Colorado Religious Property Tax Exemption and UBI

Share this Article
Facebook Icon LinkedIn Icon Twitter Icon
Cory D. Halliburton

Cory D. Halliburton

Attorney

214.984.3658
challiburton@freemanlaw.com

Cory Halliburton serves as general counsel and business adviser to a nationwide nonprofit / tax-exempt client base, as well as for multi-state professional service companies. He is a results-oriented attorney, with executive-level strategy and an understanding of the intersection of law and business judgment. With a practical upbringing, he pushes for process-driven results in internal governance, strategy and compliance with employment law, and complex or unique contracts and business relationships.

He dedicated the first ten years of his practice to mainly commercial litigation matters in West Texas and the Dallas-Fort Worth Metroplex. During that experience, Mr. Halliburton transitioned his practice to a more general counsel role, with an emphasis on nonprofit and tax-exempt organizations, advising those organizations through formation, dissolution, litigation, governance, leadership succession, employment law, contracts, intellectual property, tax exemption issues, policy creation, mergers and other. He has served as borrower’s counsel for tax-exempt bond and loan transactions near $100 million aggregate; some with complex pre-issue construction, debt payoff and other debt financing challenges.

Mr. Halliburton also serves as outside legal and business advisor for executive professionals in multi-state engineering firms, with a focus on drafting and counsel on significant service agreements, employment law matters, and protection of trade secrets.

Property owned by qualified religious organizations in Colorado may enjoy an exemption from state property tax. To enjoy exemption, the real and personal property must be owned and used “solely and exclusively for religious purposes and not for private gain or corporate profit.” See Colo. Stat. § 39-3-106. Despite the indication of “sole and exclusive” use requirement, section 39-3-106.5 of the Colorado statutes allows an amount of incidental use that will not necessarily destroy the property tax exemption that may be in place or available to the religious organization. The calculation of “incidental use” may be based on a revenue-generation model or a time-of-use model, depending on the circumstances.

The Colorado statutes applicable to this exemption essentially require that the owner maintain appropriate records to account for the revenue the organization may receive from the property from, and/or the amount of time that the property is used for non-religious purposes.

Religious organizations in Colorado who may enjoy an exemption from state property take should take due care to ensure appropriate procedures are in place to account for any use of the property for non-religious purposes so as to remain vigilant of and within the revenue or time-of-use calculations applicable for incidental uses.

Below is select information (not legal advice) about property tax exemption matters in Colorado, followed by related federal income tax matters applicable to unrelated business income matters affecting organizations that are exempt from federal income tax pursuant to section 501(c)(3) of the Internal Revenue Code.

Colo. Rev. Stat. § 39-3-106

Property – religious purposes – exemption – legislative declaration

(1) Property, real and personal, which is owned and used solely and exclusively for religious purposes and not for private gain or corporate profit shall be exempt from the levy and collection of property tax.

(2) In order to guide members of the public and public officials alike in the making of their day-to-day decisions, to provide for a consistent application of the laws, and to assist in the avoidance of litigation, the general assembly hereby finds and declares that religious worship has different meanings to different religious organizations; that the constitutional guarantees regarding establishment of religion and the free exercise of religion prevent public officials from inquiring as to whether particular activities of religious organizations constitute religious worship; that many activities of religious organizations are in the furtherance of the religious purposes of such organizations; that such religious activities are an integral part of the religious worship of religious organizations; and that activities of religious organizations which are in furtherance of their religious purposes constitute religious worship for purposes of section 5 of article X of the Colorado constitution. This legislative finding and declaration shall be entitled to great weight in any and every court.

(3) For the purpose of claiming an exemption pursuant to this section, property that is owned and used by a charitable trust that is exempt from taxation under section 501 (c)(3) of the federal “Internal Revenue Code of 1986”, as amended, shall be treated the same as property that is owned and used by any other type of nonprofit organization.

Colo. Rev. Stat. § 39-3-106.5

Tax-exempt property – incidental use – exemption – limitation

(1) If any property, real or personal, which is otherwise exempt from the levy and collection of property tax pursuant to the provisions of section 39-3-106, is used for any purpose other than the purposes specified in sections 39-3-106 to 39-3-113.5, such property shall be exempt from the levy and collection of property tax if:

(a) The property is used for such purposes for less than two hundred eight hours, adjusted for partial usage if necessary on the basis of the relationship that the amount of time and space used for such other purpose bears to the total available time and space, during the calendar yearor

(b) The use of the property for such purposes results in either:

(I) Less than ten thousand dollars of gross income to the owner of such property which is derived from any unrelated trade or business, as determined pursuant to the provisions of sections 511 to 513 of the federal “Internal Revenue Code of 1986”, as amended; or

(II) Less than ten thousand dollars of gross rental income to the owner of such property.

(1.5) Notwithstanding the provisions of subsection (1) of this section, for property tax years commencing on or after January 1, 1994, if any property, real or personal, which is otherwise exempt from the levy and collection of property tax pursuant to the provisions of section 39-3-106, is used for any purpose other than the purposes specified in sections 39-3-106 to 39-3-113.5, such property shall be exempt from the levy and collection of property tax if:

(a) The property is used for such purposes for less than two hundred eight hours, adjusted for partial usage if necessary on the basis of the relationship that the amount of time and space used for such other purpose bears to the total available time and space, during the calendar year; or

(b) The use of the property for such purposes results in:

(I) Less than ten thousand dollars of gross income to the owner of such property which is derived from any unrelated trade or business, as determined pursuant to the provisions of sections 511 to 513 of the federal “Internal Revenue Code of 1986”, as amended; and

(II) Less than ten thousand dollars of gross rental income to the owner of such property.

(2) Except as otherwise provided in section 39-3-108 (3) and subsection (3) of this section, if any property, real or personal, that is otherwise exempt from the levy and collection of property tax pursuant to the provisions of sections 39-3-107 to 39-3-113.5 is used on an occasional, noncontinuous basis for any purpose other than the purposes specified in sections 39-3-106 to 39-3-113.5, such property shall be exempt from the levy and collection of property tax if:

(a) The property is used for such purposes for less than two hundred eight hours, adjusted for partial usage if necessary on the basis of the relationship that the amount of time and space used for such other purpose bears to the total available time and space, during the calendar year; or

(b) The use of the property for such purposes results in less than twenty-five thousand dollars of gross rental income to the owner of such property.

(3) The requirement that property be used on an occasional basis in order to qualify for the exemption set forth in subsection (2) of this section shall not apply to property, real or personal, that is otherwise exempt from the levy and collection of property tax pursuant to the provisions of section 39-3-111 that is used for any purpose other than the purposes specified in sections 39-3-106 to 39-3-113.5.

Federal Unrelated Business Income Matters

See 3-part series published by Cory Halliburton circa February 2022:

  • UBIT Part 1 – The Framework

https://freemanlaw.com/tax-exemption-and-unrelated-business-income-tax-ubit-the-framework-part-1-of-3/

  • UBIT Part 2 – Rules, Modifications, and Exceptions

https://freemanlaw.com/tax-exemption-and-unrelated-business-income-tax-ubit-rules-modifications-and-exceptions-part-2-of-3/

  • UBIT Part 3 – “Substantially Related”

https://freemanlaw.com/tax-exemption-and-unrelated-business-income-rules-ubit-substantially-related-part-3-of-3/