FIRST UNITED METHODIST CHURCH OF SANTA MONICA v. COUNTY OF LOS ANGELES (1984)

The First United Methodist Church of Santa Monica (hereinafter the Church or appellant) appeals from a judgment denying its two parsonages tax exempt status, pursuant to Revenue and Taxation Code section 214.   The judgment would seem supported by evidence adduced at trial, suggesting that the subject property is not used exclusively for exempt purposes by the Church's ministers.   However, evidence that is not inconsistent with the above suggested finding strongly favors an additional and more precedential finding that the Church, as the party seeking tax exemption, did utilize its property to qualify for the claimed exemption.   The court's failure to consider the evidence underlying this latter finding compels a reversal of the trial court's judgment.

PROCEDURE

Sometime in 1980, appellant Church first submitted an application for a property tax exemption on the subject property for the tax years beginning in 1975 through 1980.   The application was premised upon section 214 of the Revenue and Taxation Code which allows for a tax exemption on property owned and operated by an exempt entity and which is used exclusively for exempt purposes.   The State Board of Equalization eventually denied the application on the ground that the parsonages were not exclusively used for religious or charitable purposes.   Thereafter, the Church sought relief from the State Board of Equalization's action in the superior court.

Sitting without a jury, the court received evidence in the form of testimony and exhibits, and heard argument from all parties before taking the matter under submission.   The court later issued a statement of decision against the contentions of the Church, containing various factual findings.   The court found, among other things, that “․ the parsonages are owned and operated by the church for the personal use and convenience of the pastor[s'] famil[ie]s,” and further, that the functions taking place in the subject premises are “ordinary daily family activities.”   Moreover, the court determined that the preponderance of the evidence demonstrated the nonexistence of an institutional necessity for the Church to utilize the property as a parsonage, and lastly, that “[t]he use of the parsonage is neither incidental to nor reasonably necessary for the accomplishment of the religious or charitable purpose of the church.”

The above statement of decision was accompanied by a judgment issued on January 31, 1983, from which appellant Church now appeals.

FACTS

Appellant Church is a California nonprofit corporation, which gained its charter in 1904.   According to its amended charter, one of the Church's corporate purposes is “[t]o purchase or otherwise acquire, hold, manage, improve, sell or otherwise dispose of all property, real and personal, which may be in any manner acquired or received by said Corporation, including churches, church schools, camp sites and residences for the use and occupancy of its ministers.”  (Emphasis added.)

As a subordinate body of the United Methodist Church, appellant Church attempts to adhere to the Book of Discipline of the United Methodist Church.   Among other things, said discipline requires that ministers under appointment to a particular church be provided by that church with “adequate housing” as part of their total compensation.

Along these lines, testimonial evidence exists that the members of the Church operate under the belief that the Church is obligated to provide its ministers housing—“․ so that when they are sent to a community to be the minister, they don't have to spend time that they have promised ․ to give entirely to God looking around for houses ․ rather, they can move right in;  go right to work and do the things that they have taken the vow to do.”

The evidence below also indicates that the “․ parsonage system is an integral part of [the] appointive system,” because it permits the Bishop to be more flexible in appointing ministers.   Testimony suggests that Church-owned parsonages “․ make the mobility of ministers possible,” and that, in turn, the Methodist system is dependent upon the mobility of ministers, which is also a long-standing tradition.   Also, in addition to its potential for serving as a base of operations for the Church and its minister(s), a parsonage can also be presented by the Church as an incentive to attract and keep the best ministers.

Both of the two subject parsonages, owned by the Church, are located more than one mile from the site of the Church in Santa Monica.   The properties were acquired for residential use by the Church's pastors and their families.   One parsonage has four bedrooms and the other has two.   Both are fairly typical of dwellings in their immediate area and contain no markings which might identify them as Church property.

Much, if not most, of the testimonial evidence presented at trial concentrates on the use of the parsonages by the ministers.   According to the testimony of Bishop Tuell, the two ministers who occupy the subject parsonages have not been required to act as watchmen for the Church.   More so, because each minister may opt either for living in a parsonage or an allowance towards the purchase or rental of private housing, neither minister is required to live in the parsonage.¹

Bishop Tuell also testified that parsonages are customarily used for a number of purposes including Sunday School classes, organizational meetings and youth meetings.   However, the Bishop was unaware of any parsonages within the State of California in which a parsonage was used for church services, meetings or nursery school, and where an application was made for an exception.

