First Baptist Church of San Antonio v. Bexar County Appraisal Review Board

MAUZY, Justice,

dissenting.

Today the court considers whether a parking lot owned by a church is “used primarily as a place of regular religious worship,” when 91 percent of the lot’s spaces are leased exclusively to a commercial enterprise from 7:30 a.m. to 5:00 p.m., Monday through Friday. Incredibly, the majority upholds a finding that the property is used primarily for religious purposes, despite a total absence of evidence to that effect. This holding gives an enormous tax break to virtually any business enterprise that is associated with a religious organization.

The issue in this case is not whether religious institutions deserve favorable tax treatment. No one doubts the value of the services provided by religious institutions in general, and by urban houses of worship in particular. Nor does anyone suggest that actual places of worship should be taxed. I do suggest, though, that a private business should not be allowed to profit from an exemption that was intended to shield religious worship from taxation. In the present case, it is the Valero Realty Company — not the First Baptist Church of San Antonio — that enjoyed the benefit of a tax exemption on valuable downtown property. Any change in the property’s tax status would, under an express contractual provision, affect Valero alone; it would not affect the church.1 To that extent, the rhetoric of the concurring opinion by Justice Cook is misdirected; its position would provide a haven not for “the poor and the homeless,” at 114, but for any profit-making, secular enterprise willing to take advantage of a tax loophole.

The Texas Constitution authorizes the legislature to exempt from taxation “actual places of religious worship.” Tex. Const, art. VIII, § 2. Under that authority, the legislature has allowed religious organizations to claim an exemption for real property that is “used primarily as a place of regular religious worship.” Tex.Tax Code § 11.20(a)(1). The exempted property may be used for “occasional secular purposes other than religious worship,” but only if “the primary use of the property is for religious worship and all income from the other use is devoted exclusively to the maintenance and development of the property as a place of religious worship.” Tex. Tax Code § 11.20(d).

*115The parking lots at issue here were used throughout the work week by Valero Realty Company. The church generally used the parking lots only on Sundays and Wednesday evenings. To transform this commercial parking lot into space “used primarily for church purposes,” the majority grasps at four peculiar criteria: (1) the purpose for which the property was purchased; (2) the church’s primary use of the property; (3) the church’s right of access to the property; and (4) its general availability after working hours.

The testimony as to why the church purchased the parking lots is clearly immaterial. The test is not whether the property was purchased for religious purposes, but whether the property is used for religious purposes. If the rule were otherwise, a religious organization would be free to devote any part of its property to a tax-exempt commercial enterprise, as long as the property was originally purchased for religious purposes.

Similarly irrelevant is the testimony indicating that “the church's primary use of the two parking lots was to provide church members with access to the church facilities.” See p. 111. This reference reflects a basic misunderstanding of the statute. The church’s primary use of the parking lots is immaterial. The exemption applies only if “the primary use of the property is for religious worship.” § 11.20(d). The statute does not say that the primary use of the property by the religious organization must be for religious worship; if that were the case, any incidental use of the property by the church would satisfy the “primary use” test, as long as that incidental use involved religious worship.

Nor do the church’s rights of access to the parking lots establish primary use of the property. Obviously, the use of property entails more than a mere right of access; it lies in the extent to which that right is utilized. If the right is not utilized, there is no “use” of the property at all.

Finally, the majority cites evidence that church members regularly used the parking lots on Sundays and Wednesday evenings, and sometimes used them at other times of the week. See p. 111. This may be evidence of use for religious worship; but it is certainly not evidence of primary use for religious worship. On the contrary, this evidence establishes that the church’s use of the property was secondary to Valero’s use of the property. The use of the parking lots by Valero was plainly not “occasional,” as section 11.20(d) requires; it was normal and regular, and far outweighed the church’s periodic use of the property.

