Exemptions

Indiana property taxes and the leasing of property by tax-exempt organizations

Reprinted with permission by the Indiana State Bar Association, Res Gestae, November/December 1998, pp. 33-43."

By Randal J. Kaltenmark, Barnes & Thornburg, Indianapolis, Ind.

Editor's Note: Randal J. Kaltenmark, Indianapolis, is the second-place recipient of the Harrison Legal Writing Award. Established in 1996 by the ISBA Written Publications Committee, the Harrison Legal Writing Award commemorates the first president of the Indiana State Bar Association, former U.S. President Benjamin Harrison, and recognizes articles of significant subject matter, practicality and timeliness, with high-quality research and legal analysis. Plaques and cash prizes (funded by John P. Pearl & Associates, Ltd.) were recently awarded to first-, second- and third-place winners at the State Bar's 102nd Annual Meeting in French Lick, Ind. The first-place article was published in the October issue of Res Gestae, and the third-place article will be published in next month's ResGestae.

Few areas of law produce such varying decisions as the law relating to property leases by charities. Some jurisdictions entirely exempt the property from property tax, while others deny the whole exemption, and still others prorate the exemption so that only the portion of property being used for charitable purposes is exempt. Although recent decisions of the Indiana Tax Court have partially clarified Indiana law concerning this issue, this article demonstrates that the law of Indiana regarding the charitable property tax exemption is still developing.

Article 10, of the Indiana Constitution provides for "a uniform and equal rate of property assessment and taxation [however] the General Assembly may exempt from property taxation property used for municipal, educational, literary, scientific, religious, or charitable purposes." Pursuant to this constitutional exception to uniform taxation, Ind. Code 6-1.1-10-16 allows for a general property tax exemption for "all or part of a building that is owned, occupied, and used by a person for educational, literary, scientific, religious, or charitable purposes."2 The rationale for the exemption is that "there is a present benefit to the general public from the operation of the charitable institution sufficient to justify the loss of tax revenue."3 In essence, the public benefit provided by the charity justifies the imposition of its property tax burden upon the remaining non-tax exempt property owners of Indiana.

Leases to for-profit tenants

The two primary concerns raised by Ind. Code 6-1.1-10-16, as related to leases between a charity and for-profit tenants, are: (1) whether such leases will cause the charity to lose its exemption, and (2) who is responsible for paying any property tax liability.

The exemption

Whether the exemption will be granted or denied depends entirely upon the extent of the charitable ownership, occupancy and use of the property.4 Generally, the charitable property tax exemption has been interpreted by the Indiana courts to permit a tax-exempt owner to lease property to a for-profit entity, but the charity may incur a pro-rata reduction of its exemption to the extent of the non-charitable use of the property. Therefore, depending on the type of use, the property will be either entirely exempt, partially exempt, or completely taxable. This result is supported by Ind. Code 76-1.1-10-16 whose plain language allows the exemption for "all or part" of a building that is owned, occupied and used for charitable purposes. This interpretation of Ind. Code 6-1.1-10-16 has been upheld by longstanding Indiana case law.

Historically, Indiana courts have used a variety of judicially formulated tests to determine if the property is being used for charitable purposes. Although the Indiana Supreme Court initially ruled in 1853 that the property's use must be exclusively charitable,5 from 1865 to 1988, Indiana courts followed the "predominant use" test to determine whether the charitable use of the property justified a complete or partial exemption.6

Specifically, the Indiana Supreme Court initially stated that:

Property which is not used directly [predominantly] for the purposes ... of the charity, but for profit is not exempt; and devotion of the profit to the support of the charity will not alter the result. ... But property which is used directly [predominantly] for the purposes and in the operation of the charity is exempt, though it may also be used in a manner to yield some return and thereby reduce the expenses [of the charity].7