Mr. Wiggins, one of the Church's two ministers, testified that in connection with his prior service on a committee established to examine parsonages, of primary concern was the privacy of the family occupying same.   With respect to his own particular situation, the minister stated that with the exception of a single file drawer in one of the premises, no Church financial records or office equipment has been located on the premises.   Further, the witness stated that both ministers had regular offices at the Church and that no single room in his parsonage had been used exclusively for an office to accomplish Church business.   Although the minister's particular parsonage was used for Church functions, he admitted that said meetings were also conducted at the homes of other Church members.   Mr. Wiggins also agreed that the distance of his particular parsonage from the Church afforded him a certain respite from his ministerial duties, and in the same breath indicated that the distance decreased his accessibility to the members of his Church.   Finally, Mr. Wiggins stated that in one given month, Church-related business conducted in his parsonage probably added up to “five, six, eight, or ten hours.”

DISCUSSION

 Pursuant to our State Constitution, all California realty is considered taxable unless it is specifically exempted.²  Said exemptions are merely permissive upon the Legislature and not self-executing.   (See Sutter Hospital v. City of Sacramento (1952) 39 Cal.2d 33, 35–36, 244 P.2d 390.)   Appellant contends that section 214 of the Revenue and Taxation Code is one such exemption and directly encompasses its property used as parsonages.   This section provides:

“Property used exclusively for religious, hospital, scientific, or charitable purposes owned and operated by community chests, funds, foundations or corporations organized and operated for religious, hospital, scientific, or charitable purposes is exempt from taxation if:

“(1) The owner is not organized or operated for profit;  provided, that in the case of hospitals, such organization shall not be deemed to be organized or operated for profit, if during the immediate preceding fiscal year the excess of operating revenues, exclusive of gifts, endowments and grants-in-aid, over operating expenses shall not have exceeded a sum equivalent to 10 percent of such operating expenses.   As used herein, operating expenses shall include depreciation based on costs of replacement and amortization of, and interest on, indebtedness;

“(2) No part of the net earnings of the owner inures to the benefit of any private shareholder or individual;

“(3) The property is used for the actual operation of the exempt activity, and does not exceed an amount of property reasonably necessary to the accomplishment of the exempt purposes;

“(4) The property is not used or operated by the owner or by any other person so as to benefit any officer, trustee, director, shareholder, member, employee, contributor, or bondholder of the owner or operator, or any other person, through the distribution of profits, payment of excessive charges or compensations or the more advantageous pursuit of their business or profession;

“(5) The property is not used by the owner or members thereof for fraternal or lodge purposes, or for social club purposes except where such use is clearly incidental to a primary religious, hospital, scientific, or charitable purpose;

“(6) The property is irrevocably dedicated to religious, charitable, scientific, or hospital purposes and upon the liquidation, dissolution or abandonment of the owner will not inure to the benefit of any private person except a fund, foundation or corporation organized and operated for religious, hospital, scientific, or charitable purposes;  ․”  (Emphasis added.)

 Applying the foregoing Revenue and Taxation Code section to the facts adduced at trial, we are compelled to conclude, in light of uncontradicted evidence, that the Church unequivocally used its parsonages in the furtherance of its religious purpose, and that the individual minister's use of the subject property may not have qualified as being “exclusively” religious in nature.   Of the two findings, only the former is relevant to the party claiming tax exemption for the parsonages and, as such, any consideration of the ministers' respective use of the property becomes secondary in significance.

 Indeed, it is true that the ministers' respective use of the property may constitute indicia of intent and actual use of the parsonages by the Church.   Nevertheless, the fact that the parsonages serve as a mere “residential convenience” to the ministers does not necessitate a finding that the property is not “reasonably necessary” for the accomplishment of the Church's religious and charitable purposes.

In support of the above conclusion that the Church used its parsonages for a section 214 tax exempt purpose, we note a number of California cases in which residential housing has been found to qualify for section 214 tax exemption as “incidental but reasonably necessary” to the fulfillment of a recognized tax exempt function.   For example, in Cedars of Lebanon Hosp. v. County of L.A. (1950) 35 Cal.2d 729, 221 P.2d 31, it was determined, inter alia, that residences for hospital personnel as well as certain recreational facilities maintained by the hospital were “․ reasonably necessary for the fulfillment of a generally recognized function of a complete, modern hospital.”  (Id., at p. 745, 221 P.2d 31.)   Likewise, in Y.M.C.A. v. County of L.A. (1970) 35 Cal.2d 760, 221 P.2d 47, dormitories which were the subject of the dispute were held to be an inexpensive means of satisfying the Y.M.C.A.'s purpose, which in turn was to provide clean and inexpensive housing for young men.  (Id., at p. 769, 221 P.2d 47.)   Also, in Fredericka Home v. County of San Diego (1950) 35 Cal.2d 789, 221 P.2d 68, our Supreme Court determined that it was an “institutional necessity” that the Fredericka Home's personnel reside on its premises so that they might provide essential health care 24 hours a day for its elderly patients.  (Id., at pp. 795–796, 221 P.2d 68.)   Lastly, there are two cases somewhat more akin to the facts at bar, House of Rest v. County of Los Angeles (1957) 151 Cal.App.2d 523, 312 P.2d 392, and Serra Retreat v. County of L.A. (1950) 35 Cal.2d 755, 221 P.2d 59.

