05 Mar 2019

Church in Miami Gets a 7.1 Million Dollar Tax Bill

Founder Raul Rivera

First Presbyterian Church of Miami, the oldest church in the city, has been levied a 7.1 million dollar tax bill by the Miami-Dade property tax appraiser. Established in 1896, the church has been a central place of worship in the Brickell community. 

What appears to be a simple mistake could have a devastating effect on the church. Here is what happened. 

The county officials claim that the church has leased out a portion of its facilities to a private school since 2009. Now, ten years later, through an anonymous tip submitted online, the county discovered that the school renting the church space is a for-profit school in violation of Florida Statute 196.196. The statute states that if any portion of the church building is rented out to a for-profit entity, then that portion of the church facility shall not be exempt from property tax.

The church now finds itself in a battle for its life as it does not currently have the cash to pay the debt. This is a problem that can happen to any church that rents its facilities to for-profit entities. 

Guidelines to consider

In many states similar to Florida, property tax exemption is predicated on the church using its facilities for “charitable, religious, scientific, or literary purposes.”

Often, churches lease portions of their facilities to daycare centers, schools or other entities. When doing so, it is very important for the church to conduct its due diligence and ensure that it does not run afoul of the property tax exemption rules as enforced by county officials. 

Below are four general guidelines to follow when considering allowing facilities to be leased or used by another entity.

  1. If a church leases out all or part of its facilities to a school or daycare, make sure they are set up as a charitable organization and have secured their 501(c)(3) status.
  2. If a church chooses to rent out a part of its facilities to a for-profit entity, it should report the activities to the county. This action avoids surprise from the tax bill when its levied years later with tacked on penalties and interest.
  3. If a church leases out part of the church facilities to a for-profit entity, the income it makes from the lease will be subject to federal income tax if the church facilities are financed. 
  4. If a church leases out its facilities to another church or nonprofit tax exempt school, the church can expect its facilities to remain exempt from property tax. Additionally, the income it makes on the lease is exempt from federal income tax.

Start right and stay right

In Song of Solomon 2:15, they were concerned about the little foxes ruining their vines. These foxes were small enough to get through the small holes in the stone fences that were supposed to protect the vines. That same problem continues today with churches young and old alike. 

Many who do not start right later run across problems that could have been avoided had they simply started on a solid legal foundation. Others fail to establish good policies and procedures or keep good books. Keep in mind, these issues almost always start as small things that later become big problems. Let us help you! Give us a call at 877-494-4655. Church compliance is what we are called to do.  

Please feel free to comment. We always appreciate good dialogue. However, we do moderate each comment to ensure that it is on topic and not derogatory to other participants. We ask that you keep your comments brief and pertinent to the topic so that others may benefit.

Blessings,
Raul Rivera

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