Using this test, Indiana courts have granted the exemption where the use of the property predominantly furthered a charitable purpose, even if the charity received rental income from such property, because such income was deemed incidental to the charity's exempt purpose.8 In contrast, where the property was not predominantly used for charitable purposes, or where the rents received were not merely incidental to the charity's purpose but more akin to profit-making, Indiana courts have pro rated the exemption to the extent of the charitable use,9 or denied the exemption altogether if none of the property was used for charitable purposes.10 The key to determining incidental, as opposed to profit-making uses, is the relationship between the use and the charitable purpose. In Free Methodist Publishing House,11 the Indiana Court of Appeals stated that a religious publishing house's sale of religious materials was incidental to its purpose of printing religious texts, but if it were to manufacture and sell tennis shoes, the exemption would be lost since "no such [incidental] relationship between product [use] and purposes could be established."

Despite the longstanding application of the predominant use test by Indiana courts, from 1988 to the present, the Indiana Tax Court, with the Indiana Supreme Court in agreement, has applied the "reasonably necessary use" test to determine whether a property is exempt. In LeSea Broadcasting Corp. v. State Bd. of Tax Comm'rs,12 the Indiana Tax Court has stated that "the 'incidental and necessary standard of Wright13 may be translated to mean 'reasonably necessary'... ."

It seems that this test is derived from the Indianapolis Lodge decision, where the Indiana Supreme Court stated in dicta that non-charitable use must be "incidental to the organization's charitable activities and reasonably necessary in the furtherance of its charitable program."14 Simply stated, the reasonably necessary test requires that a property's use must be reasonably necessary to its charitable purposes in order to be exempt.15 This reasonably necessary test has been adhered to in recent decisions.16

The determination of charitable use has been further complicated by the enactment of statutory tests. Effective June 28, 1978, the Indiana General Assembly provided in Ind. Code 6-1.1-10-36.5 that "tangible property is not exempt from property taxation under [Ind. Code 6-1.1-10-16] if it is used by the exempt organization in a trade or business, not substantially related to the exercise or performance of the organization's exempt purpose."

Moreover, Ind. Code 6-1.1-10-36.3(b), effective Sept. 1, 1983, provides that property which is predominantly used or occupied for a stated statutory purpose, or one substantially related thereto, is entirely exempt if used or occupied by a church, religious society or school, or is exempt to the extent of the charitable use or occupancy if used by a person other than a church, religious society or not-for-profit school. Property is not exempt, in whole or in part, if it is not predominantly used or occupied for the purposes listed in Ind. Code 6-1.1-10-16.17 Property is predominantly used or occupied for a stated purpose if it is used or occupied for such purposes more than 50 percent of the time that it is used or occupied during a given year. In essence, Ind. Code 6-1.1-10-36.3 is a modified codification of the judicial predominant use test.

Ind. Code 6-1.1-10-36.3 raises certain interpretive issues.18 First, how is the 50 percent predominant use test to be applied to charities other than churches, religious societies and schools in the context of buildings?19 Ind. Code 6-1.1-10-36.3 is silent on this issue, but other Indiana statutory, judicial and administrative authorities support the conclusion that a building may be partially exempt even if less than 50 percent of the total building space is used for charitable purposes. In the case of a building, Ind. Code 6-1.1-10-16 appears to permit a partial exemption for properties used less than 50 percent of the time for charitable purposes, because it prescribes that "all or part" of the property may be exempt. Certain prior Indiana cases, such as Sahara Grotto v. State Bd. of Tax Comm'rs,20 have allowed a partial exemption when less than 50 percent of the property was being used for exempt purposes. Additionally, in State Board Instructional Bulletin 92-43 (July 21, 1992),21 the Indiana State Board of Tax Commissioners (the "State Board") has provided guidance regarding the application of Ind. Code 6-1.1-10-36.3. Instructional Bulletin 92-43 states that:

Each room in a building must be separately examined to determine:

(1) the total time during the assessment year that it was used by the organization or any other entity for any purpose; and

(2) the percentage of that total time that was devoted to a charitable purpose.

