NO. 83-166

INTHE SUPREMECOURTOF THE STATE OF MONTANA 1983

OLD FASHION BAPTIST CHURCH, Plaintiff andAppellant,

VS

## . MONTANA DEPARTMENTOF REVENUE, et al., Defendants and Respondents.

Appeal from: DistrictCourtof the Second Judicial District, Inand for the Countyof SilverBow Honorable Ma&+&&&%, Juduepresiding. .+?@&OLD OLSE~ Counsel of Record: ForAppellant: John Leslie Hammer argued,Butte,Montana For Respondents: Larry G. Schuster argued,Helena,Montana R. Lewis Brown,Butte,Montana

Filedt 

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# -1983 Submitted: September 13, 1983 Decided: November 3, 1983Mr. Chief Justice Frank I. Haswell delivered the Opinion of the Court. Old Fashion Baptist Church appeals from a Silver Bow County District Court judgment disallowing its claimed property tax exemptions. We affirm in part and reverse in part, and remand for furtherproceedings. On July 23, 1975, the Church recorded a. gra.ntdeed to lots 10-16 in a subdivision near Butte. On the same day a notice of purchasers interestwas recorded by the Church for lots 6-9 in the same subdivision. All lots a.resurroundedby

one fence. On lots 10-11, there is a building used as a. church school and place ofworship. There is a house on lot 14 used

as aparsonage. A road leading to the church crosses 1-ots6, 7, 8 and 9. Other portions of lots 6-9 as well as the rest of the lots a.reused for recreational..a.ctivitiesby church members but are unoccupied and unimproved. A softball backstop has been erected on one of the lots. Reverend Gary Miller,pastor of the Church, testified that the property was purchased for convenience and usage and all of the property is used by the school ministry and youth ministry for religious services and fellowship. The Montana Department of Revenue (DOR) granted tax exemptions to lots 10-16 in 1980. However, the exemption for lots 6-9was denied,and property taxes thereonwere assessed for 1975 and all subsequentyears. Since taxes were delinquent on lots 6-9,Lee MacDonald took a tax assignment on those lots and, without proper notice to the Church, obtained a tax deed and recorded the deed. On March 3, 1980,MacDonald quitclaimed his interest in lots 6-9 to James Walters by recorded deed. On May 22,1980, the Church recorded its deed from Marjorie Noland for lots 6-9. There is some evidence that MacDonald or Walters visited the pastor of the Church and demanded $6,000 to reconvey their alleged interest acquired by tax deed. There is also eviden.cethat threats of ousterweremade. MacDonald would not clear title as requested by the Church. Thereafter, the Church filed this action to quiet title. TheDistrictCourt found that the Churchwas the record owner of all lots in question and voided the tax deed. Further, it granted a tax exemption on lots 10, 11 and 14, concluding that the other lotswere not reasonably necessary for the convenient use of the church buildings. Also, the court determined that ingressand egress could he achievedby means other than the road on lots 6-9. This appeal followed. The Church raises two issues for our consideration:

(1 Is the Church entitled to an exemption, as a religious institution, on all lots surrounding the church buildings? (2) Did theDistrictCourt actwithout jurisdiction in disallowing exemptions previously granted by the Department of Revenue? The Church con.tends that the land surrounding the church buildings is reasonably necessary for convenient use of the church buildings; thus, the Church is entitled to an exemption under section 15-6-201(1)(b)

### , MCA. The land is used exclusively by the Church, the school ministries, and youth ministries for religious purposes. Ingress and egress is accomplished by the road which is on lots 6, 7, 8,and 9. A DORwitness testified thathe had onlybeen on theproperty twice but saw no activity. Consequently, the Church argues,DOR failed to contradict the Church1 s evidence regarding the

use of the property. The Church also a.rguestha.tthe legislative enactment of the exemption for adjacent lands necessary for the convenient use of buildings indicates an intent to liberally construe the exemption statute. DOR asserts that the tax exemption statutes must be strictly construed against exemptions and in favor of taxation. A tax exemption cannot be implied but must be expressed in clear,unambiguous language. DOR recognizes that the church,parsonage and land on which they sit is exempt from property tax. However, the adjacent land does not fall under section 15-6-201,MCA, as it is not reasonably necessary for convenient use of the church buildings. DOR points out that all of the lots were unimproved and vacant, and no activity was ever witnessed on the property. Under rules of strict construction an exemption cannotbe granted on suchproperty. Property tax exemptions for religious institutions a.re established in Art. VIII, Section 5, of the 1972 Montana Constitution, which reads inpart: "Property 

### - tax exemptions. (1) The legislaturemay exempt from taxa.tion:



### "(b) Institutions of purely public charity, hospitals and places of burial not used or held for private or corporate profit, places for actual religious worship, and property used exclusively for educational purposes.

