The complete opinion may be accessed online by clicking here.

This case was appealed to the Wisconsin Supreme Court. To go to my brief of that case click: WAUSHARA COUNTY v. Sherri L. GRAF, 166 Wis.2d 442 (1992), 480 N.W.2d 16, Supreme Court of Wisconsin. Submitted on briefs October 4, 1991.Decided February 17, 1992.

The Wisconsin Supreme Court stated, in its opinion, that:

• The court of appeals had no obligation to look beyond the issues raised by Bible Baptist, but had the discretion to do so. The “church” was organized as a trust. The principle issue which it in its discretion addressed was the circuit court’s conclusion that for a ‘church’ to claim a tax exemption, it must be incorporated under the laws of Wisconsin or another state. The Supreme Court of Wisconsin agreed with the conclusion of the appeals court that the church need not be incorporated to claim a tax exemption.The Court stated: “We need not reiterate the excellent discussion and analysis underpinning that conclusion that appears in the court of appeals opinion. 157 Wis. 2d at 539-49” [the citation for this case].

This page will look at only the circuit courts analysis that led to the conclusion that a church, which was organized as a trust, need not be incorporated to claim a tax exemption. The following excerpt is from  the opinion of the court of appeals, 157 Wis. 2d at 539-49, on that matter:

We hold only that the church was not required to show that it was incorporated as a religious society or corporation under ch. 187, Stats., or otherwise, to establish that its property is exempt from taxation under sec. 70.11(4).

[2]

We recognize that “[o]ne who seeks to have his property exempt from taxation is required to bring himself within the terms of the exemption statute…. The taxpayer has the burden of demonstrating that it is entitled to tax-exempt status…. This is especially true in situations where, as here, there is a great potential for abuse because a church is controlled by an individual, a family or a small group of individuals. Id. The church must come forward with candid disclosure of the facts bearing on the exemption application. Id. What the ninth circuit said with respect to the Church of Scientology’s request for exemption from income tax under sec. 501(c)(3), I.R.C., is equally applicable to the Basic Bible Church’s claim of exemption under sec. 70.11(4), Stats. However, the county, on appeal, does not argue that the church has not brought itself within sec. 70.11(4), Stats., except for the insufficiency of its organization.

…

We turn therefore to the issue of whether the Basic Bible Church was required to show that it was incorporated to establish that it was an “entity” which could claim tax exemption under sec. 70.11(4), Stats. The statute does not impose the requirement. Ordinarily, this finding would end the case. A combination of factors, however, creates an ambiguity which persuaded the circuit court that to be exempt from taxation under sec. 70.11(4), a church or religious association must be an incorporated entity.

[3]

The first factor is the church’s failure to take formal action under state or federal law to “charter” the church. The court cited ch. 187, Stats., and I.R.C. sec. 501(c)(3). Ambiguity may be created by the interaction of separate statutes. State v. Kenyon, 85 Wis. 2d 36, 49, 270 N.W.2d 160, 166 (1978).

The second factor is the church’s failure to seek exemption from federal income tax under I.R.C. sec. 501(c)(3). Section 501(c)(3), I.R.C., however, does not provide for the incorporation or chartering of churches or religious organizations. Tax exemption thereunder is limited to a corporation, community chest, fund, or foundation. The Basic Bible Church does not claim it qualifies as one of the enumerated organizations. No significance can be attached to the church’s failure to seek tax exemption under I.R.C. sec. 501(c)(3).

The final factor is the decision in In re Zarling, 70 Bankr. 402 (Bankr. E.D. Wis. 1987). In Zarling, the court voided a transfer by the debtor of his interest in his farm to the Universal Life Church Charter No. 22406. The court found that the transfer was fraudulent. The court held that because a certificate acknowledging the existence of the Church as a corporation was not filed pursuant to secs. 187.01(2) or 187.09, Stats., prior to the conveyance, the Church-grantee was “a non-existent entity.” The court’s holding must be viewed in context. The debtor, Zarling, filed a certificate of incorporation under sec. 187.09 five years after the transfer, and attempted to make the filing “nunc pro tunc” the transfer. If Zarling is limited to its holding that the filing did not incorporate the Church “nunc pro tunc,” it is good law. To the extent that the decision declares all unincorporated churches or unincorporated religious associations “non-existent entit[ies],” we reject it.

We conclude, however, that these factors are sufficient to make it uncertain whether a church or religious organization must be incorporated for its property to be exempt under sec. 70.11(4), Stats. We therefore examine the legislative history of the pertinent statutes. “One of the most valuable extrinsic aids of judicial construction is legislative history.” [Citations omitted}.

