Links provided for each quote; all are from About.com, which is, as far as I know, a site with no ideological or religious axes to grind. This section is from the “Atheist/Agnostic� section on About.com, so let’s not have any claims that this information is biased in favor of religion.
Overview
1. Tax Exemptions Are Not a Right
The most fundamental thing to understand is that no group and no church is “owed� a tax exemption. These exemptions on various taxes are in no way protected by the Constitution — they are created by the legislatures, regulated by the legislatures, and can be taken away by the legislatures. At the same time, tax exemptions — including those for religious groups — are not prohibited by the Constitution.
2. Tax Exemptions Must Be Available to All
The only restriction on how the legislatures act when it comes to creating and giving out tax exemptions is that they are not permitted to do so based upon preferences for content or based upon a group’s failure to take certain oaths. In other words, once tax exemptions are created at all, the process for allowing certain groups to take advantage of them is restricted by constitutional rights.
In particular, they cannot give exemptions to a group merely because the group is religious, and they cannot take away exemptions for the same reason. If tax exemptions are created for magazines or books or whatever, the exemptions must be available to all parties, not just religious and not just secular applicants.
3. Tax Exemptions Are Related to Public Policies
If a tax-exempt group — religious or secular — promotes ideas which contradict important public policies (like desegregation), then the group’s tax-exempt status may not be granted or extended. Tax exemptions are provided in exchange for groups’ providing services to the community; when the groups undermine important goals of the community, then the tax exemptions are no longer justified.
4. No Tax Exemptions for Commercial Activity
Tax exemptions are almost entirely restricted to those affairs which are religious rather than commercial in nature. Thus, there are numerous tax exemptions on property owned by churches and used for religious worship, but exemptions are normally denied on property used for commerce and business. The site of an actual church will be exempt, but the site of a church-owned shoe store will rarely, if ever, be exempt.
The same is true for income from sales. Money a church receives from donations of members and from financial investments are normally treated as tax-exempt. On the other hand, money which a church receives from the sale of goods and services — even including goods like religious books and magazines — will normally have sales tax applied, though not income tax at the other end.
5. Employees Pay Income Taxes
People paid by the church, whether ministers or janitors, normally have to pay income taxes on their earnings. This is also true when it comes to other payroll taxes like unemployment insurance tax and Social Security tax. One exception on this are the Old Order Amish: they don’t have to pay such taxes when self-employed, but they do have to pay when they employ others, even other Amish.
6. No Political Activity For or Against Candidates Permitted
Church tax exemptions are in jeopardy if an organization engages in direct political activity either against or on behalf of a political candidate or in an attempt to directly influence the passage of particular legislation. Churches and religious organizations, just as any other tax-exempt charitable organization, are free to comment on any social, political, or moral issues. They may not, however, speak out for or against political candidates if they wish to continue being tax-exempt. Losing tax-exempt status can mean both having to pay income taxes and that donations to the group will not be tax deductible by the donors.
IRS Exemption Requirements for Charitable Organizations
Here is an article from TIME Magazine, from 1970, which -- though no doubt out of date -- notes some of the issues that are not often considered here.
To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.
Organizations described in section 501(c)(3) are commonly referred to as charitable organizations. Organizations described in section 501(c)(3), other than testing for public safety organizations, are eligible to receive tax-deductible contributions in accordance with Code section 170.
The organization must not be organized or operated for the benefit of private interests, and no part of a section 501(c)(3) organization's net earnings may inure to the benefit of any private shareholder or individual. If the organization engages in an excess benefit transaction with a person having substantial influence over the organization, an excise tax may be imposed on the person and any organization managers agreeing to the transaction.
Section 501(c)(3) organizations are restricted in how much political and legislative (lobbying) activities they may conduct. For a detailed discussion, see Political and Lobbying Activities. For more information about lobbying activities by charities, see the article Lobbying Issues; for more information about political activities of charities, see the FY-2002 CPE topic Election Year Issues.
The power to tax is the power to control and to destroy. Though a case can be made that the exemption from taxes constitutes a subsidy of religion, it ought to be recognized, as Justice Burger did in the decision cited above, that taxation of religion would result in an enormous involvement of government in religion that would inarguably constitute government interference and control. The devil, as they say, is in the details.
The value of U.S. church and synagogue property has grown to an estimated $102 billion—all of it tax exempt. New York City alone forgives $36 million a year in potential taxes on church property. Though such exemptions are as old as the republic, even some churchmen have lately questioned the practice. Critics view it as an indirect subsidy that hikes taxes for other property owners and violates the First Amendment because it amounts to state support of religion.
