It is a classic battle of church vs. state: Do religious groups have to pay taxes when they sell churches and other properties within their massive bureaucratic organizations?
The decision over whether the San Francisco Archdiocese owes the city and county more than $20 million in taxes is in the hands of a Superior Court judge.
Opening arguments were heard Tuesday from attorneys for San Francisco and the Catholic Church over taxes from the transfer of 232 church properties from two of its nonprofit corporations to a third in 2008.
The properties include the Mission Dolores, St. Francis of Assisi and Old St. Mary’s churches, along with schools, commercial and residential buildings, and parking lots.
The office of Assessor-Recorder Phil Ting claimed the corporations were separate legal entities and the church owed $14.4 million in taxes from the transfers, while the archdiocese argued it was exempt from paying because the moves were part of an internal restructuring. The San Francisco Transfer Tax Review Board ruled in favor of Ting in December 2009, prompting the archdiocese to appeal to the Superior Court. Ting is now seeking additional penalties and interest that could push the total to about $21 million, according to his office.
Jeffrey Vesely, an attorney representing the church, told the judge that taxing the church in this matter was “unlawful and unprecedented.”
Vesely claimed imposition of the tax violated the archdiocese’s constitutional rights. Robert Stolebarger, a private attorney contracted to represent San Francisco, said The City had given the church numerous opportunities to prove the actions were exempt.
“In this particular case, [San Francisco] bent over backwards to accommodate the petitioner,” Stolebarger said, later adding the church “didn’t meet the burden of proof.”
Ting said San Francisco is not the only jurisdiction looking into property transfers by the San Francisco Archdiocese, which also owns property in San Mateo and Marin counties.
San Mateo County Deputy Assessor-Recorder Theresa Rabe said the county is seeking about $641,000 in transfer taxes from the archdiocese, based on the 2008 transfer of 108 properties throughout the Peninsula, including churches, schools, parking lots, single-family homes, and a nursing and convalescent home.
San Mateo County is awaiting the conclusion of legal proceedings in San Francisco before a court case moves forward there, Rabe said.
Tuesday’s hearing in San Francisco was only to address the issue of whether the archdiocese owes the taxes, not the amount owed, which would be determined later.
Kramer is expected to issue a decision in the coming weeks, after which appeals are likely, both sides said. The next hearing is scheduled for Feb. 17.