Application of The CHURCH OF SCIENTOLOGY OF NEW YORK, Petitioner,
For A Judgment Pursuant to Article 78 of the C.P.L.R.
The TAX COMMISSION OF the CITY OF NEW YORK, Respondent.
Supreme Court, Special Term,
New York County, Part I.
May 14, 1984.
Purported religious organization brought Article 78 proceeding seeking
judgment vacating denial of real estate tax exemption for certain property it
owned. The Supreme Court at Special Term, New York County, Richard Lee Price,
J., held that: (1) tax commission was required to articulate standards which
distinguished organizations which are bona fide religious groups from those
which are not and to state manner in which petitioner failed to meet those
tests, and (2) findings that organization's beliefs were not generally known,
that organization permitted members to continue as Jews or Christians, that
organization's founder allegedly described religion as road to huge profits,
and that founder's son was engaged in litigation involving founder's finances,
did not support denial of exemption; questions existed as to whether
organization used coercion or was organized for profit.
Petition granted; case remanded for rehearing.
Prior decisions involving purported religious organization as to its status as
religion did not have res judicata or collateral estoppel effect on tax
commissioner's determination as to organization's entitlement to exemption from
real estate taxes, as decisions involved other church chapters, which may
differ in their operations, contents of various cases were different, and city
tax commission was not party to cases which were determined in organization's
Pursuit of particular approach to life is not purpose giving rise to real
property tax exemption granted to religious organizations.
Constitution does not require taxing authority to grant exemptions to any
organization, but once government chooses to grant such exemptions, it must do
so in manner which is not discriminatory, arbitrary, or capricious.
In determining whether to grant tax exemption to group, taxing authority cannot
inquire into soundness or validity of dogma espoused by group.
To be entitled to tax exemption, religious organization must be organized for
religious purposes, property for which exemption is sought must be used
primarily in furtherance of that purpose, and no pecuniary benefit may inure to
benefit of any of its officers, members, or employees, nor may property be used
as guise for profit-making operations.
Where primary purpose of organization is religious, organization's incidental
use of property, for which real property tax exemption is sought, for nonexempt
purpose will not destroy exemption.
Mere fact that organization makes profit from its operations does not make it
commercial enterprise for purpose of exemption from real property taxation, as
long as all profits are devoted to permitted purpose.
In denying purported religious organization exemption from real property taxes,
tax commissioner improperly failed to articulate standards for distinguishing
bona fide religious organizations from those which are not or to state manner
in which organization failed to meet those tests.
 CONSTITUTIONAL LAW
First Amendment is designed to prevent taxing authority from arbitrarily
denying tax exemption to particular religious organization or to new
organization merely on grounds that its system of belief differs from those of
more established or traditional religions. U.S.C.A. Const.Amend. 1.
Religious organization is not required to exclude all other religions or belief
systems in order to constitute bona fide religious organization for purpose of
exemption from real property taxation.
Findings that purported religious organization's tenets and beliefs were not
generally known, that it permitted its members to continue as Jews or
Christians, that its founder allegedly described religion as road to huge
profits, and that founder's son was engaged in litigation involving founder's
finances, did not support denial of exemption for real property taxation.
For purpose of exemption from real property taxation, bona fide "religious
organization" does not use coercion; members who wish to leave church are not
subject to blackmail, and bona fide "church" does not threaten its
opponents with baseless defamation suits, financial reprisals or
See publication Words and Phrases for other judicial constructions and
For purpose of exemption from real property taxation, bona fide "church" is not
run in same manner as high pressure sales organization; employees are not
recruited through promises of huge profits and commissions and followers are
not threatened with punishment for failure to meet sales quota.
On purported religious organization's application for real estate tax exemption
for certain property owned by it, questions existed as to whether organization
used coercion to retain membership and as to whether organization was run for
purpose of making profit, requiring remand for rehearing, which was to be based
at least in part on direct testimony.
**265 *720 Michael B. Standard, Rabinowitz, Boudin, Standard, Krinsky,
Lieberman, New York City, for petitioner.
F.A.O. Schwartz, Jr., Corporation Counsel of the City of New York, Tax
Commission of the City of New York, Office of the General Counsel, New York
City, for respondent.
RICHARD LEE PRICE, Justice:
This Article 78 proceeding seeks a judgment vacating the determination of
respondent which denied the Church of Scientology a real estate tax exemption
for certain property owned by the church.
