The Church Water Tax Case | Cases | First Liberty

Tax or Fee?

Since March of 2018, the city of Magnolia, Texas has been trying to circumvent the law by raising the water bill for local churches and non-profits. This city has been charging churches and non-profit at a significantly higher rate for water and wastewater than rates paid by businesses and residents. Why?

Mayor Todd Kana and the Magnolia City Council decided that despite Texas’s recognition of the value churches provide to their community, these churches were not paying their “fair share” in taxes. They voted to revise the city’s fee schedule for water services, creating an expensive “institutional” fee charged only to churches, schools and other nonprofit organizations because those entities are exempt from paying property taxes.

In the words of Magnolia City Administrator Paul Mendes: “Implementing an institutional rate would allow the city to collect funds from these entities in place of taxes or other fees.”

“Texas law clearly exempts religious and non-profit organizations from taxation,” said Mike Berry, Chief of Staff for First Liberty.  “Magnolia’s water fee scheme hinders these churches from providing many vital services to the community because of the government’s unquenchable thirst for taxpayer money. These churches offer a multitude of services to their communities, and over-charging their water limits the services they can provide the community.”

Legal Action

That’s why First Liberty Institute and the law firm Baker Botts filed a lawsuit against Magnolia arguing that its water fee scheme is illegal under Texas law.

Magnolia is one of a growing number of localities that have enacted discriminatory fees against churches and other nonprofits because, in the government’s view, they don’t “pay their fair share.” However, recent studies have indicated that the average church in an urban environment generates over $1.7 million annually in economic impact. As it turns out, what churches and non-profits don’t give in taxes, they give in service. In recognition of these benefits, every state exempts some or all of the properties owned by charitable nonprofits from property taxes.

However, these discriminatory fees actually inhibit the generosity of these organizations. A recent study conducted by the National Bureau of Economic Research shows that taxes on nonprofits actually discourage nonprofit activity. This means that churches and non-profits who would normally give to homeless shelters, rehab facilities, and more cannot, because they can’t even pay the bills.

First Liberty filed the lawsuit on behalf of three area churches.  The plaintiffs’ petition argues that, “The Institutional Water Rate is a thinly veiled property tax on a tax-exempt entity, and, as such, it is preempted by state law.”

 

News Release
For Immediate Release: 5.14.19
Contact: Lacey McNiel, media@firstliberty.org
Direct: 972-941-4453

Churches Seek Relief in Court from Texas City’s Unlawful Attempt to Skirt State Tax Laws

First Liberty Institute files lawsuit on behalf of three churches against Magnolia, Texas for charging churches a water-fee higher than that of commercial businesses

Magnolia, TX—First Liberty Institute and attorneys with the law firm Baker Botts today filed a lawsuit in Montgomery County District Court claiming the city of Magnolia broke the law when city leaders singled out churches and non-profits with excessive water fees.  The churches represented in the petition are Magnolia Bible Church, Magnolia’s First Baptist Church, and Believers Fellowship.

You can read the petition here.

“Texas law clearly exempts religious and non-profit organizations from taxation,” said Mike Berry, Chief of Staff for First Liberty.  “Magnolia’s water fee scheme hinders these churches from providing many vital services to the community because of the government’s unquenchable thirst for taxpayer money.  These churches offer a multitude of services to their communities, and over-charging their water limits the services they can provide the community.”

The City of Magnolia, Texas began charging “institutional” water and wastewater fees for tax-exempt and nonprofit organizations significantly higher than that of commercial businesses in March 2018.  Previously, the city had treated churches and businesses equally.  In one case, a church’s water bill increased 178% for similar water usage.  Defending Magnolia’s new fee structure, City Administrator Paul Mendes said, “Implementing an institutional rate would allow the city to collect funds from these entities in place of taxes or other fees.”

The Churches’ petition argues that, “The Institutional Water Rate is a thinly veiled property tax on a tax-exempt entity, and, as such, it is preempted by state law.”  They also contend that the new rate violates the Texas Religious Freedom Restoration Act because “it places a real and significant—i.e., substantial—burden on the Churches’ and their members’ free exercise of religion.”

“Magnolia officials in search of new revenue have singled out churches and other non-profits with a rate that dwarfs commercial users in a transparent effort to circumvent the law,” said Aaron Streett, Partner at Baker Botts.

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A PDF of the news release is available here.

About First Liberty Institute

First Liberty Institute is the largest legal organization in the nation dedicated exclusively to defending religious freedom for all Americans.

To arrange an interview, contact Lacey McNiel at media@firstliberty.org or by calling 972-941-4453.

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