House of Rest, supra, 151 Cal.App.2d 523, 312 P.2d 392, involved that institution's claim of tax exemption for property used solely to provide temporary housing facilities for foreign missionaries of the Presbyterian Church and their families, while said individuals were on furlough.   Although ultimately concerned more with the distinction between furloughs and vacations, the court nevertheless emphasized the claimant's articles of incorporation ³ and evidence in the form of the Presbyterian Church's Board of Foreign Missions' program of spreading Christianity throughout the world, to the effect that they both established the intended purpose of the property.   More so, the court necessarily found that the property was used for said purpose.   Consequently, the property was held to be tax exempt.

In Serra Retreat, supra, 35 Cal.2d 755, 221 P.2d 59, the Supreme Court dealt specifically with the welfare tax status of property used as a “retreat house” by four priests and six lay brothers.   The property, which was simultaneously used as a residence by the above individuals, was found to be tax exempt, given allegations that the presence of those individuals was “ ‘․ essential, indispensable and necessary to the conduct and operation of [the] religious and charitable activities of [the] Serra Retreat,’ and that their living on said property [was] ‘essential and necessary’ to the ‘spiritual’ and ‘temporal needs,’ respectively, of ‘the laymen using the facilities of said institution.’ ”  (Id., at p. 759, 221 P.2d 59.)

It is important to note certain follow-up statements made by the Serra Retreat court with reference to situations regarding parsonages.  “[T]he conclusion is inescapable that the portion of [the Serra Retreat's] building used to furnish housing accommodations for the essential retreat personnel is properly classifiable as property ‘used exclusively for religious purposes.’   As so viewed, [the Serra Retreat's] provision of living quarters for its needed retreat personnel as an institutional necessity—a facility incidental to and reasonably necessary for the accomplishment of its religious and charitable purposes—is wholly distinguishable from the parsonage cases where the provision of housing for the pastor or minister on church property does not stem from claims of institutional necessity as contrasted with mere considerations of residential convenience.”  (Emphasis added.)  (Id., at p. 759, 221 P.2d 59.)

 The foregoing comments make it painstakingly clear that in order for any “parsonage” to be exempted from property taxes pursuant to Revenue and Taxation Code section 214, there must be an affirmative demonstration made that the property is used by the tax exempt claimant for some type of institutional necessity rather than for mere “considerations of residential convenience.”   Doubtlessly, such a threshold determination of fact is determinable on a case-by-case basis.

 In the case at bench, there is more than sufficient evidence suggesting that the Church reasonably considered its parsonages an institutional necessity and acted in conformity with such intent.   In view of such persuasive evidence, it is apparent that the trial court focused its attention on the use of the parsonages by the ministers rather than the use of the parsonages by the Church.

 Without belaboring the many obvious factual distinctions, it is manifest, from a reading of the foregoing cases, that the primary means for adjudging the tax exempt status of property under Revenue and Taxation Code section 214 is by viewing the claimant/property owner's use of its property as an integral part of its religious and charitable purpose and not solely its agent's/minister's use of the property.   A similar distinction was made in Immanuel Baptist Church v. Glass (Okl.1972) 497 P.2d 757, wherein that court considered a claim of tax exemption by a church for its parsonage.   In applying statutory language identical to that found in our Revenue and Taxation Code section 214,⁴ the court acknowledged a suggestion that the use of the subject property, exclusively for religious purposes, could be determined by looking at the amount of time a parsonage “ ‘․ is used exclusively as the pastor's home and only incidentally for church related functions.’ ”  (Id., at p. 760)  The court summarily rejected the adoption of such a test with a citation to a California appellate decision setting forth the “incidental to but reasonably necessary” test (House of Rest v. County of Los Angeles, supra, 151 Cal.App.2d at pp. 532–533, 312 P.2d 392), as well as the following:

“To say that exclusive use should be related to the ‘time’ it is used rather than to ‘purpose’ for which it is used is to distort the plain meaning of our Constitution.   For example, the sanctuary of a church may be used for religious worship for only a few hours a week.   The great majority of the time it is not in use at all.   No one would argue that such church thereby loses its sanctuary's constitutional exemption.”   The court continued by stating:  “We are convinced that the proper interpretation of the words ‘used exclusively’ in our constitutional provision is the use to which the property is dedicated and devoted.  ․   Therefore, in order for the property to be exempt under this provision it must be dedicated and devoted to religious purposes.   When viewed in this light, it is plain that a parsonage owned by the church, which houses the pastor who is engaged in full time ministerial work, which is provided to him as part of the compensation for his service, and which serves various religious purposes such as a meeting place for various church groups and as a place for providing religious services such as marriage ceremonies and individual counseling, is property used exclusively for religious purposes and is therefore exempt from taxation.”  (Immanuel Baptist Church v. Glass, supra, 497 P.2d at p. 760.)

