Court Opinion

ID: 6476458
Source: CourtListenerOpinion
Date Created: 2022-06-26 22:41:48.656907+00
Date Added: 2024-06-11T15:53:59.110692
License: Public Domain

EUBANK, Judge,
dissenting.
I dissent. I believe that the narrow interpretation of A.R.S. § 23—615(6)(d)(ii) applied by the Department and endorsed by the majority is more restrictive than required by the language of the statute and serves to defeat the legislative purpose of the exemption provided for ministers in the exercise of their ministry. I would hold that a licensed or ordained minister who is a teacher or administrator at ACB is performing service in the exercise of his ministry. Thus, at the time in question, ACB had fewer than four employees for the purposes of A.R.S. § 23—615(6)(b)(ii), and was exempt from payment of unemployment taxes.
The statutory language of A.R.S. § 23-615(6)(d)(ii) has not received an authoritative interpretation from the Arizona Supreme Court. The Department and the majority rely heavily on the Internal Revenue Service’s interpretation of an identically worded section of the Federal Insurance Contributions Act, 26 U.S.C. §§ 3101-3126 (1970). Since I disagree with the IRS’s interpretation of the statute, I believe the majority’s reliance on it is unwarranted.
The term “employment” in the FICA does not include service performed by duly ordained or licensed ministers in the exercise of their ministry. 26 U.S.C. § 3121(b)(8)(A) (Supp. V 1975). The IRS, in Federal Tax Regulation 31.3121(b)(8)-l (1977), has stated:
(b)(1) [SJervice performed by a minister in the exercise of his ministry includes the ministration of sacerdotal functions and the conduct of religious worship, and the control, conduct, and maintenance of religious organizations (including the religious boards, societies, and other integral agencies of such organizations), under the authority of a religious body constituting a church or church denomination.
(2) Service performed by a minister in the control, conduct, and maintenance of a religious organization relates to directing, managing, or promoting the activities of such organization. Any religious organization is deemed to be under the authority of a religious body constituting a church or church denomination if it is organized and dedicated to carrying out the tenets and principles of a faith in accordance with either the requirements or sanctions governing the creation of institutions of the faith.
In cases where an ordained minister does not perform sacerdotal functions or conduct religious worship the federal regulation imposes two prerequisites before the minister *547qualifies for the exemption: (1) A minister must be performing service in the control, conduct, or maintenance of a religious organization, and (2) that organization must be under the authority of a religious body constituting a church or church denomination. The Department apparently applied both these requirements in this case. Accordingly, I will consider each in turn.
Initially, I question the validity of the requirement that ordained or licensed ministers must work for a religious organization in order to qualify for the exemption. First, the statute does not impose such a condition. Further, since A.R.S. § 23-615(6)(d)(i) exempts service performed in the employ of a religious organization principally supported by a church or convention or association of churches, requiring a minister to work for a religious organization before granting a 6(d)(ii) exemption makes little sense. If the minister is employed by a religious organization, he would fall within the 6(d)(i) exemption, unless the organization is not principally supported by a church or convention or association of churches. I think that subsection 6(d)(ii) was intended by the legislature to include a broader range of activities than service by ordained or licensed ministers in the employ of religious organizations which are not principally supported by a church or convention or association of churches. We do not need to decide this question, however. Even accepting the restrictive interpretation of 6(d)(ii) applied by the Department, ACB still must be considered a religious organization under the facts here.
In several Revenue Rulings, the IRS has amplified its construction of the ministerial exemption found in 26 U.S.C. § 3121. The agency has taken the position that ordained ministers serving as teachers or administrators on the faculties of theological seminaries are performing services in the exercise of their ministry. Necessarily, applying the federal regulation, supra, the agency concluded that theological seminaries are religious institutions:
Theological seminaries are religious institutions of learning, their purpose being to train and educate ministers in the propogation of religious principles and ideals of various church denominations.
