State/Church FAQ

Tax Exemption of Churches

Tax exemption of churches — Is it constitutional?

As much as one quarter or one-half of a typical U.S. city may be made up of tax-exempt property, much of that churches or church schools. FFRF receives many queries by disgruntled taxpayers over this involuntary form of subsidy.

Tax exemption of churches — Is it constitutional?

As much as one quarter or one-half of a typical U.S. city may be made up of tax-exempt property, much of that churches or church schools. FFRF receives many queries by disgruntled taxpayers over this involuntary form of subsidy. It is important to point out that the Supreme Court has spoken on this question, finding it constitutional. That does not mean that citizens cannot educate about the inherent problems and inequity, write letters to the editor raising questions over the wisdom and expense to taxpayers of this exemption, etc. But it does mean that if there were continuing litigation over property tax exemptions by churches, it would have to involve very specific types of abuses.

Below is a short discussion of the Supreme Court's ruling over property tax exemption for churches, and at the conclusion, some of the inquities involved in current practices.

The Walz decision

The U.S. Supreme Court, by a vote of 8-1, upheld the tax exemption of churches in Walz v. Tax Commission of the City of New York, 397 U.S. 664 (1970). Walz, a self-described Christian who did not belong to any church and owned real estate in Richmond County, N.Y., sued the tax committee over property tax exemption for churches. Walz claimed he and other taxpayers were forced to indirectly subsidize churches.

The majority decision, written by Chief Justice Burger, held that the tax exempt status granted to all houses of worship is the same privilege given to other nonprofit organizations:

"The legislative purpose of a property tax exemption is neither the advancement nor the inhibition of religion; it is neither sponsorship nor hostility. New York, in common with the other States, has determined that certain entities that exist in a harmonious relationship to the community at large, and that foster its 'moral or mental improvement,' should not be inhibited in their activities by property taxation or the hazard of loss of those properties for nonpayment of taxes. It [397 U.S. 664 , 673]   has not singled out one particular church or religious group or even churches as such; rather, it has granted exemption to all houses of religious worship within a broad class of property owned by nonprofit, quasi-public corporations which include hospitals, libraries, playgrounds, scientific, professional, historical, and patriotic groups. The State has an affirmative policy that considers these groups as beneficial and stabilizing influences in community life and finds this classification useful, desirable, and in the public interest. Qualification for tax exemption is not perpetual or immutable; some tax-exempt groups lose that status when their activities take them outside the classification and new entities can come into being and qualify for exemption."

Justice Douglas strongly dissented, saying: "one of the best ways to 'establish' one or more religions is to subsidize them, which a tax exemption does." Douglas rejected the idea that it would be "disruptive of traditional state practices" to end the arrangement. "A tax exemption is a subsidy" he wrote. Douglas noted that James Madison, primary architect of the Constitution, famously objected in his Memorial and Remonstrance to any citizen being compelled to contribute even "three pence" to support a church.

Citing Murdock v. Pennsylvania, 319 U.S. 105, Douglas quoted:  " 'We do not mean to say that religious groups and the press are free from all financial burdens of government. See Grosjean v. American Press Co., 297 U.S. 233, 250, 449. We have here something quite different, for example, from a tax on the income of one who engages in religious activities or a tax on property used or employed in connection with those activities. It is one thing to impose a tax on the income or property of a preacher. It is quite another thing to exact a tax from him for the privilege of delivering a sermon.' Ibid. State aid to places of worship, whether in the form of direct grants or tax exemption, takes us back to the Assessment Bill and the Remonstrance. The church qua church would not be entitled to that support from believers and from nonbelievers alike." 

Douglas suggested that it would be "constitutionally proper" to grant tax exemption to church agencies that perform functions of the state, such as care of orphaned children and the destitute. " Under the First Amendment a State may not, however, provide worship if private groups fail to do so," he added. 

"The religiously used real estate of the churches today constitutes a vast domain," Douglas warned " Their assets total over $141 billion and their annual income at least $22 billion. Id., at 232. And the extent to which they are feeding from the public trough in a variety of forms is alarming. Id., c. 10."