With respect to a particular room, if this exemption percentage is greater than 50 percent, then the room is considered to be exempt according to the determined percentage. If the exemption percentage is 50 percent or less, then the room is considered to be fully taxable...

Once an exemption percentage has been determined for each room, a percentage can be determined for the entire building. With respect to each room, the area of the room must be expressed as a percentage of the total area of the building. The total assessed value of the building is then multiplied by the percentage to determine the part of the overall assessed value that is attributable to the room. The amounts that are found to be taxable with respect to each room are added together, and that sum is the assessed value that is taxable with respect to the entire building.22

Thus, under Instructional Bulletin 92-43, it is the use of each room that must be considered for purposes of the predominant use test, not the overall use of the building. Instructional Bulletin 92-43 contains an example of this formula's application, which applies the predominant use test to each room and disallows the entire exemption for the assessed value assigned to the room if it is used less than 50 percent for exempt purposes.23 This room-by-room approach appears to allow a building to be partially exempt even though the total charitable use of the building does not exceed 50 percent.

In this manner, Instructional Bulletin 92-43 minimizes any conflict between Ind. Code 6-1.1-10-36.3 and Indiana case law regarding partial exemptions for charitable use which is less than 50 percent of the building. Consequently, Ind. Code 6-1.1-10-16, Instructional Bulletin 92-43 and established judicial precedent may be a basis on which a charity could claim a partial exemption for a building even if the exemption covers less than 50 percent of the building.

The second issue raised by Ind. Code 6-1.1-10-36.3 is how is the 50 percent predominant use test to be applied to charities other than churches, religious societies and schools in the context of land? Ind. Code 6-1.1-10-16(c) provides that when a building is exempt, if the land is less than 50 acres in the case of an educational institution, or 15 acres in all other cases, then the land upon which the building is located is also exempt. Thus, if a charity leases a portion of its building to a for-profit organization, and the building is exempt according to the tests discussed above, the land will also be exempt.

But what if the land itself is the subject of the lease? Ind. Code 6-1.1-10-36.3(b) appears to address this issue; however, the 50 percent room-by-room analysis, as explained in Instructional Bulletin 92-43, only applies to buildings. It is unlikely that an acre-by-acre type test would apply to land. Instead, it seems that the exemption for land will be prorated only to the extent that the non-charitable use does not exceed more than 50 percent of the total land acreage. Consequently, at least in connection with property other than buildings, a charity should ensure that its land is not used more than 50 percent of the time for non-exempt purposes, including leases by for-profit entities. Otherwise, it risks losing its entire exemption for its land.

Finally, Ind. Code 6- 1.1-10-36.3 may raise serious Establishment Clause, Equal Protection, and Due Process concerns because it favors religious and educational charities over other similarly situated non-religious or educational charities.

In sum, the Indiana standard used to distinguish between charitable and non-charitable use of property is still evolving. Charities that lease property to for-profit entities must confront the reasonably necessary use test by showing that the lease is reasonably necessary to their exempt purposes in order to satisfy the use requirements of Ind. Code 6-1.1-10-16. If they cannot meet that test, the leased portion of the property may be subject to tax under Ind. Code 6-1.1-10-36.6 and Instructional Bulletin 92-43.24 In the case of a church, religious society or school an entire building will retain its exemption if at least 50 percent of the total property is used for exempt purposes notwithstanding a non-exempt lease of the remainder of the property to for-profit users. For all other types of charities, the building's property tax assessment will be prorated on a room-by-room basis. In the case of a lease of land by a charity which is not a church, religious society or school, the entire exemption is lost if more than 50 percent of the property is leased for non-exempt purposes.

Payment of tax liability

Although the Indiana standard used to ascertain charitable use is still evolving, Indiana law regarding the allocation of property tax liability is established. Regardless of whether a charity incurs a pro-rata reduction of the exemption, or loses it entirely as the result of a lease, it will not necessarily bear the burden of any assessment of property tax. Ind. Code 6-1.1-10-37 provides that "if real property that is exempt from taxation is leased to another whose property is not exempt and the leasing of the real property does not make it taxable, the leasehold estate and appurtenances...shall be assessed and taxed as if they were...owned by the lessee... ." Ind. Code 6-1.1-10-37(b). Thus, when a tax-exempt owner leases to a for-profit tenant, and the lease does not destroy the exemption so as to place the tax burden on the owner, the property subject to the lease will be taxable to the for-profit tenant as if it owned the property, rather than the tax-exempt owner.