As noted above, the Texas Constitution authorizes an exemption only for “actual places of religious worship.” Tex. Const, art. VIII, § 2. This court has previously emphasized that the words “actual place” impose a significant restriction on the phrase “of religious worship.” Davies v. Meyer, 541 S.W.2d 827, 831 (Tex.1976). The majority’s decision today ignores that restriction. While conceding that actual use of property is “an important factor” in determining primary use, see p. Ill, the majority totally disregards the constitutional provision making actual use the controlling factor. Instead of focusing on the actual use of the property as a place of religious worship, the majority focuses on such matters as the church’s subjective reasons for purchasing the property and theoretical rights of access to it. This approach has no support in the language of the statute, and is inconsistent with the constitutional provision on which the statute is based.

By straining to allow an exemption in this case, the majority compounds the error this court made in City of Austin v. University Christian Church, 768 S.W.2d 718 (Tex.1988). Under the Tax Code, the religious-use exemption is available only if all income from a secular use is “devoted exclusively to the maintenance and development of the property as a place of religious worship.” Tex.Tax Code § 11.20(d). Here, as in University Christian Church, much of the income from the property was not devoted to those purposes; rather, it flowed directly into the hands of the private, commercial entity that operated the parking lots on a daily basis. Apart from *116violating the Tax Code, this arrangement raises serious constitutional issues, which the court of 'appeals will have to address if it rejects the County’s factual insufficiency claims.

Even under University Christian Church, today’s decision is insupportable. The court in University Christian Church did conclude that there was a fact issue as to primary use. It did not, however, change the general rules regarding “no evidence” points of error.2 In this case, there was not a shred of evidence indicating that the parking lots were primarily used for the purpose of religious worship. Thus, the court of appeals properly reversed the judgment of the trial court and rendered judgment that the parking lots are not exempt from taxation.

To defend the majority’s result, the concurring opinion by Justice Cook resorts to mischaracterizing the law, the facts, and this dissent. Without even acknowledging the language of our constitution, the concurring opinion inaccurately states that I would allow an exemption only for property that is “actually occupied for religious purposes.” See p. 112. In truth, I would interpret our constitution to mean exactly what it says: that the legislature may exempt from taxation “actual places of religious worship.” Tex. Const, art. VIII, § 2. A church sanctuary may not be occupied at all times; but it is clearly an actual place of religious worship, and is therefore exempt from taxation. A commercial parking lot, in contrast, is clearly not an actual place of worship, and should not be exempt from taxation. See Second Church of Christ Scientist v. City of Philadelphia, 398 Pa. 65, 157 A.2d 54 (1959) (parking lot is not within constitutional provision allowing exemption for “actual places of religious worship”).

By equating a commercial parking lot with a church sanctuary, see pp. 112-113, the concurring opinion demeans the exemption that the framers of our constitution allowed for actual places of religious worship. The exemption in article VIII, section 2 was meant to guarantee all Texans the freedom to worship as they choose, without governmental interference in the form of undue burdens or benefits. As a secular, profit-making business, Valero Realty Company has nothing to do with religious worship, and should not be accorded tax benefits in the name of religious freedom.

The concurring opinion suggests that restricting the exemption to actual places of worship would raise insuperable practical difficulties, and would amount to an overwhelming hardship on the church. In fact, applying the Appraisal District’s decision would not be a complicated matter, nor would it burden the church: Valero Realty Company would simply have to pay property taxes on its parking lot, just like any other business. The lease agreement, quoted supra at note 1, expressly requires Valero to assume the burden of any increase in property taxation.

