Arizona College of the Bible, Inc. v. Department of Economic Security , 119 Ariz. 542 ( 1977 )

OPINION

WREN, Presiding Judge.

This is an appeal from the judgment of the superior court sustaining an order of the appellee, the Employment Security Commission, now the Department of Economic Security, entered on January 18, 1973, requiring the appellant, Arizona College of the Bible, Inc. (ACB), to make wage reports and payments in lieu of contributions under the Employment Security Act of Arizona, A.R.S. § 23-601 et seq., with coverage beginning January 1, 1972. The specific issue in this appeal is whether ACB is exempt from making unemployment contributions under the provisions of A.R.S. § 23-615.¹ For the reasons stated below, we find it is not.

ACB is an Arizona corporation independent of any church, convention, or association of churches, and is operated solely by its officers and board of directors. The stated purpose of the school is to offer students a biblically oriented education and the subjects offered relate to the Bible and Christian doctrine. General educational subjects such as English and math are not offered.

ACB contends it is exempt from paying unemployment insurance taxes under the provisions of either A.R.S. § 23—615(6)(d)(i) or A.R.S. § 23—615(6)(d)(ii) and (6)(b)(ii). A.R.S. § 23—615(6)(d) states:

“For [the] purposes of this paragraph, the term ‘employment’ does not apply to service performed:

(i) In the employ of a church or convention or association of churches, or an organization which is operated primarily for religious purposes and which is operated, supervised, controlled, or principally supported by a church or convention or association of churches; . . . ”

There is no dispute that ACB operates independently of all churches, conventions and associations of churches. Thus, to qualify for an exemption under this provision it must meet two requirements: (1) that it is operated primarily for religious purposes and (2) it is principally supported by a church, convention or association of churches. The Department found that ACB was primarily an educational institution. We find it unnecessary to reach this question since it is clear the school does not satisfy the second requirement. The evidence was insufficient to show that its principal support was derived from a church, convention or association of churches.

In construing statutory language the words of the statute are to be given their ordinary meaning unless it appears from the context or otherwise that a different meaning should control. Ross v. Industrial Commission, 112 Ariz. 253, 540 P.2d 1234 (1975). The word “principal” is defined as “chief, leading, most important or considerable; primary; original. Highest in rank, authority, character, importance or degree.” Black’s Law Dictionary 1355 (rev. 4th ed. 1968). In the present case, forty-nine percent of ACB’s revenue is derived from tuition, eight percent from the sale of books and rentals, and forty-three percent from individual and church donations. While the term “principal” or “principally” does not necessarily require a showing that one seeking an exemption under A.R.S. § 23-615(6)(d)(i) derive more than fifty percent of its support from a church, convention or association of churches, the term does require a showing that such organizations contribute the most significant portion of the exemption-seeking entity’s support. The evidence in this case makes it clear that the most significant portion of ACB’s revenue is derived from student tuition. Further, Paul Eymann, president of ACB, who testified before a hearing officer in the proceedings below, was unable to state what portion of the donation revenue, forty-three percent of the school’s total revenue, was contributed by individuals as opposed to churches. He did testify that “most” of the donations were contributed by individuals. We hold this evidence conclusively shows that ACB is not “principally supported” by a church, convention or association of churches and therefore is not entitled to an exemption under the provisions of A.R.S. § 23-615(6)(d)(i).

ACB next contends it is entitled to an exemption because two of its staff members, an administrator and instructor, are licensed ministers who were not in “employment” since each was performing duties “in the exercise of his ministry.” A.R.S. § 23-615(6)(d)(ii). If this contention is correct the school would not have had four or more covered employees working for some portion of a day in each of twenty different weeks during 1972, as required by A.R.S. § 23—615(6)(b)(ii), and ACB would not be liable for payments under the Employment Security Act.

