San Francisco archdiocese’s tax dispute with city could cost $15 million

San Francisco, Calif., Jun 10, 2009 / 00:25 am

A year-long conflict over whether the Archdiocese of San Francisco should face a tax bill of as much as $15 million for its property reorganization will soon come to a key moment in a June 16 appeals hearing.

The Archdiocese had moved 232 San Francisco properties from one Catholic non-profit organization to another. The properties included empty lots and commercial land but also famous churches such as Mission Dolores, Old St. Mary’s Cathedral and St. Francis of Assisi.

The city tax assessor has argued that this move was a transfer of assets to a separate entity, while the archdiocese said the action was simply an internal reorganization.

Nonprofits are exempt from property and federal income taxes but are subject to property transfer taxes. The decision in this case could affect hundreds of other non-profit groups.

Assessor-Recorder Phil Ting plans to argue at the appeals hearing that the properties were moved into a new nonprofit created expressly to protect the archdiocese from losing those assets, the San Francisco Chronicle reports.

The archdiocese has sold other properties to pay out more than $40 million in settlements related to sexual abuse lawsuits.

Archdiocese spokesman Maurice Healy rejected Ting’s claim, saying that past litigation was not relevant to the tax issue. Healy also stated that Ting’s argument was “beneath” him and “shames the city of San Francisco.”

"This is a self-admitted cash-strapped recorder, and we think he is misinterpreting transfer tax law and infringes on religious organization's right to reorganize themselves," Healy told the San Francisco Chronicle.

Ting argued that the property transfer changes the board of directors, its members, and its controls.

“In our opinion, this isn't just a change - these are separate legal organizations,” he said.

In a statement reproduced at the California Chronicle, Ting said that the archdiocese is treated no differently than “Macy’s, the Gap or AT&T.”

“If any of these corporations did the same thing, they would be subject to transfer tax as well,” he said. “We have given the taxpayer every opportunity to demonstrate that they deserved an exemption and unfortunately, they have not been able to prove it. By making this determination, we are merely treating the Archdiocese like every other taxpayer in San Francisco.”

Archbishop of San Francisco George H. Niederauer said in an e-mail that the reorganization aims to establish “simple ownership models” that clearly distinguish canonical assets of the parishes and schools from those of the archdiocese. According to the San Francisco Chronicle, the archbishop said counties throughout California have allowed similar reorganizations.

If the city appeals board sides with Ting, he estimates the archdiocese could owe between $4 million and $15 million in taxes.

If the board rules against the archdiocese, it may appeal to the Superior Court.

Critics of the city government have questioned whether the tax inquiry by the City of San Francisco, which largely favored Proposition 8, was “payback” for the Catholic Church’s stand in favor of the measure.