Are religious instutions such as churches taxed by the government?
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For the most part, no. There may be some isolated taxes that they pay in random jurisdictions, but I think that religious institutions are pretty much exempt from all forms of taxation (income, VAT, property) at all levels. This is why it’s such a big deal for the Scientologists to get recognized by the IRS as a legitimate religion. They make a lot of money and would then start getting to keep it all tax-free.
My next question is:
Why are churches and religious institutions exempt from taxation?
Because taxation might be construed as “prohibiting the free exercise” of religion.
This course of action is forbidden to the United States and to each state by the constitution.
- Rick
Actually Rick, to clarify, it’s not the taxation that’s prohibited, it’s the free exercise of religion that’s protected. Forbidding taxation is just an interpretation of the 1st amendment. (and most likely has been codified since)
I believe churches are taxed on non-religous activities. If a church owns an aparmtnet building, they probably pay income tax on the income. Here in Massachusetts, religous property not used for religous purposes is subject to real-estate taxes.
Before you get up in arms about church property not being taxed, please take into account that the majority of churches make their property available for low cost childcare, AA meetings, afterschool programs, temporary homeless shelters, community meetings, fitness programs and a host of other things. Not many businesses do the same.
Churches may also get other perks that might be thought to be “religious perks” but really aren’t. I remember reading a flaming editorial in the chicago Tribune once about how Chicago churches got free water and how dare Chicago be supplying a church with water for free… blah blah blah
In Chicago, all non-profit organizations are eligible for free water.
“I guess one person can make a difference, although most of the time they probably shouldn’t.”
It is not merely that “churches” are not taxed. Any organization that is set up as not-for-profit under the U.S. Internal Revenue Code also escapes taxation. This includes your local public library, the Red Cross, Salvation Army, local food pantries and similar charitable organizations.
Different states and localities may also have different regulations that favour not-for-profit organizations. For instance, in Illinois, non-profit organizations are exempted from sales tax: when my wife buys for our local Historical Society, she shows the check-out clerk a letter and tax-code, and then the purchases don’t get charged sales tax, f’rinstance.
It is an unfortunately wide-spread myth that the tax-exempt status of churches is somehow related to the First Amendment, in that churches have a right not to be taxed. Nothing could be further from the truth.
Churches are not taxed because they have been exempt from taxes historically, a situation that goes back to the earliest English constitutional law, and relates to the fact that the earthly power may have belonged to the king, but the spiritual power belonged to the Church. Presently, the statutes that exempt churches also exempt a wide-range of not-for-profit organizations.
Indeed, the tension between taxation and religion goes the other way: if a church is exempted from taxation, does this not help ‘establish’ that religion? The USSC did not address this issue squarely until Walz v. Tax Comm’n, 397 U.S. 664 (1970). In that case, in an 8-1 decision, the Court upheld a state exemption from property tax property held by a not-for-profit church used for religious purposes. The Court adopted a two-prong test (Supreme Court analysts must always be thinking about food 
) to evaluate such situations: first, does the action have a secular purpose with limited religious effect, and second, does the action result in excessive government entanglement with religion. Since tax-exemptions for non-profit organizations include many non-religious categories, neither the purpose (promiting charitable work) nor the effect (charitable institutions are able to do more good works) are religious; the religious purpose and effect are incidental. Further, although any government action that impacts a religion entangles the government in the issue of religion to some extent, in the case of a blanket tax-exempt status, the entanglement is minimal.
Subsequent cases have both upheld application of general sales taxes to religious materials (Jimmy Swaggart Ministries v. California Bd. of
Equalization, 493 U.S. 378 (1990)) , and set aside exemptions of solely religious publications (Texas Monthly, Inc. v. Bullock, 489 U.S. 1 (1989)).
Thus, it isn’t that the Constitution requires tax-exempt status; it’s that historical inertia hasn’t been overcome, and some exemptions aren’t unconsitutional. Setting aside an exemption available only to religions would probably be unconstitutional. Setting aside exemptions that religions can take advantage of among other groups is not. 