 While there are obvious variations of fact between the Oklahoma case and our case, where the Church in our case has numerous religiously motivated purposes for providing its ministers with parsonages (i.e., such parsonages are part of the overall infrastructure of the Methodist religion), the variations become marginal.   In any case, Immanuel Baptist Church serves to illustrate the relative insignificance of the minister's private use of the parsonage when compared with the Church's “usage” of same, even though that party (the minister) might appear to derive a more “direct” or “obvious” benefit from the parsonage than his employer.

This same point was analogously addressed and rejected by the Supreme Court in Y.M.C.A. v. County of L.A., supra, 35 Cal.2d 760, 221 P.2d 47, where the court stated:  “․ the fact that plaintiff's dormitories, as a secondary consideration also serve the residential purposes of the occupants does not destroy the effect of the dominant purpose as property ‘used exclusively for religious ․ or charitable purposes' within the contemplation of the welfare tax exemption law.”  (Id., at p. 770, 221 P.2d 47.)

In the same vein, much the same argument was similarly rejected by the same Supreme Court in Cedars of Lebanon Hosp. v. County of L.A., supra, 35 Cal.2d 729, 221 P.2d 31.  “Through necessarily serving the private educational interest of the student nurses in attendance, property so used for a nurses' training school does not thereby lose its character as property ‘used exclusively for ․ hospital ․ purposes' within the scope of the welfare exemption law.  [Citations.]  Rather, it is to be regarded simply as ‘an educational feature’ of the hospital—‘an incident to [the latter's] main purpose and usefulness.  [Citation.]”  (Id., at p. 738, 221 P.2d 31.)   (Cf. Church Divinity School v. County of Alameda (1957) 152 Cal.App.2d 496, 502, 314 P.2d 209.)

 There is compelling evidence that the Church used its parsonages in a manner reasonably necessary for the furtherance of its religious purpose.   The foregoing warrants the conclusion that the trial court misdirected its attention towards the ministers' use of the subject properties rather than the Church's use of same.   Where it appears that the trial court applied the wrong standard of review, the judgment must be reversed.⁵  Appellant to recover costs.

FOOTNOTES

FOOTNOTE.  

1.   As indicated above, appellant Church's articles of incorporation require that the Church provide housing for its ministers.   However, the Methodist Church may opt to provide housing by means of a housing allowance which can be used by the minister to defray the costs of self-selected housing.

2.   California Constitution article XIII, Revenue and Taxation, provides:SECTION 1. “Unless otherwise provided by this Constitution or the laws of the United States:“(a) All property is taxable and shall be assessed at the same percentage of fair market value.   When a value standard other than fair market value is prescribed by this Constitution or by statute authorized by this Constitution, the same percentage shall be applied to determine the assessed value.   The value to which the percentage is applied, whether it be the fair market value or not, shall be known for property tax purposes as the full value.“(b) All property so assessed shall be taxed in proportion to its full value.”SECTION 4. “The legislature may exempt from property taxation in whole or in part:“․“(b) Property used exclusively for religious, hospital, or charitable purposes and owned or held in trust by corporations or other entities (1) that are organized and operating for those purposes, (2) that are nonprofit, and (3) no part of whose net earnings inures to the benefit of any private shareholder or individual.”  (Emphasis added.)

3.   The articles of incorporation stated, inter alia, that the purpose of said facility was “To provide facilities for missionaries, clergymen, and other religious workers and their families who work in establishing and furthering Christian purposes throughout the world and in the general diffusion of Christianity.”  (151 Cal.App.2d at p. 527, 312 P.2d 392.)

4.   The subject language was from article 10, section 6 of the Oklahoma Constitution providing:  “․ all property used exclusively for religious and charitable purposes, ․ shall be exempt from taxation․”

5.   It is necessary to point out that contrary to respondents' contention, this is not a case affirmable merely because the findings of the lower court are sufficiently supported by evidence, nor is this a situation in which the right result was reached despite inappropriate reasoning.   Rather, this situation involves a misconception of issues by the trial court and as such this appellate court will not blindly affirm the judgment below simply because there is some evidence in support of same.  (Cf. Lippold v. Hart (1969) 274 Cal.App.2d 24, 26, 78 Cal.Rptr. 833.)

STEPHENS, Associate Justice.* FN* Retired Associate Justice assigned by the Chairperson of the Judicial Council.

FEINERMAN, P.J., and ASHBY, J., concur.