ROCKLAND — It seems holy ground is taxable.

A Rockland congregation has turned to a lawyer, an appeals board and creation of a corporate foundation — all because it has been assessed property taxes on the land where Grace Bible Fellowship Life Center is building a church.

The congregation came up with the tax avoidance idea after the city board of assessment review sided with the city assessor in taxing the partially built church this year. Initially, the church received a 1999 tax bill for $7,957.

“It’s frankly an unusual way of doing business,” Pastor Peter Sheff said Wednesday. “That is the box city officials have put us in.”

Had he known the property would be taxed while being built, Sheff said, the church would have saved the necessary money to do the construction quickly rather than piecemeal.

The unfinished church is on Sherer Lane in Rockland on approximately 15 acres. The parcel contains a 30-by-40-foot, log-style parsonage where Sheff lives. The congregation recently purchased a 4-acre parcel that abuts the 15 acres.

Church services and religious education are held in a rented Park Street building, near the Rockland Skate Center.

According to City Assessor Marian Robinson, Sheff came to City Hall shortly after the board of assessment review upheld the taxing of the church to inform her the church had an established foundation that could totally exempt the land and building from taxation.

Sheff’s idea was to have a foundation donate the building back to the church when it is completed or to have the church “use it occasionally” for religious activities while it was being built, Sheff said.

The purpose of the Matthew Ames Foundation is to assist young people with living skills. The foundation ministers to youngsters, helps them with life skills such as parenting, and gives them a place to talk, Sheff said.

By deeding the property to the foundation, the church becomes a benevolent and charitable entity and is exempt from property taxes on both the land and building, except for the parsonage, Robinson said. Parsonages, although eligible for up to a $20,000 exemption, are taxable, as well as a reasonable amount of land around the building.

James Murphy Jr., an assessor for the towns of St. George, Union, Warren and Damariscotta, agreed with Robinson’s interpretation of Maine law regarding church property tax exemptions.

Up to the point that the building becomes the primary place of worship, a church under construction is taxed, he said, noting that the decision when to tax is judgmental.

“There are organizations out there where laws get judgmental,” he said. “It’s not always clear what is exempt and what is not exempt.

“Exemptions are very difficult,” Murphy said. “It’s an area of the state laws that needs attention.”

Rockland attorney James Brannan, who represents Grace Bible, said Thursday that Maine’s law regarding the taxation of churches was adopted from Massachusetts law. “Massachusetts cases clearly say a church under construction cannot be taxed,” Brannan said.

Brannan said he believes that no Maine cases have been presented in the state supreme court because few towns tax churches being built. He has spoken to other city attorneys who say their towns do not tax churches under construction.

Tom Ewell, executive director of the Maine Council of Churches, said churches generally are not taxed.

“If it’s a church and it’s to be used as a place of worship, they’re making a mistake,” Ewell said Thursday.

The council is an education and advocacy organization that represents eight Christian denominations in Maine, including United Methodists, the United Church of Christ and the Roman Catholic Diocese of Portland.

“To me a church is a church,” Ewell said. Whether it is a church with three bricks and seats or a $2 million structure, a house of worship should not be taxed, he said.

“I’d love to see the legal brief on that,” Ewell said.

Ewell said there is some discretion assessors can use when a church starts renting space to profit-making entities. For example, if a church allows a counselor who is making $50 an hour to use space, some taxation may be appropriate. However, if the space is used for other activities such as Alcoholics Anonymous meetings, an assessor may choose not to tax.

Churches are usually quite generous to communities, he said, so taxation for other uses besides worship is seldom imposed.

“It defies my sense of …,” Ewell said. “I just don’t get it.”

Robinson noted that when the Island Institute, which was a totally exempt nonprofit, renovated the Main Street building it now occupies, the institute put its gallery store in a part of the structure. Because the store was not nonprofit, the entire property became taxable.

But Sheff pointed to a one-year period when the church rented from the Farnsworth Art Museum the building that now houses the Wyeth Art Center.

The Farnsworth was a totally exempt institution, Sheff noted, and was not taxed while it rented the space to Grace Bible. Robinson said that because Grace Bible was leasing the building and the building had been previously used as a church, she did not tax it.

If Grace Bible’s foundation donates the building to the congregation or the congregation uses the building while the foundation owns it, the land and buildings will again be taxable, Robinson said, because they will no longer be used “solely” for the foundation’s purpose.

What the church group can do is deed the church and immediate surrounding property to the foundation, which it has done, while the church is under construction, making it completely exempt, Robinson said. Then, when the church is finished, the foundation can deed the building and surrounding land back to the church. At that point, it remains exempt. The parsonage and remaining land will continue to be taxed, with up to a $20,000 exemption, Robinson said.

State law does not give tax exemption to land surrounding churches beyond what is needed for parking, driveways and for adequate air, light and decor, Robinson said.

In early February, Sheff’s appeal to the city’s assessment board for total exemption on the church property’s taxes was denied. He argued that prayer services and religious activities had taken place on the church land. However, his assessment on the partially finished building was reduced.

Robinson had determined that less than 24 percent of the project was finished on April 1, 1998, the annual date when assessors review property under construction. She later concluded that the completion was even lower — about 15 percent. So on Feb. 15, the assessment board negotiated that down to 11 percent and the new tax bill issued was $5,130.

Sheff said he still believes the tax decision was wrong.

Sheff noted that he has resigned as a member of the foundation to avoid a conflict of interest.

The church can appeal to Superior Court, then to the state supreme court, but no court documents had been filed in Knox County Superior Court as of Thursday afternoon.

Brannan said the congregation intends to take the case to court.