Lawsuit argues church-owned apartments should be taxed

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The Freedom From Religion Foundation (FFRF) and three Madison residents have filed a lawsuit over a law exempting two religious entities from paying taxes on their Madison rental properties.

The lawsuit challenges state rules that exempt The Pres House, which is owned by the Presbyterian Student Center Foundation, and Lumen House Apartments, which is owned by St. Raphael’s Congregation, from paying property taxes. Both apartment complexes cater to University of Wisconsin-Madison students.

The defendants include the two nonprofits and the city of Madison. The city of Madison is included since the municipality is unwilling to stop applying the tax emption, according to court documents.

The FFRF is asking the court to rule the exemptions unconstitutional, requiring both properties to pay property taxes going forward.

The exemption is unconstitutional on several accounts, according to the FFRF and the lawsuit’s three plaintiffs and three Madison residents — FFRF co-presidents Annie Laurie Gaylor and Dan Barker and David Peterson. The plaintiffs claim that they and all Madison taxpayers must pay higher property taxes since the two apartment complexes are not on the tax rolls.

In addition, the FFRF said the exemption harms the organization since it favors rental properties owned by two religious nonprofit organizations to the exclusion of all other nonprofits that may want to run student apartments in the future.

The exemptions trace to 2009 when then-state Rep. Spencer Black introduced a measure in the Wisconsin Legislature to exempt the Pres House Apartments from paying property taxes. The Legislature’s Joint Finance Committee voted in 2011 to repeal the exemption with then-state Sen. Alberta Darling, co-chair of the Joint Finance Committee, calling it “an aberration and earmark.” Former Gov. Scott Walker vetoed the request.

In 2013, the Legislature approved an amendment removing Lumen House Apartments from the property tax roll. At the same time, the Legislature adopted language to prevent additional properties from ever qualifying for the same property tax exemption.

According to the FFRF, the Pres House Apartments’ current market value exceeds $25 million, with an estimated property tax of more than $300,000 annually. The Lumen House Apartments’ value is about $7.6 million, according to estimates from FFRF, with estimated property taxes exceeding $94,000 annually.

In its legal complaint, the FFRF asserts the exemption removes an estimated $33 million of property from the tax rolls.

“It’s approximately the equivalent of exempting an entire neighborhood from paying property taxes,” the organization wrote. “The Exemption’s criteria are arbitrary and unmoored from any rationale with a reasonable purpose or relationship to the facts or state policy. There is no rational purpose for exempting from property taxes nonprofit-owned Madison-specific commercial rental properties that must primarily rent to UW-Madison students and that were operating by a certain date.”

The case has been assigned to Dane County Circuit Court Judge Frank Remington. The defendants could not be reached for comments prior to publication time.