One of the plot holes in the movie Blues Brothers is that the Catholic orphanage that Jake and Elwood grew up in is about to be seized for unpaid property taxes and thus the need for the adventure to raise money. Religious groups generally don’t pay property or income taxes related to bona fide religious or charitable work.
What would be necessary to change this? Could the Federal government or a state pass a statute providing for taxation of church property, income, or whatever, or would such a law be unconstitutional unless the Constitution were first amended?
The tax exempt status of religious organizations is a creature of the tax code (i.e., created by Congress). There is nothing in the Constitution speaking to taxation of churches, so Congress is well within its power to tax religious groups if it ever decides to do so.
Religious tax exemption isn’t encoded in the US Constitution, though it may be in some states’ constitutions (I kind of doubt it, though). At the federal level, you’d have to pass a statute repealing their exempt status. Likewise for most states, you’d have to pass statutes repealing exempt status.
Also, not entirely related (or is it?) but Clark County, IL doesn’t automatically exempt property belonging to a religious organization from property taxes, even if sales taxes or other taxes can be automatically exempted. An application must be submitted for each property for which an exemption is claimed.
It’s decided on a case by case basis by the Cook County tax assessor’s office. For example, a Catholic private school would probably not qualify for a full exemption, though it may qualify for a partial exemption. Another example: if a structure on a church’s grounds is used as the private residence of a minister, a property tax can be assessed on the basis of use as a residence.
It’s certainly quite possible the orphanage was not granted an exemption or that no exemption was applied for, especially if the Church wasn’t interested in keeping it.
I have a hunch that a lot of new churches (And there’s a bunch) are opening just for the tax free status. I think it’s just a loop-hole the Government should close, and take some of the tax burden off the rest of us. :rolleyes: (Dreaming)
You most certainly would have to change, at the least, how the Constitution has been interpreted by the judiciary. In general, they look very closely at any taxes that affect Bill of Rights issues. You cannot, for example, tax a news network named after a vupine at 1000% ; they will note immediately that your supposedly neutral use of the taxing power is a targeted abuse. They would also look closely at any special taxes of news agencies in general, and those are already for-profit businesses.
There was no implication of targeted laws here, only a removal of exemptions. That may have a chilling effect on religious or charitable organizations ability to function but can’t reasonably be construed as ‘targeted’.
In fact I’d think a valid interpretation of the Constitution is that Congress cannot in any way define what a religion is. In that case it would be unconstitutional to actually grant a church an exemption. I realize this is not at all the interpretation used, but to view the non-establishment clause as constitutionally protecting a church from taxation seems an equal stretch.
Both of these points are raised by people troubled by the rulings/definitions (and “exemptions”) on the Obamacare requirements on Catholic- and other faith-based private institutions to provide abortifacients.
If all exemptions were eliminated, it clearly wouldn’t be a targeted law. If political organizations ,non-religious charities and all sorts of other non-profits retained their exemptions, I’m not so sure.
The reason is not in the body of the Constitution, but in the first amendment:
[QUOTE=First Amendment]
Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; (italics added)
[/QUOTE]
Taxing churches is considered a restraint on their free exercise, since the government could charge churches high taxes that they couldn’t afford. As the Supreme Court has said, “The power to tax is the power to destroy.” There are people would would be happy to tax mosques a punishing rate to keep them out of their community, for instance. Even a tax that didn’t differentiate between denomination could be passed by atheists to close down all churches.
So in order to preserve the first amendment clause, you can’t tax churches. And I don’t think changing the first amendment to allow it is a good idea.
What RealityChuck said. People forget there are two prohibitions involving religion in the First Amendment- both an establishment clause and a free exercise clause. Essentially one prohibits the government from helping any religion and the other prohibits the government from hindering any religion. So there’s an obvious balancing act between these two clauses.
Even a regular tax imposed on all other businesses might be more than some religious organizations could afford and cause them to shut down. So that tax, arguably, cannot be applied to a religious organization. And, yes, the same tax might also hinder other businesses and force them to shut down - but the Constitution doesn’t give them protection.
Ah, but you can tax the salaries of clergy and those working for churches, which could have the same effect as taxing to destroy. In fact, except for clergy that have vows of poverty, the full panoply of wage taxes is assessed: Social Security, Federal Income, etc…
And keep in mind, taxing salaries is Federal Law.
But on the federal level, they are exempt from the taxing of ‘profits’ as if they were a business is because they are classified as non-profit institutions.
The taxes that religious institutions and non-profit institutions are exempt from on the state level are state taxes of sales tax and property taxes. And the only property taxes they are excused from are properties in use. If they hold large tracts of land going unused, they most certainly do have to pay property taxes. And any state wage taxes must be paid, too.
Religious institutions are exempt from property-in-use taxes and sales taxes because they are incorporated legally as a non-profit organization. They are non-profit organizations organized around religious principles, but they are non-profit as much as the Rotary Club is, and thus enjoy the exemption from taxes that all non-profits enjoy.
The section of the tax code providing the the exemption of taxation on income for churches and religious organizations provides for exemption for the following:
The exemption is thus based on a public policy rationale, rather than a constitutionally-based reason, as some posters have argued. The SCOTUS has been fairly clear in stating that religious groups are not free from all financial burdens of government:
There’s a finer line than you might think. There’s reason to believe that if a tax affects everybody equally, it’s not necessarily an undue burden on free exercise (and not strictly a prohibition on free exercise) even if it hampers the function of the group (Texas Monthly v Bullock). There was obviously some dissension on that one, but it’s not an automatic free pass for any group calling itself religious.
