WHEN DOES AN ORGANIZED RELIGION cross the line from sacred to secular? That prickly question has become not only a national debate but one that concerns local communities as well.

For example, the Associated Press reported recently that in South Bend, Ind., St. Joseph County officials have challenged the tax-exempt status of a Roman Catholic religious order. This fall, county officials sent the brothers of Holy Cross a tax bill for $52,000 for a seniors housing development they finished three years earlier. The Tax Assessment Board of Appeals said that because the development produces income, it fails the tax exemption criteria, being neither charitable nor educational.

The religious order will likely appeal the ruling because it has just begun a new $30 million expansion of the development. It will include 21 assisted living units, a 12-unit Alzheimer's patient wing, and a 93-unit assisted-care facility.

Religious tax exemptions have become a difficult gray area for many cash-strapped towns in recent years. Often, the organization's activities look more like a business and less like charity. Consider the growth of the Church of Scientology in Clearwater, Fla. The organization, which is now a major real estate developer in the region, managed to flatten the church-state hurdle in 1993, when the IRS approved its tax-exempt status.

Since then, the group has become a financial and land-developing powerhouse. Scientologists have 900 condos planned for Clearwater over the next five years.

The verdict is still out on just how far the special tax privileges of religious groups should extend into their housing activities. But cases like the one in Indiana are sure to set important precedents for church and state power struggles in the years to come.

Sources: Associated Press; St. Petersburg Times