The first exemption from taxation of the property of churches and religious organizations appears in sec. 24, ch. 47, Revised Statutes of 1849. Chapter 47 prescribed the procedure by which persons belonging to a church congregation or religious society, “not already incorporated,” could incorporate. Section 24 exempted from taxation every church, parsonage and schoolhouse belonging to any religious society, with the land belonging thereto, not to exceed three acres in any one town, village or township, or one city lot. The exemption was not limited to religious societies incorporated under ch. 47.

Chapter 130, Laws of 1868, provided for the assessment of property for taxation and for exemptions therefrom. Section 2, 3d exempted “[p]ersonal property owned by any religious, scientific, literary or benevolent association, used exclusively for the purposes of such association, and the real property necessary for the location and convenience of the buildings of such association . . . not exceeding ten acres. . . .” Chapter 130 did not define “association.”

Section 2 of ch. 130, Laws of 1868, was incorporated, without substantial change, in sec. 1038, subd. 3, Wisconsin Statutes of 1898. Section 1038, subd. 3 was renumbered sec. 70.11(4), Stats., by sec. 16, ch. 69, Laws of 1921. Throughout its history, the exemption from taxation of property of churches and religious associations has been accorded in substantially the same language. No “linkage” has existed between the exemption statutes and those affecting the organization of churches and religious associations or societies.

Chapter 411, Laws of 1876, provided for the incorporation of religious societies. Apparently this act replaced ch. 47 of the revised statutes of 1849. Chapter 411 is silent as to the taxation or exemption of the property of religious societies incorporated thereunder.

The procedures for the incorporation of religious societies were included in ch. 91, Revised Statutes of 1878. Nash’s Wisconsin Annotations (1914), sec. 1990, ch. 91 at 753, states:

The revisers of 1878 in their note said: “Chapter 411, 1876, is taken to have been intended as a revision of the law for the incorporation of religious societies. The privilege of organizing a corporation is extended to all classes and denominations, it not being supposed the law means to be intolerant of any religious belief or to be partial in its offer of privileges.”

The same annotation at page 755 states:

“Church” and “Congregation.” A church consists of those who are communicants, have made a public profession of religion and are united by a religious bond of common spiritual welfare. It is the spiritual body, not the legal one. But a religious society or congregation, under the statute, is a voluntary association of persons, generally but not necessarily in connection with a church proper, united for the purpose of having a common place of worship and to provide a proper teacher to instruct them in doctrines and duties, etc. [Citations omitted.]

Thus, the legislature distinguished a church, as the spiritual body, from a religious society, incorporated under the statute, as the legal body of a voluntary association of persons united for religious purposes.

Decisions interpreting ch. 91, Revised Statutes of 1878, make plain that failure of a church or religious organization to incorporate thereunder did not affect the power of the church or religious organization to hold title to property. “Under the repeated decisions of this court, we must hold that the mere fact that [a] church or religious society had not yet been incorporated at the time of the delivery of [a] deed in no way frustrated the trust thereby created, if such trust was otherwise valid.” Fadness v. Braunborg, 73 Wis. 257, 278-79, 41 N.W. 84, 90 (1889) (emphasis in original). The county does not claim that the trust pursuant to which the subject property was conveyed to Sherri L. Graf and Barbara J. Pogue as trustees for the church is invalid.

In Holm v. Holm, 81 Wis. 374, 382, 51 N.W. 579, 581 (1892), the facts included that the Norwegian Evangelical Lutheran Church of Roche-a-Cree was a voluntary association until February 7, 1889. The court noted that “[p]rior to that date the title to the churches in which the members of the association worshiped was vested in trustees named in . . . deeds, and their successors in office. . . . The trusts imposed by such deeds appear to have been valid upon the principles stated by this court in Fadness v. Braunborg. . . .” Id.

In Franke v. Mann, 106 Wis. 118, 131, 81 N.W. 1014, 1018-19 (1900), the court said that the power given to trustees of a religious corporation formed under ch. 91, R.S. 1878, was limited to the particular purposes expressly or impliedly named in the act of incorporation. The court further said that “[w]hat has been said is in harmony with the law regarding trusts for religious uses, whether the trustees be officers of a religious corporation or of an unincorporated ecclesiastical body. . . .” Id. at 131-32, 81 N.W. at 1019 (emphasis added).

It is plain from these decisions that the court did not consider that the legislature, by offering to ecclesiastical bodies the advantages of incorporation, intended to impose corporate structure upon such bodies. The property of unincorporated ecclesiastical bodies was commonly held in trust for the benefit of the members.

[4]

The Basic Bible Church established that title to the real estate subject to foreclosure was held in the name of the trustees for the benefit of the church. We conclude that the trust constituted an “entity” which could claim tax exemption under sec. 70.11(4), Stats., for the benefit of the Basic Bible Church. We further conclude that the legislative history of the pertinent statutes does not disclose a legislative intent to require that a church or religious association be incorporated before it may claim tax exemption under sec. 70.11(4).

By the Court.—Judgment reversed.