A literal reading of the constitution would be consistent with the approach taken in this and other states that have construed tax exemptions for property on the basis of its use. For more than a century, this court has recognized the rule prevailing nationwide that when a building is owned by a tax-exempt organization, “the renting of even a part of the building for profit, though the proceeds be devoted exclusively to charity, subjects such part, at least, to taxation.” Morris v. Lone Star Chapter No. 6, 68 Tex. 698, 704, 5 S.W. 519, 521 (1887) (citations omitted); see also Gibbons v. District of Columbia, 116 U.S. 404, 6 S.Ct. 427, 29 L.Ed. 680 (1886); Village of Oak Park v. Rosewell, 115 Ill.App.3d 497, 71 Ill.Dec. 293, 295-96, 450 N.E.2d 981, 983-84 (1983); In re Open Door Baptist Church, 63 Pa.Cmwlth. 292, 437 A.2d 1291, 1292 (1981); Christian Home for the Aged v. Tennessee Assess*117ment Appeals Comm’n, 790 S.W.2d 288, 291 (Tenn.Ct.App.1990). See generally Maurice T. Brunner, Annotation, Availability of Tax Exemption to Property Held on Lease from Exempt Owner, 54 A.L.R.Bd 402, §§ 6, 14 (1973). In one of the three out-of-state cases cited by the concurring opinion, this general rule was applied to deny a complete exemption to a church camp that was rented during part of the tax year to persons and organizations not affiliated with the church. Lutherans Outdoors in South Dakota, Inc. v. South Dakota Bd. of Education, 475 N.W.2d 140, 143 (S.D.1991).

An exception to this rule may apply if the lessee’s use of the property has some connection to the lessor’s exempt purposes. For example, in another of the three out-of-state cases cited by the concurring opinion, a divinity school’s parking lot was held to be exempt because it was used mainly by students and staff, only a nominal fee was charged, and the lot operated at a loss. Church Divinity School v. County of Alameda, 152 Cal.App.2d 496, 314 P.2d 209 (Cal.Ct.App.1957). In the present case, there is no suggestion that Valero’s use of the property bears any relation to the church’s religious purposes: Valero’s employees have no apparent connection to the church; the company pays a normal, market-based rent; and the lot operates at a profit.

Rejecting the traditional approach, the concurring opinion argues that the religious-use tax exemption should be liberally construed in favor of the taxpayer. The opinion completely ignores the fact that Valero is the actual taxpayer in this ease. More importantly, the opinion also overlooks the 1976 decision in which we soundly rejected the view that the concurring opinion now urges. In Davies v. Meyer, 541 S.W.2d at 829, we unanimously held that the religious-use exemption is to be strictly and narrowly construed.” This view is consistent with the approach taken by the vast majority of other states, which all adhere to the general rule that statutory or constitutional exemptions from taxation are strictly construed against the claimant and in favor of the right to tax. See, e.g., State v. Bridges, 246 Ala. 486, 21 So.2d 316, 317 (1945) (calling this a “universal rule of construction”); State YMCA v. Winthrop, 295 A.2d 440, 441 (Me.1972) (“universally accepted principle”); see generally 71 Am.Jur.2d State and Local Taxation § 326 (1973) (“fundamental rule of construction”).3

One reason that religious-use exemptions have been applied restrictively is that any broader approach invites constitutional attacks. This problem is illustrated by events subsequent to the main case relied upon by the concurring opinion, Central Baptist Church v. Dade County, 216 So.2d 4 (Fla.1968). That decision prompted a challenge based on the Religion Clauses of the First Amendment to the United States Constitution. After the United States Supreme Court agreed to review a district court’s judgment upholding the exemption, the Florida Legislature fended off the constitutional challenge with prompt action: specifically, by amending the statute to allow an exemption only if the propérty is used predominantly for religious purposes, and only “to the extent of the ratio that such predominant use bears to the nonexempt use.” Fla.Stat. § 196.192(2). See Diffenderfer v. Central Baptist Church, 404 U.S. 412, 92 S.Ct. 574, 30 L.Ed.2d 567 (1972). Instead of learning from Florida’s experience, this court simply closes its eyes to the constitutional issues at stake, in total disregard of “our duty as a court to construe statutes in a manner which avoids serious doubts of their constitutionality.” *118FSLIC v. Glen Ridge I Condominiums, 750 S.W.2d 757, 759 (Tex.1988).

