Property exemption challenge seen as crucial to future of church-based retail

A church bookstore in Nashville is at the center of a legal battle being viewed as a major test case for religious freedom.

Authorities have ruled that For His Glory Bookstore at Christ Church is not eligible for property tax exemption and owes a portion of $350,000 in dues dating back to 2004.

Leaders have warned that if the ruling—under appeal—is upheld, it could set a significant precedent for church bookstores and other church ministries not only in Tennessee, but also in other parts of the country.

The dispute has turned the judicial spotlight on a church founded in 1949 that has grown to a present-day membership of around 3,000 with a wide range of ministries in its south Nashville community.

Operating a book table from its earliest days, the church established a proper store and café in 2004 as part of a new family life center with a fitness center. But its application for property tax exemption for the facilities was turned down.

The church was "very surprised" said administrator Linda Hilliard. "The whole purpose for having a bookstore is to help the congregation, to get the books they need for study and discipleship."

Following an appeal to an administrative judge, authorities approved tax exemption for parts of the center, but the bookstore and cafe were among other parts denied.

Among those who gave evidence at a hearing before the Tennessee State Board of Equalization in August 2009 were founding Pastor L.H. Hardwick, Senior Pastor Dan Scott, Bookstore Manager Katy Mashburn and bookstore worker Juanita Dabbs.

Dr. Greg Allison, professor of Christian Theology at Southern Theological Seminary in Louisville, Ky., spoke about the traditional uses of church facilities, while Michael Briggs, a Christ Church member and Christian products industry consultant, explained why he believed the church bookstore could not be considered a commercial retail operation.

But the board rejected the church’s arguments, maintaining that the bookstore and other life center facilities subject to the ruling were not necessary to the church’s operations. 

An appeal was heard in August 2010 and dismissed. Since then the church has been readying a further challenge to the decision, but has closed the cafe and relocated and reduced in size the bookstore pending a final outcome.

Hilliard said that the move was partly to refocus ministry efforts, but also to help reduce any further property tax assessments that may be levied if the church eventually loses its fight.

Erik Stanley, senior legal counsel with the Alliance Defense Fund (ADF), which is representing the congregation, said that his organization saw the Christ Church case as a religious freedom issue that is "incredibly significant" for other churches. 

"Wrapped up in tax exemption issues are a lot of other issues of the government making determinations about what is religious and what is not," he said. "There are very serious constitutional concerns that are at stake when the tax authorities start to make very restrictive definitions of what is religious worship and the religious purposes of a church."

Scott said that he believed that the exemption denial was financially—not politically—motivated, but that if the ruling is ultimately upheld, it would have a negative impact on the church’s budgets and its ministry efforts in the community. 

In a letter to Nashville pastors advising them of his church’s situation, he said that it "has huge ramifications that will affect you and all churches across the nation." Though "we are not trying to pick a fight with the state or do a political end run or in any way dishonor the authorities," the church would take its case to the Supreme Court, if need be, Scott told Christian Retailing.

Taxes "have always been an issue with church stores," said Geni Hulsey, president of the Church Bookstore Network, who viewed the Christ Church case as having huge implications. "The property tax people—especially in more politically liberal states—have been watching churches and other nonprofits for a long time," she said. "This is an issue that comes up periodically in almost every state."

CBA Chairman George Thomsen said that the organization was aware of the Christ Church case and "very interested" to see how it would be resolved. Exemption issues were complicated "and the fact that there are so many taxing agencies around the country with different interpretations and applications of the law makes the issue even more complex."

Director of The Harvest Store at Harvest Fellowship in Riverside, Calif., Thomsen said that church bookstores were generally accepted by the Internal Revenue Service to be exempt from income tax, though in some places sales of certain categories may not be exempted. "While books and Bibles may be exempt, in some cases music and gifts may not be."

Churches needed to be sure they have understood their local situation, he said. "Businesses should always consult with an attorney and CPA to ensure compliance in their locale."

Hulsey agreed, noting that the inquiries she received from churches usually related to sales tax and non-related business income. "There are many successful church stores who sell a wide variety of products and have no trouble with the tax issues because they are careful to know the rules and follow them," she said.

Blake Fontenay, communications director for the Tennessee Departments of Comptroller, State and Treasury, told Christian Retailing that the administration could not comment further on the Christ Church case because the appeals process had not yet been completed.

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