(c)Any other classesofproperty." Section 15-6-201 (1)(b)

## ,MCA,provides: "Exempt categories. (1) The following categories of property are exempt from taxation:(b) build.ings,with the land they occupy and furnishings therein, owned by a church and used for actual religious worship or for residences of the clergy, together with adjacent land reasonably necessary for convenient use of such buildings;" Generally, property tax exemptions for religious institutionsare strictly construed against the claimant. 71 Am.Jur. State and Local Taxation, 5 381 at 688; Grace, Inc.



### v. Board of County Comm. (N.M.App. 1981), 639 P.2d 69;Yakima First Baptist Homes, Inc. v. Gray (1973), 82~ash.2d295, 510 P.2d 243; Board of Publication of the Methodist Church v. Oregon StateTax Commission (1964),239 Or. 65, 396 ~.2d 212;

see also, other cases cited in 15 ALR2d 1064, 1065. This Court soheld in Flathead Lake Methodist Ca.mpv. Webb (1965), 144Mont. 565, 399 P.2d 90,citingTown of Cascade

### v. Cascade County (1926),75 Mont. 304, 243 P. 806,and Cruse v. Fischl

(1918), 55 Mont. 258, 175 P. 878. However, lathe ad Lake also recognized that each case must be viewed from a realistic standpoint, quoting language from aNew York court: "'We must, as in all other judicial determinations, place in juxtaposition the two extremes of judicial interpretation. On the one hand is the policy of strict construction which frowns upon tax exemption.

[Citin.gcases.] On the other hand, innocent collateral activities essential to the furtherance of the true purposes of the corporation should not blind the court to the genuineness of those purposes nor to the sincerity of their a.ctua1 accomplishment.

### ' [Citingcases.] 281N.Y.S. 545 atpage 546." 144Mont. at 573, 399 P.2d at 95. While strict construction of exemption statutes is the majority rule, the balancing approach adopted by this Court lays a foundation for construing our statute. We construe the exemption statute to allowan exemption for the actual land that is the access roadway. It wasbrought out in oral argument that because of the topography of the surrounding land, ingress and egress can only be achieved by the church access road, not by Wynne Avenue as determined by the District Court. This access road crosses lots 6, 

### 7, 8 and 9. We find that roads for ingress and egress are certainly within the meaning of "adjacent land reasonably necessary for convenient use of such [church] buil-dings,"stated in section 15-6-201(1)(b)

## ,MCA. Access to church buildings is necessary for the convenientuse of such buildings. We exempt only the land on which the roadway sits, adhering to the policy of strict construction of tax exemption statutes. The balance is swung toward strict construction rather than a more permissive interpretation since the property is largely undeveloped and theuse thereof is not clearly evident nor documented. Hence, it is difficult to ascertain whether such use is essential to the furtherance of the true purposes of the Church. Our holding is strictly limited to the facts of this case and does not foreclose other religious institutions from asserting tax exemptions onproperty adjacent to churchbuildings. The Church also asserts that the District Court had no jurisdiction to removeexemptionson lotspreviously exempted by DOR. The tax exempt statusof those lotswas not involved in the litigation and DOR did not challenge such status. DOR argues that the exempt status of the lots was raised by the Church and thus became subject to litigation. A District Court does not have jurisdiction to grant relief outside of the issues presented by the pleadings unless the parties stipulate that other questions be considered or the pleadings are amended to conform to theproof. Heller v. Osburnsen (19731,162 Mont. 182, 510 P.2d 13,National Surety Corp. v. Kruse (19481,121Mont. 202, 192 P.2d 317; Welch v. All Persons (19271,78 Mont. 370, 254 P. 179;Wallace v. Goldberg (1925),72Mont. 234, 231 P. 56. In National SuretyCorp., this Court recognized that "[tlhe rule inMontana aswell as in other jurisdictions seems to be well settled that a judgment must be based on a verdict or findings of the court and must be within the issues presented -- to the court.

