It was the phone call no pastor wants to take – the County Tax Collector’s office. When my secretary told me who was calling, I thought it was a joke. It was no joke.
A non-profit missionary group had been using a room on the second floor for years. The church got a monthly check for rental. It was all good. Only it wasn’t all good when that group neglected to file their Welfare Exemption papers at the end of the previous year. It didn’t take the county long to figure out that their space was now taxable. The assessor came out and measured the room they used and then proceeded to measure and examine every other room in all three of our buildings. The assessor then did a complete reassessment of the building based on current value, and figured the percentage of the property used by the negligent renters and sent us a bill for several thousand dollars of property tax, with thirty days to pay it or they would start assessing penalties. I almost panicked.
Fortunately, I remembered we had included a clause in their contract that any increased taxes associated with their use of the room and the property was the responsibility of the renter. The day the tax bill arrived. I copied it and walked it upstairs to their administrator, who apologized profusely and had a check for the full amount in my hand within a week. He also filed his papers for Welfare Exemption.
It could have been a disaster, but it was just an annoyance because we were prepared. Most churches are not so lucky and many churches have no idea what is going on with their renters.
When the church decides that it has an abundance of rooms and could easily rent a room in order to increase revenue, there is a long list of things to do before actually letting someone use the property. The first thing to understand is who can use your property.
All groups that churches rent to should be non-profit groups. Since the church is non-profit and not taxable by the county for property tax, any group who uses that facility must also meet that standard. If groups are for profit you run the risk of losing your non-profit status and being required to pay taxes.
- Some groups that you sponsor are effectively part of your program
Boy Scouts, Girl Scouts, Brownies, Explorer clubs, etc., which are formally sponsored by your church, effectively become part of your program. These groups are run by volunteers. You don’t charge the choir for the music room and you don’t charge your other sponsored groups either. So, groups that you sponsor and with whom you have a formal relationship, get the room for free. Scout groups should also have institutional liaisons who meet regularly with group leaders and kids, effectively tying the group to the church. If you do not have active liaisons, you are not acting as a responsible sponsor. As sponsored groups, they may operate under the churches tax identity, or they may operate under the national organization’s tax identity.
If you are the sponsoring agency, you must make sure to vet the program and its volunteers as if they are your own. Counselors and leaders, anyone who is in contact with minors, must pass a security check to make sure they have no prior criminal record. They should be instructed in safe and healthy procedures to avoid any impropriety. Further, make sure the group is named in the church insurance policy. If the group maintains its own insurance policy, make sure the church is named as co-insured.
- Some groups that you sponsor which are only marginally associated with your program
Alcoholics Anonymous (AA), AL-Anon, Narcotics Anonymous, and other 12-step programs are only marginally part of your program. These groups are run by volunteers who are committed to the program. You may offer them space, but you do not control their content or have institutional representation. Because you consider the work that they do important, you comp (complimentary gift) them the space at a significant discount. Your local AA group may take an offering to help cover the cost of the room and someone may walk in monthly and hand you cash or a check for that space. You understand, and the church members understand, that this is an outreach, it can literally save lives. So, you comp them the space gladly. But, if the group gets abusive, fails to clean up their cigarette butts, leaves the air conditioner on, or leaves trash around, and doesn’t put away their chairs, etc., you need to have a conversation with the group leaders and ask for a change, or ask them to leave. They will usually change; they hate to leave. Usually, these groups operate under the tax identity of their national charter and not the church.
- Some groups to which you are sympathetic but do not sponsor and which are not part of your program
The missionary group mentioned above, the community children’s choir, the community arts council, weight watchers, etc., are groups you have sympathy with and want to be supportive of their endeavors. Typically, these groups are run by paid staff who oversee and operate a program. They operate by collecting money from people in a variety of ways. Arts groups typically charge fees to cover their costs of operation. Do not assume that they are charities. Many of these groups are not IRS 501(c)(3) organizations, but actually are run as for-profit groups. If they cannot prove their tax status, you cannot rent to them. If they are non-profit groups you should rent to them for at least what it costs you to operate the space. We will cover this more in the third article; but for now, do not assume you know how much the space should rent for monthly or annually.
A music arts group that rehearses in your church for free may be costing the church thousands of dollars. Just because a space is sitting idle does not mean it is operating for free.
If you feel sympathetic to a special group and decide to cut them a reduced cost for the use of the space, keep in mind that you are making a decision for the whole congregation about how they want to see their tithes, pledges and offerings used. My guess is they give money to the church because they want to support the church. If they wanted to support the community children’s choir, they would give money to them directly.
- Some groups which have strong benefit to the community, but which are not a part of your program
Home Owners Associations (HOA), Little League (LL), American Youth Soccer (AYSO), and other civic groups and organizations all may come to the church and ask to use space. You will handle these differently than other groups.
Some groups are operated entirely by volunteers, (LL, AYSO, etc.) and will come to use space once or twice a year for meetings. You may wish to comp these groups completely because your church is a part of the community, too.
HOA’s charge homeowners significant fees and hire management companies to operate them and advise the boards. You may wish to charge these groups full fare for the space, and they will gladly pay it.
Your city may come to you and ask for space for a large community meeting. You would be well advised to comp the city completely as part of your civic mindedness. Your members will be happy to see their church named as the meeting place in the local press. This is a big thing for the pride of the church. Yes, it will cost you something, but it will pay off in other ways down the line.
- Profit-making entities
Let’s be clear! There is no law that says you cannot rent to profit-making groups. But you should understand there will be an additional cost to the space when you notify the county you are renting out that room.
If this is a one-time event, the county may simply tell you not to bother them. If the renters will be operating that space full-time as offices, the cost might be prohibitive. You can legally rent to them, you just have to take it off the tax-exempt rolls and add that expense to the costs that this group will pay.
- Weddings, Memorials, Funerals, and Receptions
People will come to the church who are not members and ask to use your church for their sacred events. Though these are sacred events, you need to understand that you are renting to people who merely want to use your buildings.
When Rick Warren finished his big barn for Saddleback Church, it was just too big and too ugly for people to get married in. So, my church, 15 miles away but overlooking the big blue Pacific Ocean and seating a paltry 350 people, became the church of choice for young couples who attended Rick’s church. They had no intent of joining or attending my church. Many wanted a Saddleback pastor to do their celebration, but just as many were happy to have me do their wedding. Other churches in town would not do weddings unless you were a church member, but we opened the doors to everyone. When we finally figured out our costs, we stopped subsidizing the weddings and started making money on them. $250 profit per wedding is really nice when you do 50 to 75 weddings a year.
By opening our doors to everyone, we also did a lot of memorials and funerals for other denominations whose buildings would not hold large crowds.
In time, we found we were receiving lots of new members merely because as they met our staff and dealt with our people, they found a community that welcomed them and made them feel at home.
Every church needs to have clear wedding policies and prices for members and non-members. Members are already paying for the building and staff with their annual gifts; therefore, they should not be charged for the building or the clergy for a sacred function. However, it is appropriate to ask for compensation for any hourly staff who are asked to be in attendance at their function. Further, if the event is on the weekend, after staff have worked 40 hours, the pay should be double their normal hourly compensation.
We will talk more about this in article 5 and 6 but for now just remember, two policies will need to be in place for all weddings, memorials, funerals, and receptions.
Next articles in this series:
- Who can you rent to?
- Understanding the types of rentals
- Understanding the actual costs of renting.
- Creating a policy for community groups and events.
- Creating a policy for sacred events.
- Creating a contract that protects everyone.
© 2016 By Steve Petty