It has been said that "One religion is as true as another," [FN*] but this
statement begs the question: "What is a religion?"
FN* Robert Burton, Anatomy of Melancholy.
The Church of Scientology was founded more than 20 years ago by L. Ron
Hubbard. Church doctrine apparently includes a concept of a supreme being
(Theta). An integral part of the work of the church is a process known as
*721 auditing. In auditing, a church member is attached to an electronic
device, known as an "E-meter", which is similar to the skin galvanometer used
in lie detector tests. The subject is asked to discuss the most disturbing
aspects of his life and past experiences, and his stress reactions are
recorded. Auditing is purported to be a form of "therapy" in which the subject
is able to come to terms with life. Followers often pay the church thousands
of dollars during the auditing process. The church also publishes books and/or
manuals which set forth rituals for weddings, funerals and the like.
 The Church of Scientology has been involved in extensive litigation,
through the world, in which its status as a religion has been in issue.
Decisions in various jurisdictions have gone both ways. However, none of those
decisions have a res judicata or collateral estoppel effect in the instant
proceeding (the various church chapters may differ in their operations, the
contents of the various cases have been different, and the New York City Tax
Commission was not a party to those cases which were determined in petitioner's
In June, 1978, the Tax Commission held a hearing regarding the claim for the
tax exemption. The Rev. Ron Haugen, president of the church, was the only
In January, 1983, after several years of investigations and procedures, the
Tax Commission issued a decision denying a tax exemption. The decision stated
(1) Scientology is not a religion whose tenets, doctrines and policies are
(2) Rev. Haugen, at the hearing, testified that 31 percent of the weekly
donations were used to pay salaries and benefits, but in a letter submitted
after the hearing drastically reduced the estimate to 17 percent. From this,
the Tax Commission concludes that the church is operated for profit.
**266 (3) The organization is a self-help group which emphasizes the mental
well-being of its members through a philosophy known as Dianetics.
 The pursuit of a particular approach to life is not a purpose giving
rise to a tax exemption. Thus, respondent *722 erred in stating that "The
courts have regarded a particular approach to life as a religious approach if
the practice of the approach holds the same position and force in its
followers' lives as a traditional religion holds in the lives of its
(4) The church permits people to be Scientologists without abandoning their
Jewish, Christian or other beliefs.
(5) L. Ron Hubbard, the church founder, was quoted in the St. Petersburg
Times, December 17, 1979, as stating that a man who wanted to make a million
dollars ought to start his own religion.
(6) L. Ron Hubbard's son has commenced litigation to recover assets on the
Petitioner maintains that Rev. Haugen's testimony regarding the payment of
salaries to church officials was not contradictory, in that salaries varied in
particular years (from as little as 17 percent to as much as 31 percent of
church revenues) depending upon the success of the church. Petitioner further
contends that the statement attributed to L. Ron Hubbard in the St. Petersburg
Times article was actually made years before by writer George Orwell.
Respondent's papers submitted in opposition to this petition contain many
statements and exhibits which were neither considered at the hearing nor
mentioned in the decision. Specifically, newspaper accounts indicate that the
church employs aggressive marketing tactics, recruits persons as (in effect)
sales agents with promises of huge profits or commission and has punished
followers who have failed to meet their sales quotas. The articles further
charge that the church has used terror tactics against followers who wish to
leave the church or outsiders who dare to oppose the church. Errant church
members are allegedly threatened with public disclosure of highly confidential
matter obtained during the auditing process. It has also been alleged that the
church has brought baseless defamation suits in order to wear down and silence
critics of the organization.
 There is nothing in the constitution which requires the taxing authority
to grant exemptions to any organization. *723 However, once the government
chooses to grant such exemptions, it must do so in a manner which is not
discriminatory, arbitrary or capricious.
 In determining whether or not to grant an exemption, the taxing
authority cannot inquire into the soundness or validity of the dogma espoused
by the group (Holy Spirit Association for the Unification of World
Christianity v. Tax Commission, 55 N.Y.2d 512, 450 N.Y.S.2d 292, 435 N.E.2d
662). The successful definition of a religion is a very difficult task.
However, Judge Adams, writing a concurring opinion in Malnak v. Yogi, 592
F.2d 197 (3d Cir.1979), set down some guidelines. Religion is said to be the
"sum and essence of one's basic attitudes towards the fundamental problems of
human existence (592 F.2d at p. 208)". Religious organizations generally
combine theories into a comprehensive system of beliefs. In addition, there
are generally a clergy, formal services and ceremonial functions. None of
these standards, of course, are absolute or inflexible.