At the time Supreme Court ruled against tax exemption of churches, constitutional scholar Leo Pfeffer opined that had the court ruled the other way, Congress, at the behest of church lobbies, would doubtless have responded by amending the constitution to guarantee such exemption. Nevertheless, there are many unanswered legal questions.

IRS favoritism to churches goes unaddressed; leads to power abuse

As yet, the Supreme Court has not addressed IRS regulations which unfairly favor churches, including:

* automatically granting tax exemption to churches (as distinct from religiously-based nonprofit groups, which must file for exemption like other nonprofts);

* exempting houses of worship from filing the exacting 990 form which all other tax-exempt 501(c)(3) charities must file, accounting for finances, ensuring that individuals do not profit and that money that is being raised under nonprofit auspices is being spent for nonprofit purposes.

Such exemptions for churches show preferential treatment. Churches which often demonstrate hostility toward the separation of religion and government, attempting to control "moral" questions such as abortion rights and marriage equality, and bully public officials into legislating dogma, often then claim it would violate the First Amendment for churches to be treated like all other tax-exempt groups and simply report income and expenses.  This has led, as Douglas noted, to a "vast domain" of church largesse which is often not accounted for to anyone. Even as conservative a member of Congress as Chuck Grassley, R-Iowa, has been appalled at the financial abuses of many televangelists. Although the ranking Republican on the Senate Finance Committee, Grassley attempted without success to get several of the most grandiose church ministries to account for their money in 2007 and 2008.

Consider the tragedy of Jonestown in November 1978, after the Rev. Jim Jones was able to amass an armory, a fortune, drugs and many foster children (for which his church typically was receiving subsidy) and to remove them all from the United States to his ill-fated colony in Guyana. The colony ended with the execution of Cong. Leo Ryan, who was investigating abuses at the request of constituents, and the horrific murder or forced suicide of more than 900 followers. Only a minister in the United States, with our country's lack of oversight of religion and its wealth and transactions, could have gotten away with the kind of human rights violations Jones was able to for so long. Had his church been required to file 990 forms and account for its money, perhaps this tragedy would never have happened. Certainly, Jones' ability to abuse people and power in the name of religion without being prosecuted was partly aided by the fact that he did not have to account to the government for anything financial.

Similarly, scandals involving the bribing or silencing of victims of pedophile priests by the Roman Catholic Church and other denominations, have flourished under financial secrecy.

Since George W. Bush introduced the "faith-based initiative," the U.S. government has no longer required that religious welfare organizations receiving federal or public funds to deliver social services create secular arms, take down religious symbols or stop proselytizing in places where they serve public clients. Money is fungible, meaning that if a religious agency receives federal grants to dole out social services, such grants than free up an equivalent amount of church money to be used for its proselytizing purposes. Where public dollars go, public accountability ought to follow. The books of any group receiving public funds should be open for examination by the government. The situation is ripe for abuse.

Other types of subsidy

Churches, which do not pay property taxes, often receive more benefits than individuals and businesses which do pay their fair share. This can include expensive, individualized traffic control by police and extra security checks, not to mention other types of police and fire protection. FFRF has received and investigated complaints whereby city snow removal crews are regularly clearing huge parking lots and sidewalks for churches. FFRF has complained about one midwestern town where church water bills were absorbed by the town (that is, taxpayers). There may be many hidden layers of subsidy.

While property tax exemption of churches has been upheld by the Supreme Court, there may be other avenues to explore. One of FFRF's members, John Patrick Michael Murphy, managed to place the repeal of state tax exemption of churches on the Colorado ballot in the 1990s. While it did not pass, it did raise consciousness and educate. State and local government subsidies of churches may be more vulnerable to repeal.

What you can do

Amassing national information on the extent of property tax exemption by religious denominations is difficult. You could start with your town or municipality. Your city tax assessor's office should have records which show which properties in your area are exempt from property taxes. While your local government probably does not tabulate those figures, the basic information is open to the public. It is a matter of distinguishing churches from other secular and civic institutions/groups which are property-tax exempt. Once you have a general estimate, share the results with FFRF and by a letter to your local newspaper, calling attention to the amount of religious subsidy local taxpayers are required to make. Because churches pay nothing, you pay more.

Compiled by Annie Laurie Gaylor, December 2010

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