Grace Cathedral, Inc. v. Testa

• Decision Date: 02 June 2015
• Docket Number: No. 2014–0373.,2014–0373.
• Citation: 36 N.E.3d 136,143 Ohio St.3d 212,2015 Ohio 2067
• Parties: GRACE CATHEDRAL, INC., Appellant, v. TESTA, Tax Commr., Appellee.
• Court: Ohio Supreme Court

143 Ohio St.3d 212

36 N.E.3d 136

2015 Ohio 2067

GRACE CATHEDRAL, INC., Appellant,

v.TESTA, Tax Commr., Appellee.

No. 2014–0373.

Supreme Court of Ohio.

Submitted Feb. 24, 2015.

Decided June 2, 2015.

Roderick Linton Belfance, L.L.P., William G. Chris, and Brandon T. Pauley, Akron, for appellant.

Michael DeWine, Attorney General, and David D. Ebersole and Barton A. Hubbard, Assistant Attorneys General, for appellee.

O'DONNELL, J.

{¶ 1} Grace Cathedral, Inc., filed claims for tax exemption, one, pursuant to R.C. 5709.07(A)(2) —houses of public worship, and the other, pursuant to R.C. 5709.12(B) —property used for charitable purposes, in connection with a recently constructed building located on a parcel of land that had been exempted as necessary for the proper occupancy, use, and enjoyment of the preexisting church building on the same parcel. Although originally intended to form part of an onsite Bible college, the building was repurposed when the church decided to conduct the Bible college as an on-line operation. The record reflects that use of the building has been limited to providing transient lodging to congregants who visit the Akron area and desire to attend services at Grace Cathedral itself; additional religious activity associated with the worship in the church occurs in the building, such as fellowship and religious conversation, meditation, and learning.

{¶ 2} The tax commissioner denied Grace Cathedral's claimed exemptions and the Board of Tax Appeals ("BTA") upheld that determination. In its decision, regarding the claim of exemption under former R.C. 5709.07(A)(2) for houses devoted exclusively to public worship, the BTA applied the test we articulated in Faith Fellowship Ministries, Inc. v. Limbach, 32 Ohio St.3d 432, 437, 513 N.E.2d 1340 (1987), and held that the building failed to qualify as being " ‘used in a principal, primary, and essential way to facilitate public worship.’ " BTA No. 2012–2168, 2014 Ohio Tax LEXIS 963, *5 (Feb. 12, 2014). On appeal to this court, the church argues that the building's use in facilitating attendance at religious services qualifies for exemption under Faith Fellowship Ministries, given the circumstances of this case. We agree and therefore reverse the decision of the BTA. Because we allow the exemption for tax year 2010 under R.C. 5709.07(A)(2), the public worship exception, we do not reach the claim of exemption based on exclusive charitable use under R.C. 5709.12(B).

FACTUAL BACKGROUND

{¶ 3} On September 30, 2010, Grace Cathedral filed its exemption application for the tax year 2010 pertaining to additional buildings added to an exempt church parcel "in order to increase Ministerial Training," and it identified "[t]he first building" as a "Dormitory which will be used to house those who are in the Ministerial Training Program." The other building was a "Study Hall for the Students."

{¶ 4} Responding to an inquiry from the tax department, Grace Cathedral Media Director and Finance Manager Catherine D. Shupe submitted a site plan with a letter dated April 20, 2011, stating that Grace Cathedral had "revised its plans for use for the buildings, and the buildings will not be used as part of a Ministerial Training Program." Specifically, the "Study Hall" would be repurposed as a location for religious education seminars and as a meeting area for members in conjunction with special worship services such as wedding and funeral services. Regarding the building at issue here, the letter stated, "The Dorm is made available to visitors in need of temporary housing, free of charge, while they visit the church to participate in worship services."

{¶ 5} These two new buildings, Shupe confirmed, are in addition to the building identified as the "existing" building on the site plan, which has been and is used as a church "in which weekly religious services are held." The site map shows that the dormitory building was constructed behind the study hall and the church building on a largely rectangular parcel, on which the larger church edifice is the main building that fronts on the street.

{¶ 6} On May 11, 2012, the tax commissioner issued a final determination. The commissioner found that the study hall was "used for religious educational seminars and a meeting area for church members," with the result that its "use qualifies for exemption pursuant to R.C. 5709.07." By contrast, "the building designated as a ‘dormitory’ is used as temporary housing for visitors who attend services of the church," and pursuant to "[t]he general rule in Ohio * * * that residential property is not exempt from taxation," the commissioner denied exemption. The commissioner also reviewed the application under the claim of exemption for charitable use and found that the case law prohibited the grant of exemption based on residential use of the property.