By allocating the property tax liability to the for-profit lessee, Ind. Code 6-1.1-10-37(b) ensures that the for-profit lessee will not gain the advantage of escaping the property tax by renting property from a charity. Instead, the lessee remains on a level playing field with its competitors. Ind. Code 6-1.1-10-37(b) also maintains a uniform burden of property taxation by preventing a for-profit entity from shifting its burden via a lease arrangement with a charity.

It is important to note that a charity cannot circumvent the property tax or the consequences of Ind. Code 6-1.1-10-37(b) through a license arrangement. Licenses do not shift the property tax liability under the Indiana property tax statutes, as in the case of leases to for-profit owners. However, the charitable exemption is awarded on the basis of use, not on formal distinctions between licenses and leases. If the use of the licensed property is non-charitable, the property is taxable. Indiana courts have adhered to this analysis.25 Also, if the property is partially taxable due to the charity licensing the use of such property to another, the charity will have to pay the property tax unless it contracts for the licensee to do so, because there is no statute that shifts the property tax burden from the owner to the lessee when a license is involved.26

Accordingly, charities can take some comfort in the fact that Ind. Code 6-1.1-10-37(b) allocates the tax burden in the lease context. However, this statutory allocation of property tax liability is not to be relied on alone. To further protect itself, a charity should provide in its lease agreements that the for-profit tenant will pay any property tax attributable to the lease. This contractual protection is also important because, as a practical matter, the township assessor's office will not likely agree to prepare separate real property assessments for individual tenants of a building.

Leases to other charities

In the past, the primary issue arising from leases by a charity to other charities is whether the leased premises are exempt when they are "owned" by a not-for-profit landlord, but are "occupied and used" by a different not-for-profit tenant. However, this issue has been resolved by the recent decision of the Indiana Tax Court in Sangralea Boys Fund, Inc. v. State Bd. of Tax Comm'rs.27

Sangralea involved "rent free" leases by a non-profit owner to three tax- exempt tenants, whose charitable purposes mirrored that of the owner. The Tax Court rejected the State Board's argument that the owner had to own, occupy and use the property. Instead, the Tax Court held that "a piece of property must be owned for charitable purposes, ... occupied for charitable purposes, ... [and] used for charitable purposes. Once these three elements have been met, regardless of by whom, the property can be exempt from taxation."28 Consequently, a charity can lease property to other charities.

The exemption

Sangralea, however, raises two questions regarding leases between a charity and other charities. First, do the other tax exempt tenants have to possess the same charitable purpose as that of the owner? Second, may the tax-exempt owner enter into profit-producing leases with other charitable tenants?

The fact that the Sangralea tenants all had charitable purposes which related to that of the owner poses the question of whether Sangralea is limited to such factual situations. If so, then a landlord charity can lease to other charities with similar charitable purposes, but not to other nonaffiliated, tax-exempt entities whose charitable missions differ from its own.

The most logical answer to this question is that there does not have to be any specific relationship between the exempt purposes of the lessor and lessee as long as the lessee uses the property for a purpose that would be exempt under Ind. Code 6-1.1-10-16. Sangralea suggests that a property is exempt if the ownership, occupancy and use elements are met "regardless of by whom."

