How state could save taxpayers on parsonages
A Houston Chronicle investigation found that thousands of religious organizations across Texas have used a vaguely worded Texas law to obtain a 100 percent tax break for clergy residences — homes where spiritual leaders reside.
The so-called parsonage exemption, which comes on top of breaks religious organizations already receive on their houses of worship and land, costs other state taxpayers millions of dollars a year to make up for the lost revenue.
Although many of the homes are modest, at least 28 were worth more than $1 million, the newspaper found. More than two dozen should not have qualified for the tax break because they are on lots that exceed the legal maximum size of 1 acre.
Interviews with appraisers and tax experts, as well as a review of how other states regulate their parsonages, suggest several reforms Texas lawmakers can make to the valuable exemption. They range from tweaks to an overhaul.
Limit the value of the tax break: Most Texas parsonages are modest. But some are extravagant properties worth many times the value of a home most taxpaying Texans could afford.
One state dramatically limits the value of the parsonage tax break: In Maine, religious organizations can claim only $20,000 of a clergy residence as tax-free; the remaining value is taxed at regular local rates.
Texas lawmakers could include a similar limitation to curb the cost to other taxpayers of the state’s most grandiose parsonages owned by religious organizations that clearly can afford to pay their residential property taxes.
Limit the size and number of parsonages for each organization: In 1956, the Texas attorney general issued an opinion that the state constitution’s 1acre parsonage limitation meant an individual religious organization could have no more than a single acre’s worth of clergy residences in all. Yet that reading of the law appears never to have been tested or enforced. The Chronicle identified several organizations claiming multiple tax-free clergy residences totaling more than an acre.
Texas lawmakers could establish clear area and/or residence limits. Montana restricts to 15 acres the total property a church can claim as tax-exempt for any reason. New Jersey permits each individually incorporated religious organization two parsonages. In Tennessee, it’s only one.
Ask applicants to earn their break: Like Texas, many states treat the clergy residence exemption as an entitlement: Check a few boxes and receive the tax break. But others require applicants to justify the valuable designation before receiving it.
In Pennsylvania and Oregon, for example, religious organizations can’t merely declare that a tax-free clergy residence is necessary. They must affirmatively make the case why it is essential to their worship.
Tighten the terms: Several states limit a religious organization seeking a clergy residence tax break to a trained and ordained leader. Texas, by comparison, leaves the term largely undefined.
The Chronicle found instances in which students, teachers and lay members lived in taxfree parsonages. A more specific legal definition of “clergy” would limit the taxpayer-funded homes to the religious leaders it was intended to help.
Close the loophole: The state law limiting parsonages to a single acre is clear; however, the statute also contains a loophole. If the religious organization also claims that worship- or church-related activity occurs at the residence, then the acreage limit no longer applies.
Requiring a parsonage to be used only as a residence to earn its tax break would close the gap.
Have organizations periodically reapply: Chief appraisers said that with local populations swelling from the state’s explosive growth, they scramble every year to certify the rolls of taxpaying property owners by the summer deadline. So they had little time left to regularly re-examine property owned by religious organizations that paid no taxes.
As a result, there is wide disparity in how often individual appraisal districts require religious organizations to renew their parsonage tax breaks. Although it is not mandated by law, Dallas asks for renewals every year; Bexar requires them once a decade. El Paso’s chief appraiser acknowledged that once her office granted a parsonage exemption, the religious organization typically was not asked to reapply.
Requiring regular reapplication could catch improperly approved residences or those that no longer qualified. The comptroller’s office, which oversees state tax exemptions and regularly audits appraisal districts, also could conduct the reviews to ensure uniformity.
Fix the form: In many parsonage applications the Chronicle reviewed, organizations submitted tax break requests for properties exceeding the legal size limit yet still received the tax break. One possible reason: The state form used by every appraisal district does not specify that a parsonage can’t legally be over 1 acre. Adding language that clearly states the law could stop improper clergy residences from getting approved.
Start counting: Every two years, the Texas comptroller’s office publishes a report on how much the largest property tax breaks cost the state’s school districts in uncollected revenue. This allows the public and policymakers to see in actual dollars the financial slack other taxpayers must pick up for the exemptions.
Yet the category of “Religious Organizations” is left blank. A comptroller spokesman said that’s because the agency is required only to tally the total value of charitable and nonprofit organizations.
Breaking out the number isn’t difficult, though. The Chronicle asked the state’s 10 largest appraisal districts, representing more than half of the state’s total population, for the value of taxexempt religious property in each. Only Collin County did not respond.
The total: more than $23 billion worth of untaxed property — a figure that’s certainly low because appraisers often don’t bother updating the market value of parcels that produce no tax revenue.
Start coding: Several appraisal districts conceded they lacked the technical capability to identify the tax-free clergy residences in their jurisdictions. Even those that could generate a list said it took hours of staff time.
Coding parsonages separately from other religious and nonprofit property would allow appraisers to check values and exemption applications with a few keystrokes. All it would take is for the comptroller’s office, which oversees Texas tax matters, to require it.
Turn the job over to the Office of the Attorney General: Texas legislators have made it costly for appraisal districts to defend contested or controversial decisions. When a disputed case goes to court, districts must pay a property owner’s legal fees if the district loses — yet appraisal districts can’t recover theirs if they win.
If a district has to refund money, it must be repaid with 9.5 percent interest — far higher than any bank currently pays. While they’ve seen a huge jump in the number of protests and court cases contesting property appraisals, appraisers said their legal budgets remain tiny.
The upshot: Many districts — particularly in small counties — said they strive to avoid confrontation if at all possible, carefully selecting the few cases they have the time and money to vigorously evaluate and defend.
As a consequence, private attorneys said — and appraisers agreed — that interpretation and enforcement of the religious exemption statutes varied from district to district across the state. Having the state’s largest law firm — and the agency already charged with enforcing nonprofit laws in Texas — handle parsonage exemption applications would ensure statewide uniformity at both the review and enforcement stages.