{¶ 7} Grace Cathedral appealed to the BTA, which held a hearing on September 16, 2013. It presented testimony from Paul Machamer and Catherine Shupe, which established that there are two Grace Cathedral church locations in Summit County: the property at issue and another located in Cuyahoga Falls. Regular services are held at both locations. Special events include "camp meeting" weekends and a baptismal service once a year. Attendance on site at the church services was estimated at over 1,000 weekly.

{¶ 8} Because the congregation's leader, the Reverend Ernest Angley, travels and conducts a television ministry, Grace Cathedral has members and supporters throughout the country and elsewhere in the world, some of whom come to Akron to attend live services. The dormitory building provides lodging for a weekend or for a full week encompassing two weekends. This use occurs on about 40 to 50 percent of the weekends during a year. When not so used, the building is used for religious services and related study classes, apparently on an ad hoc basis.

{¶ 9} In its decision issued February 12, 2014, the BTA acknowledged Grace Cathedral's argument that the dormitory is not a "residence" but rather " ‘directly and primarily provides for the proper occupancy, use, and enjoyment of the church for public worship’ " by analogy with the church's parking lot. BTA No. 2012–2168, 2014 Ohio Tax LEXIS 963, *3–4 (Feb. 12, 2014). But the BTA concluded that the use of the dormitory did not satisfy the standard set forth in the case law that the property must be used " ‘in a principal, primary, and essential way to facilitate * * * public worship.’ " Id ., *5, quoting Faith Fellowship Ministries, 32 Ohio St.3d at 437, 513 N.E.2d 1340.

{¶ 10} The BTA ruled that uses of property that are " ‘merely supportive’ " of worship do not qualify for the house-of-public-worship exemption. Id ., quoting Faith Fellowship Ministries at 436, 513 N.E.2d 1340. Two circumstances led the BTA to conclude that the dormitory's use was "merely supportive." First, the dormitory was used primarily on weekends to house out-of-town visitors who came to participate in regular church services or special weekend worship events, which take place about six times a year. Second, the property was vacant approximately 50 to 60 percent of the time. Because of these circumstances, the BTA concluded that the dormitory use was "merely supportive" of the public worship at Grace Cathedral itself and it therefore did not qualify the building for exemption under R.C. 5709.07(A)(2).

{¶ 11} The BTA further addressed the claim of exclusive charitable use under R.C. 5709.12(B) and found that although "the record contains evidence that appellant does charitable work throughout the world," there was "insufficient evidence that the subject property is used in furtherance of its charitable purposes." It also relied on the court's decision in Church of God in N. Ohio, Inc. v. Levin, 124 Ohio St.3d 36, 2009-Ohio-5939, 918 N.E.2d 981, for the principle that a use of property ancillary to and supportive of public worship does not typically qualify as a charitable use. Id ., *6–8. The BTA therefore affirmed the commissioner's denial of exemption for the dormitory building.

{¶ 12} Grace Cathedral has appealed the decision of the BTA to this court.

ARGUMENTS OF THE PARTIES

{¶ 13} Grace Cathedral presents two propositions of law: one claiming entitlement to the house-of-public-worship exemption under R.C. 5709.07(A) and one asserting a right to the exemption for property used exclusively for charitable purposes under R.C. 5709.12(B). Because the public worship exemption applies and is dispositive of this appeal, we shall address it initially and deem it unnecessary to consider the other exemption claim advanced by Grace Cathedral.

{¶ 14} In support of its public-worship exemption claim pursuant to R.C. 5709.07(A)(2), which provides exemption for "[h]ouses used exclusively for public worship * * * and the ground attached to them * * * that is necessary for their proper occupancy, use, and enjoyment," Grace Cathedral maintains that the building provides "an extension of the worship experience and is utilized in continuing fellowship, religious discussion and religious learning." Moreover, Grace Cathedral argues that "keeping out-of-town visitors on the Grace Cathedral campus during their stay promotes fellowship among the church members and clergy and maximizes the opportunity for visitors to attend all church services and events during their visit."

{¶ 15} In opposition, the tax commissioner urges that the case law declines to extend the public worship exemption to residential use of property, including cases that view the provision of overnight lodging as a "functional equivalent" of residential use for purposes of denying exemption. See Gerke v. Purcell, 25 Ohio St. 229 (1874) ; Faith Fellowship Ministries, 32 Ohio St.3d 432, 513 N.E.2d 1340 ; Moraine Hts. Baptist Church v. Kinney, 12 Ohio St.3d 134, 465 N.E.2d 1281 (1984).

STANDARD OF REVIEW

{¶ 16} Our review of BTA decisions is to determine whether they are reasonable and lawful. See ...