“Not subject to transfer tax”

Archdiocese wins case against San Francisco

A judge has made final his ruling in favor of the Archdiocese of San Francisco in a dispute with the county assessor, who had sought to impose millions of dollars in taxes on church properties.

On Jan. 9, San Francisco Superior Court Judge Richard Kramer made final a tentative ruling in favor of the archdiocese he issued on Nov. 18, 2011, ending a three-and-a-half-year legal battle.

“In a fight to preserve the freedom of religious organizations to restructure, the Archdiocese of San Francisco challenged an attempt by San Francisco Assessor-Recorder Phil Ting to impose a 20 million dollar transfer tax bill on an internal reorganization involving Archdiocesan parish and school properties,” the archdiocese said in a Jan. 10 press release. 

“As I have previously stated, ‘The family of Archdiocesan civil law corporations has simply been reorganized to better enshrine the centuries old principles of church law concerning the uniqueness of parishes and schools,’” said archdiocesan general counsel Jack Hammel in a prepared statement. “‘The courts in recent years have said that if you claim that your parishes and schools are unique under church law then show it in your corporate structures and related articles and by-laws. We have done that. Each corporation is a spoke in the Archdiocesan wheel and the ecclesiastical office of the Archbishop is the essential ‘hub’ of that wheel. Intra-church transfers within a wheel of this nature are not subject to transfer tax. It is as simple as that.’”

“This has been a very frustrating experience,” Hammel said. “From the outset, Mr. Ting and his chief assistant in the Recorder’s office, Craig Dziedzic, refused to recognize well-established law on this subject. This refusal and the repeated delaying tactics that we encountered over the past three and a half years, caused a considerable disruption to the charitable activities of the Archdiocese.”

The attempted levy was described by the assessor’s office as “the second largest transfer tax event in our city’s history,” and stemmed from the internal transfer within the archdiocese in 2008 of 232 pieces of church-owned property. Ting determined that the transfers were the equivalent of “sales” and therefore subject to property taxes.

The archdiocese appealed Ting’s ruling to the San Francisco Transfer Tax Appeals Board, which voted unanimously to uphold the assessor’s findings, prompting the archdiocese to file its lawsuit in Superior Court.

In an April 21, 2010 statement announcing the suit, the archdiocese characterized the appeals board as “all City Hall administrators,” and said established law was “overwhelmingly in favor of the Archdiocese.”

“The Archdiocese maintains that to impose transfer taxes, penalties and interest on a religious organization in connection with an internal restructuring involving no exchange or receipt of money from which to pay any tax is inequitable and threatens to confiscate substantial Church assets that are devoted to religious purposes,” said the 2010 archdiocesan statement announcing the lawsuit.

In December 2007, Archbishop George Niederauer announced “certain corporate structure changes” in an article published in the archdiocesan weekly Catholic San Francisco. “The goal here in San Francisco has been to allow the day to day operations of our parishes and schools to continue in a cohesive, efficient manner while at the same time establishing simple ownership models that clearly distinguish the canonical assets of the parishes and schools from those of the Archdiocese in general,” said the archbishop.

In a June 12, 2009 story, Catholic San Francisco characterized the archdiocese’s attempt to overturn Ting’s decision as “a fight to preserve the freedom of religious organizations to restructure.” The newspaper said the archdiocese had made the same kind of property transfers in Marin and San Mateo counties and that neither county sought to impose transfer taxes.

In announcing Judge Kramer’s tentative Nov. 18 ruling, the archdiocese said the court had correctly held “that under the San Francisco Ordinance no tax could be imposed because the Archdiocese did not ‘sell’ this property and that the transaction was merely a change in corporate form. The Court further held that state law precludes the City from imposing such a tax.”

“Ironically, if Mr. Ting’s office had been successful, the tax would have drained, not filled, the City’s coffers; it would have cost the City an enormous sum to replace the services now being provided with this money, such as schooling for thousands of children,” said archdiocesan spokesman George Wesolek in the November statement. “The Assessor/Recorder apparently expected the Archdiocese to roll over in the face of this attack, but underestimated the resolve of the Church. It is unfortunate that the Assessor/Recorder’s miscalculation forced the Archdiocese to spend more than three years and hundreds of thousands of dollars in attorneys’ fees to defeat this illegal action, but the Archdiocese is hopeful that the Assessor/Recorder’s office will now be dissuaded from taking similar measures in the future.”