from Federal Income Taxation Is Subject to Real Property Taxation, Unless Exemption Authorized by Virginia Constitution or Statute Applies
The exemption of an organization from federal income taxation pursuant to Internal Revenue Code § 501(c)(3) has no bearing on whether the property of the organization is exempt from local property taxation. Property owned by an organization exempt from federal income taxation is subject to local real property taxation, unless a Virginia constitutional or statutory exemption applies. Manassas Lodge v. Prince William, 218 Va. 220, 237 S.E.2d 102 (1977); 1981-1982 Att'y Gen. Ann. Rep. 373.
C. No Constitutional or Statutory Authority Exists to Exempt Sunnyside or Village Property; Organizations May Seek Designation Pursuant to § 58.1-3650
I have reviewed the Constitution and Code of Virginia to determine whether the apartment complex owned by Sunnyside and the "life lease" homes owned by the Village are exempt from local property taxation. I find no existing constitutional or statutory authority under which Sunnyside or the Village may claim a tax exemption. Either organization, of course, may obtain an exemption by specific designation of the General Assembly pursuant to § 58.1-3650.
With kindest regards, I am
1 I assume, for purposes of this Opinion, that you have determined that Massanetta Springs qualifies as a religious organization pursuant to § 58.1-3617.
2 See also § 58.1-3280 (land is to be assessed with its improvements). In certain circumstances, land and improvements owned separately may be separately assessed. See § 58.1-3282 (land owned by public service corporation or political subdivision of the Commonwealth and improvements thereon owned by another may be assessed separately).
3 Section 58.1-3203 provides that, if the lessor is tax exempt, the leasehold interest is taxable to the lessee. In this case, however, the interest of the lessee church is exempt from the tax pursuant to § 58.1-3617 because of its exclusive use for a religious purpose.
4 Although the locality will look to Massanetta Springs as the party ultimately responsible for the payment of the tax, the lessee may have a contractual duty pursuant to the lease actually to pay the tax.
Attorney General's Opinion