June 18, 2009 | Read Time: 2 minutes
The tax assessor of San Francisco and the Roman Catholic Archdiocese of San Francisco are fighting over the assessor’s conclusion that the archdiocese owes a one-time local “transfer tax” of up to $15-million on property whose ownership rights are being moved between different nonprofit organizations.
The archdiocese — which continues to be exempt from paying the city’s property tax — said it began an internal reorganization in 2007 to simplify its structure, clarify the relationships in its family of nonprofit corporations in accordance with church law, and combine parish and school property in a new nonprofit organization.
Before taking steps to make changes, the archbishop of San Francisco — known legally as the “corporation sole” — owned the church’s parish property. A subsidiary nonprofit organization owned the school property.
In carrying out the restructuring, the subsidiary organization was closed and the school property was distributed to the archbishop as corporation sole.
A supporting organization was then created to accept the transfer of the parish and school properties so it could own and manage them. The archdiocese said the transfer of property to the supporting organization would not go through if an exemption from the tax could not be obtained.
The San Francisco Office of the Assessor-Recorder concluded that 232 distinct parcels of land worth from $210-million to $1.25-billion were transferred over all, and that the archdiocese owed a one-time tax of $3-million to $15-million.
In documents prepared for an appeal, the archdiocese said the assessor was wrong for a variety of reasons. Among them: Because no money changed hands in the transactions, the transfers were similar to gifts, which are exempt from the tax. And because the transfers did not result in a change in the ultimate ownership of the property, they qualify for an exemption given to reorganizations when “a mere change in form is effected.”
In response, the assessor’s office said the transfers were not gifts and the archdiocese had made a substantial change in its organization. The three nonprofit entities involved in the transfers are “separate and distinct, with different board of directors who have separate controls,” the assessor’s office said, and the entities have “different powers, civil law structures, and purpose.”
What’s more, the assessor’s office said, the archdiocese made the transfers to limit its exposure to lawsuits. The archdiocese “has carefully designed and structured a legal scheme by which it can move assets that are held by entities exposed to claims to other separate entities that have no direct or indirect exposure,” the assessor’s office said.
“The bottom line is, we really don’t care what their motivation of legal organizing is,” said Phil Ting, the tax assessor. “What they did is a very substantial change.”
Maurice Healy, a spokesman for the archdiocese, told the San Francisco Chronicle that the assessor’s description of the church’s motivation is “beneath” Mr. Ting and “shames the city of San Francisco.”
A city board will hold a hearing on the church’s appeal.
