TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Sunday, July 30, 2017

Should The Government Continue To Exempt Churches From Taxation?

J. Michael Martin (Vice President & Legal Counsel, Evangelical Council for Financial Accountability), Should the Government Be in the Business of Taxing Churches?, 29 Regent U. L. Rev. 309 (2017):

While some legal scholars have suggested the legitimacy of church tax exemption may be on the decline in the modern era, this Article offers reminders of the constitutional, historical, and public policy rationales that have supported church tax exemption since the establishment of our federal government. Ultimately, it contends that protection for religious freedom guaranteed by the Framers of the Constitution precludes the federal government from levying taxes on churches, and furthermore, that the government may not constitutionally revoke the historic tax-exempt status of churches based on their religious nature.

Part I briefly recounts the history of church tax exemption from ancient civilizations to its “unbroken” practice within the United States since the founding. Part II advocates constitutional rationales for church tax exemption, including promoting the proper degree of separation of church and state, protecting the free exercise of religion, and ensuring equal access for religious organizations to public benefit programs. Finally, Part III concludes with economic and public policy rationales that suggest exempting churches from government taxation is in the overall best interest of society.

Should the government be in the business of taxing churches? The historical, constitutional, and public policy bases for church tax exemption referenced in this Article answer a resounding “No.” Church tax exemption can be traced back to antiquity and remains an unbroken historical practice in the United States to this day. The U.S. Supreme Court has held that church tax exemption promotes the proper degree of separation between church and state and protects the free exercise of religion from undue government interference. Likewise, the practice of granting religious organizations equal access to public benefits and resources ensures that churches are at least entitled to the same exemptions that other charitable organizations receive from government taxation. Finally, it is clear from a purely economic standpoint that church tax exemption is prudent public policy given the immeasurable benefits churches provide society in a much more efficient manner than the federal government.

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However the government should tax all activities that a church performs that is not a core activity. If a church rents space it should be taxed.

Posted by: John Davies | Jul 31, 2017 6:02:31 AM


Now, who decides what's a church?

Posted by: TodundSteuer | Jul 31, 2017 8:17:44 AM

I say get rid of all tax exempt organizations. This would eliminate that part of the IRS and make the code less complex. No more figuring out what's a church or a charitable organization.

Posted by: sid | Jul 31, 2017 10:46:18 PM

Asking what constitutes a "church" brings to mind the great Flip Wilson's "Church of What's Happening Now!"

Posted by: Joseph W. Mooney III | Aug 1, 2017 8:50:32 AM

A church is a philanthropic concern. It issues no dividends; it's retained income does not contribute to shareholder value. It's employees pay taxes like everyone else. It has some sales income (minor, usually). It's difficult to see why the sales income of churches should be taxed if other philanthropies are not taxed.

The usual complaint is that church property is 'not on the tax rolls'. Neither are public buildings or (as a rule) the Red Cross headquarters. You could ameliorate or expunge conflicts of this nature by incorporating into the budgets of the general services bureau of each government funds for property tax payments to other governments (after netting reciprocal obligations) and granting such bureaux the franchise to contest property assessments on equal terms with private parties. You could in addition grant such a franchise to philanthropic agencies or to the state attorney general on the philanthropies' behalf. The philanthropy would have a property tax liability to the local government and could then apply for full re-imbursement from the state government. That way, the costs of placing philanthropic headquarters in a given municipality would be socialized across all the municipalities in the state.

Of course, that's not the solution the village atheists complaining about church tax exemptions really want.

Posted by: Art Deco | Aug 1, 2017 10:14:32 AM