Although no Indiana case law directly addresses this issue, the recent Tax Court decisions in Alte Salems Kirche, Inc. v. State Bd. of Tax Comm'rs29 ("Alte Salem") and Trinity Episcopal Church v. State Bd. of Tax Comm'rs30 support the conclusion that a charity may lease to any charity regardless of whether the tenant's charitable purpose is similar to its own. In Alte Salem, a church allowed other church organizations, as well as the Girl Scouts and various environmental groups, to use its facilities without charge. The Tax Court stated that "...Alte Salem's purpose was to provide a place for anyone to attend to their spiritual needs as they saw fit. That some people may have used the church building for other purposes does not invalidate the purposes of Alte Salem."31

Similarly, Trinity Episcopal involved a lease of property by a church to another charity for use as a community mental health center. Citing Sangralea, the Tax Court stated that "the proper focus of any inquiry into the propriety of an exemption is whether the use of the property furthers exempt purposes."32

These opinions support a plain reading of Sangralea that the elements of ownership, occupancy and use may be met "regardless of by whom." Both Alte Salem and Trinity Episcopal state that the charity must further exempt purposes in the plural, not the singular exempt purpose of the owner. Although this analysis should be persuasive, a tax-exempt property owner may avoid this issue entirely by ensuring that it has a broad mission statement in its articles of incorporation or bylaws, which will likely encompass the charitable purpose of any tax-exempt lessee.

A second question is whether a charity may generate profits from its leases with other charities without losing its exemption entirely or in part. Sangralea, Alte Salem and Trinity Episcopal involved rent-free or break-even leases. Some earlier Indiana decisions support the position that money-making leases are permissible where the property's use is predominantly charitable, and where the income is used consistently with the organization's charitable purpose in order to reduce operating expenses.33

However, because a fact situation involving a profitable lease has not been considered by the Tax Court, caution in this area is advisable.

At best, a charity should not lose any of its exemption if it engages in profit-producing leases with tax-exempt lessees, because the income is used to further the charity's mission by reducing its operating expenses. At worst, such leases will not be treated any worse than if it had been a lease to a for-profit entity, which, as discussed above, generally results in a pro-rata reduction of the exemption based on the amount of total space subleased to the tax-exempt tenant. If a charity chooses to enter into a lease that produces profit, the use of these profits to further its charitable purposes should be carefully documented. The more conservative approach would be to set a rent level intended to produce a no-profit, break-even return. In setting the rent, it would be reasonable to consider both the direct leasing expenses and any indirect overhead costs for purposes of determining the break-even level.

Payment of tax liability

Regardless of whether a charity's lease to another charity is tax-exempt, the lease agreement with the other charity should require the lessee to pay any property tax liability resulting from the lease because, as previously discussed, Ind. Code 6-1.1-10-37 statutorily shifts the tax burden from property owners to tenants only in the case of a lease between a charity and for-profit entity.

Conclusion

Ultimately, the law regarding the Indiana standard to determine charitable use under the Indiana property tax exemption in the context of leases by charities continues to evolve. Because Indiana law relating to this issue is developing, charities engaging in property leases should address the reasonably necessary test as well as Ind. Code 6-1.1-10-36.3 and Instructional Bulletin 92-43.

Regardless of how Indiana law develops, the correct result in a given case -- meaning the proper allocation of property tax burdens -- may nonetheless be attained despite the present uncertainties in the law by reliance on Ind. Code 6-1.1-10-37. In most jurisdictions, the allocation of the property tax burden is dependent upon the standard used to determine charitable use.34 But Ind. Code 6-1.1-10-37 allows Indiana courts to allocate tax burdens, at least in the case of leases to for-profit groups, irrespective of any charitable use determination. In effect, when the issue of charitable use is difficult to accurately assess, an Indiana court may award the exemption to the charitable owner, but still tax the for-profit lessee.

For this reason, Ind. Code 6-1.1-10-37 avoids the difficult questions relating to charitable use determinations that have vexed the judiciaries of other jurisdictions. Addressing the charitable use issue in the context of simple leases of space (i.e., spatial leases), where the tenant has the sole use of the leased space, is a relatively easy task for the courts of most jurisdictions. However, time-sharing leases, where a charity and a tenant use the same property at different times, are more problematic.