The Supreme Court has consistently rebuffed attempts to raise the issue including an appeal brought by Atheist Madalyn Murray O'Hair in 1966. But last week the court finally spoke. And by a resounding vote of 7 to 1, it upheld tax exemption for churches.
Strict Construction. The new challenge was launched three years ago by Frederick Walz, an elderly New York lawyer who is so reclusive that he refuses to be photographed and conducted his entire case by mail and phone calls. To become a landowner, Walz bought .0146 of a weed-choked acre on Staten Island. When the city billed him for taxes of $5.24 on the lot's $100 value, he filed a suit to prevent New York from granting tax exemptions to churches, claiming that the city was using part of his money to support them. He was a Christian, he added, but "not a member of any religious organization, rejecting them as hostile." By the time his case reached the high court, it had drawn the opposition not only of New York City but of all three major faiths.
Only Justice William O. Douglas agreed with Walz. Summarizing his dissent from the bench, Douglas wryly urged a "strict construction" of the First Amendment's ban on official establishment of religion. In his view, tax exemption subverts the ban because it favors religion at the expense of atheistic or agnostic groups. The result, said Douglas, violates the constitutional command of Government neutrality "between believers and nonbelievers."
Middle Course. Speaking for the court majority, Chief Justice Warren E. Burger relied largely on the clear fact that church exemption is a U.S. tradition. He admitted that exemption "necessarily operates to afford an indirect economic benefit" but he felt that the practice does not produce the kind of governmental "sponsorship, financial support and active involvement" that the First Amendment's drafters intended to guard against. It is no more an aid to religious organizations than other forms of assistance permitted by the court, including the use of state funds to pay for the busing of parochial school pupils and some of their textbooks. If the Government did tax churches, Burger argued, it would become even more involved in religion as tax collectors and clergymen haggled over such matters as "tax valuation of church property, tax liens, tax foreclosures, and the direct confrontations and conflicts that follow in the train of those legal processes."
Without specifically rebuffing the claims of atheists, Burger said that the present arrangement is a workable middle course between "either governmentally established religion or governmental interference with religion."
The decision will not deter the several Protestant denominations and Jewish groups that have recently begun urging their members to pay voluntary property taxes by reimbursing their communities for fire and police protection. However, the court's action did leave hanging two other emerging church-state issues.
A number of churches own television stations, rental properties and even girdle factories whose only religious purpose is to produce church income. Even religious groups which oppose blanket property taxes on churches have recently gone on record as favoring selective taxes on the income of these "unrelated" businesses, and several suits challenging such tax-sheltered enterprises are now making their way through lower courts.
More important, the high court has agreed to consider a case involving the effort of the Pennsylvania legislature to aid hard-pressed parochial and other private schools with grants for teachers' salaries and teaching aids (TIME, Dec. 19, 1969). Douglas particularly was troubled by this trend. As he sees it, "the extent to which [churches] are feeding from the public trough in a variety of forms is alarming." But the majority of the Justices, in upholding the "indirect" economic benefit of exemption, hinted that they too might have doubts about more direct payments. Said Burger: "Obviously a direct money subsidy would be a relationship pregnant with involvement."
It’s also a fact that the property tax system, which is most often the focus of these debates (as it was in the case reported above), was never designed to take the nature of religious properties into account. The value, on paper, of the Cathedral of St. John the Divine in New York City, for example, would be enormous; but in reality, what else could this property be used for? It is not only a building used for worship, but a historical landmark; it’s not going to be razed and a McDonald’s and a Starbucks built on the site, and that wouldn’t be a good thing anyway, peace to the atheists who disagree. I’m a Jew, and I’d prefer that it stayed where it is. How could the actual real-world value of a structure like that even be assessed? Should a small country church, like the ones I pastored as a Methodist minister, have to turn over perhaps half of its annual budget to pay property tax on an aging building that happens to sit on a quarter-acre of land that’s never been used for anything else? Shouldn’t that property be taxed when it actually brings in income for the organization, e.g. when it is actually sold?
I’m not crazy about the idea of “property taxes� anyway; hundreds of thousands of small family farms have been absorbed into huge corporate megafarms, and an entire way of life is becoming extinct, because people are forced to pay for the theoretical value of a possible sale of land that has not changed hands for generations. The value of property should be taxed when the sale of that property actually realizes a profit for its owner, and not perpetually taxed, at continually rising rates, just because it exists; and I think that applies to ALL real property, not just property used for religious purposes.
I think the questions for debate are obvious enough, but pro forma:
Are tax exemptions for religious organizations legitimate?
Why or why not?
How do you respond to those who say (as I do) that the issue is not as simple, obvious and black-and-white as it is usually presented by either side?
If you acknowledge the complexity of the issue, how, exactly, should current law be amended to make it better or more fair?