Rev.Rul. 242, 1955-1 C.B. 490. The same reasoning applies to ACB. ACB’s sole purpose is to train and educate professional ministers and religious teachers. Its entire curriculum is directed to preparing its students to perform the various tasks required of specialized Christian ministers, including ministers of music and ministers of Christian education. Accepting, without approving, the Department’s first requirement, I believe that the only meaningful distinction in terms of the statutory exemption is between religious and secular organizations, not between religious and educational ones. Viewed in this light, ACB must be considered a religious organization. In my opinion, the Department erred, as a matter of law, in its interpretation of the term “religious organization.” ACB is a religious institution within the exemption.
The second factor which the Department found determinative was ACB’s lack of affiliation with a recognized church or church denomination. One of the reasons given for denying the 6(d)(ii) exemption was that the ministers were not assigned or designated to perform the services by their ecclesiastical superiors. This is similar to the second requirement in the federal regulations, supra. In order to qualify for the exemption in 26 U.S.C. § 3121, a minister must not only be in the employ of a religious organization, but that organization must also be under the authority of a religious body constituting a church or church denomination. Federal Tax Reg. 31.3121 (b)(8)—1.
The purpose of this second requirement is not immediately clear from the language of either the Administrative Decision or the federal regulation. Certainly the statutory language does not impose that prerequisite. For help in deciding whether we should read such a requirement into the Arizona statute, I would look to the policy of the ministerial exemption.
The general policy behind tax exemption of religious organizations is the encourage*548ment and protection of institutions of a religious character, because religious culture is deemed beneficial to the public. See Walz v. Tax Com’n of City of New York, 397 U.S. 664, 672-73, 90 S.Ct. 1409, 1413, 25 L.Ed.2d 697, 703-04 (1970); People v. Haring, 8 N.Y.2d 350, 357, 207 N.Y.S.2d 673, 677, 170 N.E.2d 677, 680 (1960). Cf. Verde Valley School v. County of Yavapai, 90 Ariz. 180, 182, 367 P.2d 223, 225 (1961) (educational institutions are tax exempt because of their value to the public). The exemption of ordained ministers in the exercise of their ministry is a corollary of the general policy. This policy is manifested in A.R.S. § 23-615(6)(d)(ii).
In terms of advancing the general policy, it seems irrelevant whether an ordained minister was assigned to teach at a bible college of his particular denomination by an ecclesiastical superior or whether an ordained minister of an independent church felt a personal call to teach at an independent bible college. Discriminating between ministers of recognized denominations and ministers of independent churches might also raise serious constitutional problems. The interpretation in the IRS regulation clearly favors recognized denominations over independent religious organizations. This, I think, would be impermissible under the first amendment to the United States Constitution. I would therefore reject the second requirement imposed by the Department, and hold that ordained or licensed ministers who are teachers or administrators at ACB are performing such activities in the exercise of their ministry. Since this interpretation of subsection 6(d)(ii) effectively disposes of this case, I would not reach the question of whether ACB falls within the exemption provided in 6(d)(1).
In reaching this conclusion, I am mindful of the general rule that exemptions from taxation are to be strictly construed. Gietz v. Webster, 46 Ariz. 261, 267, 50 P.2d 573, 576 (1935); J. H. Welsh & Son Contracting Co. v. Arizona State Tax Com’n, 4 Ariz.App. 398, 403, 420 P.2d 970, 975 (1966), aff’d, 102 Ariz. 443, 432 P.2d 455 (1967). A tax exemption, however, should not be applied so strictly that the intent of the legislature is defeated. Verde Valley School v. County of Yavapai, supra; Armco Steel Corp. v. State Tax Com’n, 221 Md. 33, 155 A.2d 678, 681 (Md.1959); Princeton Township, Mercer County v. Tenacre Foundation, 69 N.J.Super. 559, 563, 174 A.2d 601, 604 (1961); People v. Haring, 8 N.Y.2d 350, 358, 207 N.Y. S.2d 673, 678, 170 N.E.2d 677, 680 (1960); 85 C.J.S. Taxation § 1157 (1954).
My conclusion in this case would promote the legislative policy expressed in the statute and is, I believe, a reasonable interpretation of the language of A.R.S. § 23-615(6)(d)(ii).