DSYE: When I read the OP, a phrase came to mind from high school history class, or maybe civics: “The power to tax involves the power to destroy”. I think this was part of some USSC opinion early-on in the country’s life. Can you identify it?
To go along with what DSYoungEsq said, why is it that churches have a separate exemption code than other non-profit organizations? Why does the IRS decide if it is a legitimate church and religion or not? Shouldn’t they evaluate them on the same criteria as any other non-profit org?
Anyone who believes the Scientologists are a not-for-profit organization, I’ve got a shiny triangular hat to sell you…
Spooky…I’ve spent the last two days researching this very same issue (I’m considering starting a not-for-profit).
The IRC section 501© defines several categories of not-for-profits or public charities. Its not “churches and everything else”; there are categories for churches, literary societies, public charities, and scientific organizations, to name a few.
“The power to tax involves the power to destroy.” McCulloch v. Maryland (1819 4 Wheaton 316, 431 (Justice John Marshall).
To which Justice Oliver Wendell Holmes, Jr. replied, more than a hundred years later:
“. . . not . . . while this Court sits.” Panhandle Oil Co. v. Knox 277 U.S. 223
-Melin
Siamese attack puppet – California
The Boy Scouts are also a non-profit organization and therefore are not taxed. As a rule, any kid who does not believe in God cannot be allowed in. You may have heard of the controversy with allowing homosexual leaders in as well. Many opponents say that the government should make them pay because of this. I am an Eagle Scout and to me, it wouldn’t be feasible to make us pay taxes, because all the money we make comes from fundraising and it all goes back to our program. I imagine the same goes for churches.
“The idea of a walk-in closet sounds frightening. If I’m ever sittin’ at home and a closet walks in, I’m gettin’ outta there.” ~George Carlin
Churches do get SOME tax breaks. They don’t pay corporate taxes and they don’t pay property taxes on property used directly for religious purposes. However… (and this is a mighty inconvenient “however” for people who’ve sent away for mail-order “divinity degrees”), it is NOT true that clergymen don’t have to pay taxes, and it’s not true that ALL property belonging to a church is tax exempt!
I’ve known (casually- not close friends) people who paid $25 (or whatever fee it was) for mail order certificates making them “ministers” in the “Church of the Universal Consciousness” or some such phony name. They believed that, since they were ministers, they didn’t have to pay income taxes on the money they made at their regular jobs (WRONGO! Reggie White is a real minister, Andrew Greeley is a real priest, and Jackie Mason is a real rabbi… but if they don’t pay taxes on their paychecks from the NFL, their publishers, and their gigs, they go to jail!). They also thought their houses were now exempt from property taxes. Wrongo! Only official church grounds are tax-exempt. A clergyman’s private residence is not!
Here in Austin TX, the diocese owned a large, beautiful tract of land, with a chapel and a dormitory on it. This land was used almost exclusively for religious retreats. Nonetheless, the county declared that only the grounds holding the chapel and the dorm rooms were tax exempt, and the rest of the property was assessed and taxed like the prime real estate it was. Naturally, the Church found it couldn’t afford such taxes, and donated the land to the county.
SO, yes, churches get SOME tax breaks, but not as many as you might suppose… and no more than ANY non-profit group receives.
Churches are not subject to federal income tax (and tax in most states), but they, like all other not-for-profits, are subject to unrelated business tax (UBT), which is equivalent to the income tax, on business income they get from “non-church” businesses. For instance, if a church owns real estate and rents it out to the public (as opposed to to the minister or to a church-related group), it will have to pay UBT on that business. Similarly, many museum gift shops are subject to UBT on their earnings.
Astorian mentioned a church where you can get ministerial credentials for a small fee, the Universal Life Church. This “church” is currently being discussed on the http://www.straightdope.com/ubb/Forum3/HTML/005439.html thread. This church and its “ministers” and “congregations” have had lots of tax problems, and the government has convicted plenty of folks who tried to shield their income through a tax-exempt “church.”
That being said, there are also special tax laws that apply to people who are legitimate clergy with income from religious sourcs. I don’t know much about them, but they provide some tax breaks, and make a friend of mine who is a hospital chaplain married to another minister crazy in early April.