TRANSFER TAX: RELIGIOUS EXEMPTION - S.B. 1191: FIRST ANALYSIS
Senate Bill 1191 (as enrolled)
Sponsor: Senator Leon Stille
Committee: Finance
Date Completed: 4-14-00
RATIONALE
The passage of Proposal A in 1994 revamped the State's school finance system. Among the many tax changes made was the creation of the State Real Estate Transfer Tax Act, which taxes the seller or grantor of property at the rate of three-fourths of 1% of the total value of the property transferred. Though the Act contains a list of property transfers that are exempt from the tax, there is no exemption for the conveyance of property from a religious entity. It has been pointed out that the absence of this exemption is inconsistent with an exemption in the General Property Tax Act. Section 7s of that Act exempts from property taxes houses of public worship, the furniture in them, and the land on which they stand; any parsonage owned and occupied as a parsonage by a religious society of the State; and buildings or other facilities owned by a religious society and used predominantly for religious services or for teaching the society's religious truths and beliefs.
House Bill 5358, enrolled in April 1998, proposed to amend the State Real Estate Transfer Tax Act to exempt from the tax the conveyance of property by a religious society or a parsonage. The bill was vetoed by the Governor, who stated in his veto message, "To narrowly carve out a special exemption to the State Real Estate Transfer Tax Act would set a precedent and invite other interests to seek similar special treatment. Such action only serves to erode the real estate transfer tax base." It has been suggested that, instead of exempting from the tax all property transfers by religious organizations, property transfers between religious organizations should be exempted from the tax.
CONTENT
The bill would amend the State Real Estate Transfer Tax Act to exempt from the tax a written instrument that conveyed an interest in property from a religious society, that is exempt from the collection of taxes under Section 7s of the General Property Tax Act, to a religious society, if the property would continue to be exempt from taxation under Section 7s.
MCL 207.526
BACKGROUND
Public Act 246 of 1998 (enrolled Senate Bill 923) proposed to amend the State Real Estate Transfer Tax Act in the same manner as proposed in Senate Bill 1191. Public Act 246, however, was tie-barred to House Bill 4376, which was not enrolled. Thus, Public Act 246 did not take effect.
ARGUMENTS
(Please note: The arguments contained in this analysis originate from sources outside the Senate Fiscal Agency. The Senate Fiscal Agency neither supports nor opposes legislation.)
Supporting Argument
Religious organizations typically are exempt from taxation when they are engaged in their traditional activities. They are exempt from the sales and use taxes, for example, and their property is exempt from property taxes. When the State transfer tax on real estate transactions was enacted as part of Proposal A, however, no exemption was included for religious organizations; meaning that when a church, for instance, sells property, it is subject to the tax. This reduces revenues that the religious institution otherwise could use in carrying out its mission, and reduces the organization's ability to offer services to the community. Reportedly, the lack of an exemption from the transfer tax for religious organizations was an oversight, and many people feel that it would be proper to correct the problem. House Bill 5358 of 1998, which was vetoed, would have exempted all property transfers by religious organizations. Senate Bill 1191 would exempt only property transferred from one religious institution to another; thus, the revenue implications would be smaller.
Opposing Argument
In regard to the House bill that was vetoed, the Governor stated that the proposed change would have carved out a narrow exemption and invited other interests to seek special treatment. Senate Bill 1191 would allow an even narrower exemption, but it would set no less a precedent, and thus would encourage other special interests to seek special treatment.
- Legislative Analyst: G. Towne
FISCAL IMPACT
In a typical year, it is estimated this bill would reduce State real estate transfer tax revenue by less than $1 million. This fiscal impact could vary widely in any particular year depending on the number of church structures that are sold and their respective values. This loss in revenue would affect the School Aid Fund.
- Fiscal Analyst: J. WortleyA9900\s1191a
This analysis was prepared by nonpartisan Senate staff for use by the Senate in its deliberations and does not constitute an official statement of legislative intent.