Church – Cell Tower Tax Implications

Vertical Consultants has worked with non-profit organizations throughout North America. One of the major concerns of religious and other non-profit organizations is whether revenue and other consideration derived from the development of a cell tower, rooftop equipment or other telecom equipment on their property will be classified as “Unrelated Business Income Tax” or (“UBIT”).

Before commencing a cell tower or rooftop lease, a non-profit organization should examine exactly how these agreements relate to their exempt tax status. Under federal law, a tax-exempt organization, such as a church, may still have to pay income tax on income it receives from an unrelated trade or business, which is referred to as UBIT.

So, what makes revenue unrelated to a non-profits ongoing activities?  In general, an activity is considered an unrelated business if it is:

(1) carried on to produce income from selling goods or performing services;

(2) regularly carried on by the organization; and

(3) not substantially related to the furtherance of the organization’s exempt purpose.

However, a trade or business is considered related to the exempt purpose if it has a substantial causal relationship to achieving those purposes.

Upon examination, it would seem that the UBIT characterization may become applicable if a non-profit organization garners revenue from a cell phone tower or rooftop lease. However, multiple exemptions and exclusions are available to a non-profit entity that may exclude revenue derived from such a lease from being a taxable event.

One basis of exclusion is that cell tower lease rental revenue collected from real property and from personal property leased with the real property is not subject to UBIT if such rental event meets certain criteria. Assuming, for example, if the Internal Revenue Service considers a church property, more particularly a church steeple to be “real property,” that non-profit organization’s rental revenue received from leasing such area would not be classified as a UBIT for tax purposes.

It would be extremely advantageous for a non-profit organization to engage a tax consultant to answer specific tax questions related to its leasing of its property to a cell phone carrier or tower company.

As monetary and non-monetary terms vary in all cell tower and rooftop lease agreements, and different financial conditions and organizational structures apply to each non-profit organization, tax review and analysis for these entities is extremely important when presented with any of telecommunication lease.

Vertical Consultants can assist your church in exploring all options available to maximize the full value of your property. We will be glad to share in more detail what services we can provide and always offer a free initial review.