Under American tax law, churches are exempt from having to pay federal, state, and local taxes. Are churches exempt from having to pay taxes? The short answer is "yes.
What Is a Church? These include whether it has: a distinct legal existence a recognized creed and form of worship a definite and distinct ecclesiastical government a formal code of doctrine and discipline a distinct religious history a membership not associated with any other church or denomination ordained ministers ministering to its congregations ordained ministers selected after completing prescribed studies a literature of its own established places of worship regular congregations regular religious services Sunday schools for religious instruction of the young, and schools for the preparation of its ministers.
Churches that Make Money Churches may be all about the next world, but they need money to operate in this world. August Business Formation. Choosing a Business Structure.
Sole Proprietorships. Forming a Corporation. See All Business Formation Articles. Talk to a Lawyer Need help? Burger , held that tax exemptions for property owned by religious organizations and used solely for religious worship did not violate the establishment clause. In recent years, the Internal Revenue Code sec. The liberal church was locked in an escalating dispute with the IRS over an anti-war sermon -- delivered two days before the presidential election -- that could cost the congregation its tax-exempt status.
Kurtzman to decide when governmental actions violated the establishment clause. In Texas Monthly Inc. Bullock , the U. Supreme Court applied the Lemon test to consider the constitutionality of a Texas statute that granted a tax exemption specifically to religious periodicals. Unlike the property tax exemption at issue in Walz , which extended benefits to a broad class of nonreligious entities in addition to religious groups, the statute in Texas Monthly was narrowly drafted to benefit religious organizations alone.
In a plurality decision, the Court held that the Texas statute failed the Lemon test in that it. Ministers have an unusual dual tax status, where they are statutory employees for purposes of the individual income tax, but self-employed contractors for purposes of Social Security taxes.
Accordingly, instead of paying FICA payroll tax es, they pay SECA taxes—basically, they personally remit both the employer and employee side of the payroll tax, for a total of If they have a parsonage or housing allowance, their SECA taxes are paid on a base that includes the value of that housing. There is a religious exemption from the entire Social Security and Medicare system that is available to ministers if they can demonstrate a profound conscientious objection to the system itself, but this is narrowly applicable.
There must be a devoutly held religious principle behind it. Functionally, this is an extension of a benefit available to the Amish, some Old Order Mennonites, and other religious sects that wholly oppose all benefit systems including private insurance! Churches, like all charities and virtually all nonprofits, are not subject to local property taxes. Unlike with business income taxes, this is not an inevitability. Property taxes hew closely to the benefit principle, where tax liability is roughly in proportion to the value of government services received by the property owner.
The benefit principle is perhaps more tenuous with certain nonprofits—churches do not benefit from public education as much as households and employers do, for instance—but still there. And in the case of some nonprofits, like hospitals and universities, the governmental cost of providing services to them may be substantial. Good estimates of the cost of the exemption for nonprofits are hard to come by, but one study found that exempt property typically represented between 3 and 4 percent of total property value in most cities, but much more in select cities like Philadelphia, Boston, Baltimore, and New York City.
This makes sense: St. But even then, most of the exemption is for hospitals and universities, which have much larger footprints. The notion that taxing churches would raise substantial federal revenue is wildly inaccurate, even neglecting the incoherence of imposing income taxes on a nonprofit organization.
Barry, as someone who claims to be devoted to the separation of church and state, surely you can agree that exempting churches from taxes is a better way to separate state and church than taxing them. I agree with the Supreme Court that an exemption for churches from taxes tends to reinforce a very healthy separation between church and state.
Thus, based on what a pastor says about an election from the pulpit, the tax code allows the government to tax a church. The IRS, through those vague regulations, reserves for itself tremendous discretion and power to decide which churches to punish for violations of the Johnson Amendment and which not to punish. What standard does it use? Who knows why it chooses to go after some churches and not others?
Conditioning tax exemption for churches on refraining from speaking about certain things is just as dangerous as taxing churches outright. The conditions allow the state, through its discretion and power, to punish disfavored views and to reward favored ones. The free exercise of religion cannot survive in such conditions.
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