The Arizona statutory provisions which are pertinent to this portion of our inquiry provide:

§ 23-615 “ ‘Employment’ means any service of whatever nature performed by an employee for the person employing him, . . . and includes:

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6. (b) Service performed after December 31, 1971, by an individual in the employ of a religious, charitable, educational or other organization, but only if the following conditions are met:

(i) The service is excluded from ‘employment’ as defined in The Federal Unemployment Tax Act solely by reason of § 3306(c)(8) of that act; and

(ii) The organization had four or more individuals in employment for some portion of a day in each of twenty different weeks, whether or not such weeks are consecutive, within either the current or preceding calendar year, regardless of whether they were employed at the same moment of time.

(d) For [the] purposes of this paragraph, the term ‘employment’ does not apply to service performed:

* * * * * *

(ii) By a duly ordained, commissioned or licensed minister of a church in the exercise of his ministry or by a member of a religious order in the exercise of duties required by such order; . . . ”

ACB is exempt under the Federal Unemployment Tax Act pursuant to 26 U.S.C. § 3306(c)(8) (1954). Thus our attention is directed to the question of whether the school had in “employment” four or more persons as required under A.R.S. § 23-615(6)(b)(ii) for an education or religious organization having a 3306(c)(8) exemption under the federal act.

Within the relevant time period, January through July 1972, services for ACB were performed by seven persons. Two of the seven, working students of the school, were not included as employees by the Department as they were considered exempt under A.R.S. § 23-617(9). As to the other five, one was a secretary, one a librarian and three worked in instructional or administrative capacities. Unless at least two of these individuals were not in “employment” within the provisions of the Act, as ACB contends they were, the school is liable for unemployment contributions. A.R.S. § 23-615(6)(b)(ii).

The Department found that ACB

“is not associated with any religious body constituting a church or church denomination, and the two ordained ministers in question are not performing services for the school pursuant to an assignment or designation by their ecclesiastical superiors. It is a school operated, supervised, and controlled independent of any church, convention, or association of churches.”

Substantial evidence supported this finding. Mr. Eymann testified that the school holds no regular worship services and that ministry services performed by the staff are carried on independent of their status with the school.

In determining that the ordained ministers in question were not performing services for ACB in the exercise of their ministry, within the meaning of A.R.S. § 23—615(6)(d)(ii), the Department relied on the Internal Revenue Service’s interpretation of an identically worded section of the Federal Insurance Contributions Act, 26 U.S.C. § 3121(b)(8)(A). That part of Treasury Regulation on which the Department relied states:

“[S]ervice 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 . . . under the authority of a religious body constituting a church or church denomination.”

Subsection (3)(i) of that regulation qualifies the provision above by providing:

“If a minister is performing service in the conduct of religious worship or the ministration of sacerdotal functions, such service is in the exercise of his ministry whether or not it is performed for a religious organization.”

While we are not bound by the Internal Revenue’s interpretation, its interpretation is relevant and entitled to respectful consideration. The Employment Security Act should be liberally construed to include as many types of employment relationships as possible. Southwest Lumber Mills v. Employment Sec. Commission, 66 Ariz. 1, 182 P.2d 83 (1947); Arizona Dept. of Economic Security v. Little, 24 Ariz.App. 480, 539 P.2d 954 (1975). We believe the Internal Revenue Service construction placed on the comparable federal statute is reasonable because it tends to accomplish a liberal interpretation while at the same time exempting those ordained and licensed ministers whose services comprise those activities traditionally associated with the clergy.

In the present case the evidence indicates that the services performed by the ministers in question did not include the conduct of religious worship or the ministration of sacerdotal functions. For this reason their services must be considered “employment” within the meaning of A.R.S. § 23-615 and ACB is not entitled to an exemption.

The decision of the trial court is affirmed.

SCHROEDER, J., concurring.

1 . The 1971 version of A.R.S. § 23-615 is applicable to this case. The statute was amended in 1973, Laws 1973, Ch. 164, § 1 and again in 1974 Laws 1974, Ch. 80, § 1. Since the provisions with which we are concerned were not changed, we will refer to the 1974 subsection numerations.