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Tuesday, October 10, 2006

Law - NY Times series on government and religion continues; an Indiana slant today

Today is the third day of the NY Times series and the focus today is on tax breaks for religious entities: "As religious organizations extend their scope beyond traditional worship, government at all levels is increasingly extending their tax exemptions."

See the earlier ILB entry here. The series so far:

Part 1: As Exemptions Grow, Religion Outweighs Regulation
Part 2: Where Faith Abides, Employees Have Few Rights
Part 3: As Religious Programs Expand, Disputes Rise Over Tax Breaks
Indiana is the setting for the beginning of today's tax breaks story:
The similarities between Holy Cross Village at Notre Dame, on the north side of South Bend, Ind., and Hermitage Estates, south of town, are almost disorienting. The two retirement communities have the same simple gabled ranch houses, with the same touches of brick and stone, clustered around a pond with the same fountain funneling spray into the air and ducks waddling down the grassy bank.

But the retired residents of Hermitage Estates pay an average of about $2,300 per unit in property taxes. The management of Holy Cross Village, the Brothers of Holy Cross, says that development should be exempt from property taxes, and it has taken that argument to court.

As the Brothers of Holy Cross, a Roman Catholic religious order, sees it, providing the elderly with the amenities of the village — a sense of security, social opportunities and various services to make independent living easier — is a charitable activity rooted in its pastoral mission to serve others.

Members of the St. Joseph County Property Tax Assessment Board of Appeals, all but one of them lifelong Catholics, see it differently. To them, a charitable ministry does not consist of providing lovely retirement living to affluent people. The current residents of Holy Cross Village have an average net worth of $1 million. Those with deposits on the units under construction are even better off, averaging $1.6 million.

If Holy Cross Village is not taxed, members of the assessment board point out, a heavier burden will fall on the working families in the county that are struggling to pay the taxes on their small homes in careworn communities like the west side of South Bend.

“I was educated by the Brothers of Holy Cross” at St. Joseph’s High School, “and I have a great deal of respect, love and affection for them,” said Dennis J. Dillman, a longtime board member. “But I think what they’re doing is just not right. And that is based on the values they taught me at their schools.”

The conflict in South Bend echoes disputes from Alaska to Florida that raise the following issue: As religious organizations of all faiths stretch their concept of mission far beyond traditional worship, should their traditional tax exemptions expand as well? Increasingly, government at all levels is answering yes.

The property tax exemption is one of the oldest tax breaks granted to religious organizations, but it is not the only one. Lawmakers and judges have also approved what amounts to special tax treatment for religious organizations and some of their employees, including exemptions on personal-income and payroll taxes, and have made it easier for them to get tax-exempt construction loans for purely religious projects.

Like the exemptions from federal and state regulations that have proliferated for religious groups in recent years, these tax breaks are widely defended both as an acknowledgment of religion’s contributions to society and as a barrier to unjustified government limitations on the liberty that religious organizations enjoy under the First Amendment.

But in some communities like South Bend, tolerance of religious tax breaks is fraying as local governments struggle to provide basic services with limited resources. * * *

Holy Cross Village initially paid the taxes the county demanded, but subsequently got court permission to hold off on future payments while its appeals go forward, according to Kevin Rose, a spokesman for the project’s management.

When the Brothers of Holy Cross appealed the county’s ruling to the Indiana Board of Tax Review last year, it lost. [access opinion here, dated 6/7/05] “A charitable purpose involves something beyond merely successfully marketing one’s services to seniors,” the review board said. “It implies some level of sacrifice on the part of the entity providing those services. It is this sacrifice that separates an ‘obviously charitable act’ from the everyday purposes and activities of man in general.”

The fight has now moved to the courts, where the project’s management hopes to fare better. “We thought we were within the orbit of what was considered to merit that exemption,” Mr. Wychocki said. “Now we just stand and shake our heads.”

A check of the Indiana Courts docket shows that oral arguments will be heard in this case, Brothers of Holy Cross v. St. Joseph County Property Tax Assessment Board of Appeals, before Tax Court Judge Thomas G. Fisher, on Nov. 30, 2006 (Case Number: 49 T 10 - 0507 - TA - 00059).

For some background, see this ILB entry from Nov. 1, 2004.

Posted by Marcia Oddi on October 10, 2006 01:50 PM
Posted to General Law Related