For example, consider leasing of parking lot space by urban churches during the work week. In First Baptist Church of San Antonio v. Bexar County Appraisal Review Bd.,35 the Texas Supreme Court held that a church's parking lot was exempt even though it was leased to a neighboring business owner for use by its employees and the general public Monday through Friday. The state supreme court struggled with this question because, although the lease agreement provided that the tenant would pay the property taxes, the court had no statutory means of assessing the tenant with the taxes. Texas law provided that only the owner was subject to taxation. The majority ruled that, although the lot was used a majority of the time by the tenant, it was nonetheless exempt because its primary use was by the church.36 The dissent pointed out that this decision effectively allowed a for-profit tenant to obtain the benefits of a property tax exemption intended for charities.37

Indiana law provides a more effective resolution to this difficult charitable use question raised by time-sharing arrangements, such as parking lot leases by charities. First, Ind. Code 6-1.1-10-36.3 and Instructional Bulletin 92-43 provide a means of prorating the exemption on the basis of time, unlike some jurisdictions. Second, and more importantly, if the property is exempt, Ind. Code 6-1.1-10-37 does not allow the for-profit tenant to escape its property tax burden by leasing property from a charity. Consequently, Indiana law appropriately allocates the burdens of property taxation between charities and for-profit organizations in the context of time-sharing arrangements.

Indiana law even provides a means of addressing leases of space where the charity and the tenant both use the space 100 percent of the time. Churches across the United States, including Indiana churches, are allowing telecommunications companies to install wireless transmission equipment on church property, or in church steeples, as reported in the Dec. 23, 1997 issue of The Wall Street Journal.38 In return for the installation, which enables telecommunications companies to escape restrictive zoning laws, churches are receiving free phone service, free building repairs and/or five- to six-figure annual payments.

Assume that a church enters into such a lease arrangement whereby the telecommunications equipment is placed into the church's steeple, in effect transforming it into both a tower for the glory of God and a telecommunications tower. Of course, the church uses the proceeds from the lease to further its charitable purposes. Should the steeple be exempt?

This situation poses a difficult issue because unlike in the spatial and time-sharing situations where use could be defined in terms of space or time, the church is using all of the steeple space 100 percent of the time to the glory of God, while the for-profit lessee is also using 100 percent of the space, all the time, for its business. Thus, there is no distinction of uses in terms of either space or time. Accordingly, the church may reasonably argue that it is using all of its property for its charitable purposes all the time, while the taxing authorities can plausibly argue that the steeple is used entirely by the telecommunications company.

Indiana law, like that of other states, cannot readily ascertain the charitable use of the steeple in this situation without unfairly burdening the church or the taxpayers of Indiana. Fortunately, the solution is provided by Ind. Code 6-1.1-10-37(b). Even if the steeple is found to be exempt since it is used 100 percent by the church, the lessee can nonetheless be assessed on the value of the steeple.39 This prevents the telecommunications tenant from unfairly benefiting from the exemption and prevents disproportionate tax burdens, while protecting the exemption of the church.

In conclusion, although Indiana's property tax statute provides workable solutions to the various problems of allocating property tax liability that are unique to leases by charities (unlike in many jurisdictions), Indiana law concerning the determination of charitable use in the context of leases by charities has not been fully resolved. The immediate import of this fact is that charities should always have the lessee assume the burden of any property tax liability under the contract lease, or license governing the transaction. Provided the contract is enforceable and may be collected on, it should insulate the charity from property tax liability regardless of which standard may be applied in any potential litigation of its property lease.


1. See infra notes 27, 29, and 30.

2. (emphasis added). Although the Indiana General Assembly has also provided specific property tax exemptions for certain types of charities, this article will only address the general charitable exemption contained in Ind. Code =A76-1.1-10-16.

3. Foursquare Tabernacle Church v. State Bd. of Tax Comm'rs, 550 N.E.2d 850, 854 (Ind. Tax 1990).

4. Since the use element is most often at issue, this article focuses on the use element.5. Orr v. Baker, 4 Ind. 86, 89 (1853).