By reversing the judgment of the court of appeals, the majority dramatically expands another tax loophole. This action continues a recent and unfortunate trend of the majority in disregarding legitimate taxpayer concerns, see Carrollton-Farmers Branch Ind. Sch. Dist. v. Edgewood Ind. Sch. Dist, 826 S.W.2d 489, 522 (Tex.1992) (forcing taxpayers to continue paying an unconstitutional tax), and granting preferential tax treatment to the privileged few for which other Texans must pay. See Gifford-Hill & Co. v. Wise County Appraisal Dist., 827 S.W.2d 811 (Tex.1991) (according preferential tax treatment to corporate gravel companies and other mineral extractors). What the majority forgets is that tax exemptions and preferences constitute indirect public subsidies that are every bit as real as the direct expenditure of public monies.4

The question in this particular cause is whether a parking lot used almost exclusively by a commercial enterprise is “used primarily as a place of regular religious worship.” Like the recent query as to whether limestone is a mineral, this question would appear to answer itself. With repeated rationalization, however, the majority once again declares the obvious answer to be the wrong answer. The majority is oblivious to the plight of the ordinary taxpayer who cannot escape paying taxes and who must, in addition, foot the bill for those who escape tax liability through a judicially-created loophole. The tax fairness contemplated by the Texas Constitution has been converted into tax injustice.

I would affirm the judgment of the court of appeals. Therefore, I dissent.

DOGGETT and GAMMAGE, JJ., join in this dissenting opinion.

. The lease agreement states:

Lessor shall be responsible for all taxes and assessments levied on the real estate or rents of the premises; provided, however, that Lessee shall reimburse Lessor for any increase in ad valorem taxes.

(Emphasis added.) The next provision explains how the present dispute made its way to this court:

Lessee shall have the right to prosecute an appeal of any ad valorem tax matter concerning the premises wherein Lessee may face reimbursement obligations.

In the caption of this case, Valero’s continued involvement is indicated only by a vague "et al.”; but in view of the lease's language, Valero has far more at stake in this proceeding than does the church.

. This court recently emphasized that our review of "no evidence” points requires a preliminary examination of "the quality of the evidence offered, inquiring whether the evidence offered has a tendency to prove the existence of a material fact.” Crim v. Navistar, 823 S.W.2d 591, 592 n. 1 (Tex.1992) (citing Powers & Ratliff, Another Look at "No Evidence” and "Insufficient Evidence" Points of Error, 69 Tex.L.Rev. 515, 521-23 (1991)). Today, when the fact findings are more palatable to the majority, a markedly less-demanding level of scrutiny is applied.

. Apparently the only state to depart from this rule is Tennessee; acknowledging that their approach is "contrary to most other states,” Tennessee courts liberally construe tax exemptions in favor of "religious, scientific, literary and educational institutions.” Mid-State Baptist Hosp., Inc. v. City of Nashville, 211 Tenn. 599, 366 S.W.2d 769, 773 (1963). Even Tennessee, though, has declined to extend its religious-use exemption to parking lots. See City of Nashville v. State Bd. of Equalization, 210 Tenn. 587, 360 S.W.2d 458, 467 (Tenn.1962) ("the operation of parking lots ... is not a religious undertaking, but a secular business taxed as a privilege by the state, the county, and the city”); see abo Christian Home for the Aged v. Tennessee Assessment Appeals Comm’n, 790 S.W.2d 288, 291 (Tenn.Ct.App.1990) (exemption is denied to property leased by religious institution to others).

. The legislature has recognized this reality by enacting section 403.014 of the Texas Government Code, which requires the Comptroller to report annually on the cost of certain tax exemptions or tax expenditures. See Texas CompTROLLER OF PUBLIC ACCOUNTS, SALES AND FRANCHISE TaX Exemptions (1991).