 In order to be entitled to a tax exemption a religious
organization must meet three tests: (1) the group must be organized for
religious purposes; (2) the property must be used primarily in furtherance of
that purpose; (3) no pecuniary benefit may inure to the benefit of any of its
officers, members or employees, nor may it be used as a guise for profit-making
operations. (Gospel Volunteers v. Village of Speculator, 33 A.D.2d 407, 308
N.Y.S.2d 785, aff'd 29 N.Y.2d 622, 324 N.Y.S.2d 412, 273 N.E.2d 139). Where
the primary purpose is a religious one, incidental use of the **267 property
for a nonexempt purpose will not destroy the exemption. The mere fact that an
organization makes a profit from its operations does not make it a commercial
enterprise so long as all profits are devoted to the permitted purpose
(Gospel Volunteers v. Village of Speculator, supra).
 In the instant case, after only a brief hearing, respondent concluded
that the Church of Scientology was not a bona fide religion entitled to tax
exemptions. However, respondent failed to articulate the standards for
distinguishing those organizations which are bona fide religious groups from
those that are not or to state the manner in which petitioner failed to meet
 The statement that Scientology is not a religion whose tenets and
beliefs are "generally known", is meaningless. *724 The mere fact that the
system of beliefs differs from those of more established or traditional
religions is not a reason for denial of tax exemptions. To permit the Tax
Commission to evaluate the beliefs themselves would be to set a dangerous
precedent. A taxing authority with unlimited power could arbitrarily deny tax
exemptions to Protestants, Catholics or Jews, or deny an exemption to a new
group merely because it fails to fit within the traditional Judeo-Christian
mold. The First Amendment is designed to prevent such a result.
The Tax Commission considered the apparent inconsistency of Rev. Haugen, in
setting forth financial figures, to be significant. However, respondent did
not set forth any objective standards as to how high a percentage of revenues
devoted to salaries can be before it is considered excessive. A struggling
Jewish or Protestant congregation, for example, may have to pay much of its
meager earnings to a rabbi or minister and still be a bona fide religious
 The mere fact that Scientology permits members to continue as Jews
or Christians does not destroy its character as a religion. Nothing requires a
religion to exclude all other religions or belief systems. Hindus and
Buddhists, for example, borrow greatly from other religions. Jews and
Christians have learned much from each other and share the Old Testament as a
The respondent referred to Hubbard's alleged description of religion as a road
to huge profits (St. Petersburg Times) but did not describe the context in
which the statement was made (it has not been shown that Hubbard was referring
to his own church).
The mere fact that L. Ron Hubbard's son is engaged in litigation involving the
father's finances does not mean that the church is run for profit or that the
Hubbards have misused church funds.
 The Tax Commission gave considerable weight to newspaper
articles and other items outside the record in an effort to demonstrate that
Scientology is not a bona fide religion. The matters contained in these
articles may well be relevant, but the respondent's determination must be
based, at least in part, on direct testimony. Assuming, *725 arguendo, that
the charges contained in the articles are true, there are at least two ways in
which Scientology can be distinguished from bona fide religious groups. First,
a bona fide religious organization does not use coercion. Members who wish to
leave the church are not subject to blackmail (the alleged disclosure of
confidential matter obtained during the auditing process may well violate the
clergyman-penitent privilege). A bona fide church does not threaten its
opponents with baseless defamation suits, financial reprisals or physical
violence. Second, a bona fide church is not run in the same manner as a high
pressure sales organization. Employees are not recruited through promises of
huge profits and commissions and are not threatened with punishment for failure
to meet "sales quota". These and other allegations related to the operation of
the church should be explored at a new hearing.
Accordingly, the petition is granted to the extent that the case is remanded
to the Tax Commission for a rehearing, based at **268 least in part upon
direct testimony, regarding the character of the Church of Scientology.
Respondent shall consider the alleged profit making character of the church and
the alleged use of coercion, and any other matter which, in the opinion of the
respondent, is relevant to the tax exemption question. The tax commission, in
its decision shall set forth the objective tests used to determine whether or
not the Church of Scientology is a bona fide religion and shall determine
either that the church meets those standards or shall set forth the manner in
which the church has failed to meet the standards.