Court of Appeals rules on when a church becomes an enterprise

Friday, March 29, 2013 at 2:03am

As Pastor Dan Scott expanded Christ Church Pentecostal in South Nashville about a decade ago, he envisioned the church offering local citizens a “third space” — a place where people could come together and experience community.

That idea manifested itself in the form of a new gym and activities center, along with a cafe and a bookstore.

While the church may have viewed those amenities as a continuation of their religious mission, the Tennessee Court of Appeals ruled on March 21 that those properties weren’t eligible for full tax-exempt status. The opinion upheld a 2011 Davidson County Chancery Court ruling.

In order for a religious property to qualify for tax-exempt status in Tennessee, it must be used “purely and exclusively” for religious purposes. The gym received a 50 percent tax exemption due to the fact that CCP charged for membership fees but also didn’t turn anyone way.

But the main point of contention for the state was the bookstore, which the Court of Appeals called “a far cry from the traditional use of church facilities ... for worship and fellowship.”

“The bookstore/cafe area in this case was nothing short of a retail establishment housed within the walls of the Community Life Center, complete with paid staff, inventory control, retail pricing, and a wide array of merchandise for sale to the general public,” the opinion read.

CCP closed the bookstore and allowed the YMCA to operate the activities center to comply with the law. But the state is still seeking $168,000 from a four-year period of operating the bookstore — a sum Scott said could have “put us under” during the recession.

But Scott has pushed forward with the case in order to get a definitive answer about an age-old debate: the separation of church and state.

“We got our hand slapped after the fact, not before the fact, because there was no way to determine where that line was — if you cross it, you’re seen as a commercial enterprise,” Scott said.

“We actually realized that churches have abused that privilege. We’ve expressed that to the judges. We’re not anarchists or anything like that. We’re willing to pay the tax. Our question has been: That line must be established so we know where it is.”

The church is being represented in the case by the Alliance Defense Fund, self-described as “a servant ministry building an alliance to keep the door open for the spread of the Gospel by transforming the legal system and advocating for religious freedom.”

Katherine Flake, a professor of American religious history at Vanderbilt University Divinity School, said the Tennessee Court of Appeals made the correct ruling.

“Ultimately, it comes down to just because you’re religious, it doesn’t make everything you do religious,” Flake told The City Paper. “It’s a profit-making enterprise, and as a profit-making enterprise, it has to be treated fairly with all other profit-making enterprises.”

But Scott wants clarification. He points to the juxtaposition between the tradition of smaller, community-oriented churches and the mega-churches of today. 

“We had little churches dotting the landscape, and they had a little fellowship hall, a little book table and a basketball court. When you have 100 people that’s what you have. But when you have 10,000 people in a large urban setting, those same things multiply to become bigger things,” Scott said.

“That’s an argument I resonate with and will defend, but I also acknowledge that some churches go way beyond that kind of multiplication of reasonable infrastructure, and we’re paying the price for it.”

Regardless of the circumstances, Flake believes churches should be designated as commercial for tax purposes if they can’t sustain themselves through “traditional means.”

“The rise of megachurches means the rise of the cost of sustaining those churches. If they do not support their costs through traditional means of offerings and gifts, then they are going to have to turn to commercial enterprise,” Flake said. “That’s one of the markers of a megachurch. If they provide services for members that are very costly, and if those members aren’t paying for them, they’ll ask the taxpayers to do it.”

Scott also told The City Paper that he believes CCP, with a congregation of about 3,000, was targeted due to its status as an independent church that isn’t backed by a denomination.

“We feel like we were singled out because we may not fight it ... but I think [the state] wanted a precedent. And an independent church is easier to get a precedent because it can’t rally a massive number of congregants,” Scott said. “Meanwhile, you’ve got larger churches in other areas and other counties that are more affluent and so forth, and nobody bats an eye and nobody cares. That was what was grating to us.”

The Tennessee State Board of Equalization, which is charged with overseeing local tax assessment processes, declined comment on the lawsuit because it was still pending.

Scott said he anticipates they will appeal the decision further.

“This is something all churches are going to have to deal with, and the society has a right to participate in a conversation about what we should be involved in if we wish to be tax-exempt,” Scott said.

10 Comments on this post:

By: Loner on 3/29/13 at 5:57

A 3,000-member church is a mega-church and the pastors of these lucrative enterprises are businessmen working the frightened masses....the oldest profession is not prostitution, the oldest profession is the clerical profession.

The trouble with the idea of taxing churches, temples, mosques etc. is that, if they started to pay taxes, then they would become fully-entitled to representation in the political process. That would be disastrous to our secular democracy.

The tax-exempt status of houses of worship keeps the theocrats, religionists and faith-based fanatics out of government; at least that was the Founders' and Framers' master hasn't worked perfectly; but it's better than no firewall at all separating democracy from theocracy.

By: Loner on 3/29/13 at 8:51

Looks like Pastor Dan Scott emphasized the "cost" in "pentecostal" in his appeals for revenue and his financial wheelings and dealings....profit and loss...prophets and costs...another pastor fleecing the flock?

By: Jughead on 3/29/13 at 11:48

I cannot believe that the "pastor" was not given tax advice in advance. He took a chance, now whines when it backfires.

By: pswindle on 3/29/13 at 12:12

It stops being a church when they cannot separate church and state.

By: BenDover on 3/29/13 at 12:58

I didn't know they were Pentecostal. I thought they were non-denominational.

By: BenDover on 3/29/13 at 1:01

It would seem reasonable that the church could expect the exemption for their bookstore as that was the status quo before this challenge. If it operated after a cease-and-desist type notification then that could be fair to tax; but going back and hitting them for years before would seem like changing the rules on them in the middle of the game.

By: BenDover on 3/29/13 at 1:02

What douche-bag tax assessor had such a hard on for the church in the first place?

By: harviele on 3/29/13 at 3:00

harviele If a church becomes a business, it should be taxed like any other business. The reason churches are not taxed is because it is a group of people getting together to worship, not to run a business. A church doesn't even have to be in a building as it could just be a bunch of people getting together anywhere to worship. Any business adventure needs to be taxed just like any other business formed by a group of people.

By: Vuenbelvue on 3/30/13 at 4:31

Do non-profits like St. Thomas & Baptist Hospital or schools like Belmont and Lipscomb (both colleges or K-12) pay the sales tax on building materials when they construct a new building or renovate? The only organized religion that I know of that doesn't use the non-exempt rule when constructing new church buildings is the LDS or Latter Day Saints. A $5 million dollar building that is tax exempt keeps about $200,000 in sales taxes that any other business pays. Do any of them pay Property Tax? It may not be the $1.00 sales tax on a $10 book sales. It could be alot more money the local government loses.

By: BigPapa on 4/1/13 at 7:48

All of it should be taxed. end of story.