6. City of Indianapolis v. The Grand Master & the Grand Lodge of Indiana, 25 Ind. 518, 521-22 (1865), and United Brethren Publishing Establishment v. Shaffer, __ Ind.App. __, 123 N.E. 697, 698 (1919). Both decisions held that the non-leased portion of property was exempt, while leased portion of the property was subject to taxation, despite the fact that the rental income was used for charitable purposes.

7. State Bd. of Tax Comm'rs v. Indianapolis Lodge #17, 245 Ind. 614, 200 N.E.2d 221, 224-25 (1964) (quoting Contributors to Pa. Hospital v. Delaware County, 169 Pa. 305, 32 A. 456, 457 (1895)); see also Indianapolis Elks Bldg. Corp. v. State Bd. of Tax Comm'rs, 145 Ind.App. 522, 251 N.E.2d 673, 679 (1969) (" ... if property is owned and occupied by an organization to which an exemption applies and the dominant use of the property by said organization is predominantly ... charitable ... the property is exempt from property taxation"); State Bd. of Tax Comm'rs v. International Business College, Inc., 145 Ind.App. 353, 251 N.E.2d 39, 44 (1969) ("... the exemption is not lost where income is not derived as a result of dominant profit motive but rather as an incident to the accomplishment of the charitable or other exempt purpose"); and State Bd. of Tax Comm'rs v. Ft. Wayne Sport Club, Inc., 147 Ind.App. 137, 258 N.E.2d 874, 881 (1970) ("... it is the dominant use of the property which determines whether such property is tax exempt.")

8. Indianapolis Lodge #17, 200 N.E.2d at 224-25; State Bd. of Tax Comm'rs v. Wright, 139 Ind.App. 370, 215 N.E.2d 57, 63 (1966); State Bd. of Tax Comm'rs v. Methodist Home for the Aged, 143 Ind.App. 419, 241 N.E.2d 84, 86 (1968); Co. Bd. of Review v. Free Methodist Publishing House, 145 Ind.App. 463, 251 N.E.2d 486, 488 (1969); and State Bd. of Tax Comm'rs v. Warner Press, Inc., 145 Ind.App. 20, 248 N.E.2d 405, 411 (1969) aff'd 254 Ind. 183, 258 N.E.2d 621 (1970).

9. Sahara Grotto & Styx, Inc. v. State Bd. of Tax Comm'rs, 147 Ind.App. 471, 261 N.E.2d 873, 878 (1973); and International Business College, 251 N.E.2d at 44.

10. Indianapolis Elks, 251 N.E.2d at 679; and Ft. Wayne Sport Club, 258 N.E.2d at 881.11. 251 N.E.2d 486, 488.

12. 525 N.E.2d 637, 639 (Ind. Tax 1988).

13. 215 N.E.2d at 63.

14. 200 N.E.2d at 223 (citing Christian Business Men's Committee v. State, 28 Minn. 549, 38 N.W.2d 803 (1949)).

15. Presumably, property is exempt to the extent that its use is reasonably necessary to the chari-ty owner's charitable purpose, as under the predominant use test, although the only cases to apply this test, LeSea, supra note 12, and St. Mary's, infra note 16, did not expressly reach this conclusion.

16. St. Mary's Med. Center v. State Bd. of Tax Comm'rs, 534 N.E.2d 277 (Ind. Tax 1989) aff'd 571 N.E.2d 1247 (Ind. 1991).