### " 

### -- 121 Mont. at 205-206, 192 P.2d at 319. (Emphasis added.) This rule was clearly upheld in Heller, 162 Mont. at 288, 510 P.2d at 16. We hold the District Court had no jurisdiction to remove the exempt status originally granted by DOR. In this case the original action was to quiet title on lots 6, 7, 8 and 9, as the tax deed clouded the Church's title. As previously mentioned, the Church alleged that the tax deed

was void since no delinquency occurred because the property should have been tax exempt. Therefore, the issues of the action embraced lots 6 through 9. The exemption granted on lots 10 through 16 by DOR was acknowledged in its answer. DOR's prayer for judgment specifically asked that the nonexempt status and subsequent assessment on lots 6 through 9 be affirmed. Lots 10 through 16 were not mentioned. Finally, the Church's application for a writ of prohibition. only dealt with the tax assessment on lots 6 through 9,not lots 10 through 16. The above facts regarding the pleadings indicate that the tax exempt status of lots 10 through 16 was never brought into this litigation. Rather, the essence of the action was the validity of the tax deed which depended, in part, on the tax status of lots 6 through 9. Consequently, the DistrictCourt acted without jurisdiction in removing the exemption status of lots 10 through 16. The judgment is reversed a.s to lots 10 through 16. The judgment as to lots 6 through 9 is vacated and remanded to the District Court for determination of the actual,physical dimensions of the access road for tax exemption,which would refer back to time of acqui-sition. The remainder of the judgment is affirmed. 

# 'a-,+ 

# qQq Chief Justice

We concur:

Justices

&strict Judge,sitting in. place of Mr. Justice Frank B. Morrison, Jr.Mr. Justice John C. Sheehy,dissenting:

I dissent from this improper and unworkable decision relating to the exemption of church-related property. The majority admit that Rev. Gary Miller,pastor of the church, testified that the property was purchased for convenienceand usage and all of theproperty was used by the schoolministry and youthministry for religious servicesand fellowship. The majority ha.ve ignored that language in determining that aportion of the churchpropertymust be taxed. This is the testimony which bears on the question: "Q. Ibelieve thatyou testified during the course of a direct examination that those particular lots were used for picnics, hayrides, tobogganing and activities of that sort, is that correct? A.

(Rev.Miller) Yes, related to our ministries, our youth ministries, our school ministry

# ...

"THE COURT: You have a road and you have a baseball diamond on 6, 7 and 8 and 9. There is a road in all three or four. "THE WITNESS: The road has to be on all of them but maybe 6. That's not vacant. Its used everyday." In contrast, the Depa-rtment of Revenue employee testified thathe had been on the premises only twice, not on

a day when church or school activities were going on, and that he had no direct knowledge of any kind as to the use of the lotswith respect to the church ownership. Lots 6 through 9,and lots 10 through 16 are all used as one unit, and are enclosed in a common fence. There is a baseball diamond located on lots 6 through 9, as well as a roadway which the majority have seen fit to exempt fromtaxation. The evidence is that the recreational portion of lots 6 through 9 in connection with the school ministry. This case should be controlled by Flathead Lake Methodist Camp v. Correan M. Webb, County Treasurer, (1965), 144 Mont. 565, 399 P.2d 90. In that case, this Court held that that portion of church property used for recreational purposes in connection with its religious educational purposes was entitled to exemption from taxes. I see no difference in the situationexisting here,particularly where the testimony indicates that the property is used "everyday" in connection with the ministry of the church. This case sets a danqerous precedent. Now al.1 church properties will be examined by the Departmentof Revenue,and those portions of the their properties which are not in active use on the twodays the Departmentof Revenue may come by to observewill be subject to taxation. The real question in cases like this should be whether the church is attempting to gain an exemption for more land than isnecessary for itspurposes. No such situation exists here. I thereforedissent.

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# 8J?/b7 Justice