17. Ind. Code 6-1.1-10-36.3 states as follows: (a) For purposes of this section, property is predominantly used or occupied for one or more stated purposes if it is used or occupied for one or more of those purposes during more than 50 percent of the time that it is used or occupied in the year that ends on the assessment date of theproperty. (b) If a section of this chapter states one or more purposes for which property must be used or occupied in order to qualify for an exemption, then the exemption applies as follows: (1) Property that is exclusively used or occupied for one or more of the stated purposes is totally exempt under that section. (2) Property that is predominantly used or occupied for one or more of the stated purposes by a church, religious society or not-for-profit school is totally exempt under that section. (3) Property that is predominantly used or occupied for one or more of the stated purposes by a person other than a church, religious society or not-for-profit school is exempt under that section from property tax on the part of the assessment of the property that bears the same proportion to the total assessment of the property as the amount of time that the property was used or occupied for one or more of the stated purposes during the year that ends on the assessment date of the property bears to the amount of time that the property was used or occupied for any purpose during that year. (4) Property that is predominantly used or occupied for a purpose other than one of the stated purposes is not exempt from any part of the propertytax. (c) Property is not used or occupied for one or more of the stated purposes during the time that a predominant part of the property is used or occupied in connection with a trade or business that is not substantially related to the exercise or performance of one or more of the stated purposes.

18. Id.

19. The tests for the exemption of personal property and buildings are the same. Ind. Code 6-1.1-10-16(e) provides that personal property is exempt "if it is owned and used in such a manner that would be exempt ... if it were a building."

20. 147 Ind.App. 471, 261 N.E.2d 873 (1970).

21. See also, St. Mary's, 534 N.E.2d at 278.

22. Informational Bulletin 92-43 contains three examples of this formula's application.

23. See also Sahara Grotto, 261 N.E.2d at 879 (which supports this interpretation).

24. Ind. Code =A76-1.1-11-3.5 requires a not-for-profit corporation to notif=y the county auditor in any year if it becomes ineligible for the exemption. This section could impose a reporting obligation on charities when leases become effective.

25. Wright, 215 N.E.2d at 63.

26. See, Ind. Code =A76-1.1-2-4 and State Bd. of Tax Comm'rs v. Methodist Home for the Aged, 143 Ind.App. 419, 241 N.E.2d 84, 90 (1968) (citing Stark v. Kreyling, 207 Ind. 128, 188 N.E. 680 (1934)).

27. 686 N.E.2d 954 (Ind. Tax 1997).

28. Id. at 959.

29. __ N.E.2d __, 1998 Ind. Tax LEXIS 19 (Ind. Tax 1998).

30. __ N.E.2d __, 1998 Ind. Tax LEXIS 20 (Ind. Tax 1998).

31. 1998 Ind. Tax LEXIS 19, at *11.

32. 1998 Ind. Tax LEXIS 20, at *5.

33. Indianapolis Lodge, 200 N.E.2d at 224-25, and Sahara Grotto, 261 N.E.2d at 879.

34. See Annotation, Property Tax: Exemption of Property Leased By and Used for Purposes of Otherwise Tax-Exempt Body, 55 ALR 3d 430 (1996).

35. 833 S.W.2d 108, 111 (Tx. 1992); see also, Central Baptist Church of Miami v. Dade County, 216 So.2d 4, 5 (Fla. 1968).

36. 833 S.W.2d at 111.

37. Id. at 114.

38. Jon G. Auerbach, "Holy Toll Calls: Telecom Companies Now Turn to Heaven," Wall St. J., Dec. 23, 1997, at A1.

39. The only remaining problem is how to assess the steeple. Under the current property tax regime based on Regulation 17, the tax imposed on the company will probably be fairly predictable as being the reproduction value of the steeple, but with the constitutionality of that system in doubt as indicated by the continuing saga of Town of St. John v. State Bd. of Comm'rs, 690 N.E.2d 370 (Ind. Tax 1997), valuation could become a larger issue. Under a fair market value assessment system, a key question is whether the tax is imposed based on the steeple's value as a church steeple, or based on its value as a telecommunications tower. Randal J. Kaltenmark is a graduate of Valparaiso University (B.A. with Honors in History, summa cum laude, 1993) and Indiana University, Bloomington (J.D., cum laude, 1996). He concentrates his practice in federal, state and local taxation, and is licensed in Indiana and Illinois.

Reprinted with permission by the Indiana State Bar Association, Res Gestae, November/December 1998, pp. 33-43."

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