[QUOTE=moriah;15922957
But on the federal level, they are exempt from the taxing of ‘profits’ as if they were a business is because they are classified as non-profit institutions.
The taxes that religious institutions and non-profit institutions are exempt from on the state level are state taxes of sales tax and property taxes. And the only property taxes they are excused from are properties in use. If they hold large tracts of land going unused, they most certainly do have to pay property taxes. And any state wage taxes must be paid, too.
Religious institutions are exempt from property-in-use taxes and sales taxes because they are incorporated legally as a non-profit organization. They are non-profit organizations organized around religious principles, but they are non-profit as much as the Rotary Club is, and thus enjoy the exemption from taxes that all non-profits enjoy.[/QUOTE]
Right. It isn’t churches who are special it’s pretty much all “non-profits” and in any case, what isn’t taxed is their profit, which in theory they dont have. And even if they did, most of their income is by way of donations, and gifts are not taxed and pretty much can’t be.
They do pay taxes on non-related business income.
Now, if you’re talking about why they are exempt from property tax- they aren’t, well at least not always.
Note that the issue here is NOT whether or not Churches have to pay Property taxes, it is agreed that they do. The issue is whether or not these were 'sales" or just shuffling properties around internally from one account to another.
So, the Op has made some errors. Churches certainly can & do owe property taxes.
That is not property taxes as the phrase is usually used. That is a tax on the transfer of property – a property sales tax if you will. When most people say property tax they mean the annual assessment they owe to the locality which is the primary source of funding for local government. I’m pretty sure churches are exempt from paying such a tax (on their churches though not all their property) in most localities in the U.S. but not all non-profits are, for example, non-profit private golf clubs.
The Constitutional problem I referred to before is that this exemption seems to require the local government to define what a church is. What prevents a golf club from claiming it is a church? I grant we all “know” what a church is when we see it just as in the classic example we all “know” what pornography is when we see it, but I don’t exactly see how a state can claim that my walking around on a Sunday morning in the beautiful outdoors and hitting a little while ball isn’t a religious experience (or wouldn’t be if I actually played golf) so the property shouldn’t be tax exempt.
I’m not claiming that churches don’t do charitable work and that gifts thereto shouldn’t be deductible for that reason. I’m only wondering how we can claim this experience is religious and therefore the land on which it is practiced is exempt and this experience is not religious so its land is not without violating the establishment clause which was extended to cover the states by Everson v. Board of Education.
The state wouldn’t have to claim that walking around on a Sunday morning hitting a little ball wasn’t a religious experience for you. Something being a religious activity for a single person does not make a golf club into a church. If on the other hand, your golf club members sincerely believed that hitting a golf ball is the proper way to worship and were not associated with any other religion, and the club had some method of choosing ministers, a regular congregation and services, religious education , a creed etc, your golf club might very well qualify as a church.
This lists the factors the IRS looks at in the glossary- and what the IRS doesn’t do is evaluate the content of the beliefs as long as they are actually held by those professing them. I suspect that most localities either go by the same factors as the IRS or something similar. Might be a problem if most of your members go to another church/synagogue/mosque for their weddings and other religious ceremonies, but there’s no reason that the golf should keep it from qualifying if it is a church in other respects.
This is an argument that goes at least as far back as the Charles River Bridge decision in 1837. There was a bridge across the Charles River and the owners charged people a pretty steep toll for crossing over on the bridge. The state of Massachusetts decided to build a new toll-free bridge. People obviously chose to use this new bridge.
So the owners of the Charles River Bridge sued, saying the government’s actions in building the new bridge had destroyed the value of their property. That was clearly true but the Supreme Court found against the bridge owners. They said the government had the right to do something for the good of the community even if it harmed some individuals as a side effect. (There were other issues involved but I’ll skip them here.)
But it wasn’t a unanimous decision and there were many people who felt the court was wrong - they felt that if the government did something and it damaged the value of your property, even if it was indirectly, the government had to pay you for the damages. That may sound fair in principle but think about the implications. There’s pretty much no action that doesn’t cause somebody some harm. In theory, this principle would say that if the government cured cancer then funeral directors could sue the government for the loss of business that caused.
But to get back on topic, while the courts have taken a pretty narrow view on what damages the government is responsible for in general, as a result of the First Amendment they’ve taken a broader view on what damages the government can be held responsible for in regards to religious institutions. Religious institutions have been able to challenge government actions on the basis that it causes them harm in ways that non-religious institutions have not. (Although the current court seems to be in a process of rethinking these principles.)
That’s not taxing the church, though. It’s taxing the individual. And a tax on the individual’s income does not affect the church, since it would be paying the individual the same amount whether it was taxed or not. In other words, if you pay your pastor $30,000 a year, it doesn’t affect the church if he loses a portion of it to taxes; he’s paying, not the church.
As for Social Security and unemployment taxes, churches are exempt from both. (Some churches do pay these voluntarily, though.)
As for determining what a church is, the IRS has a set of guidelines:
A golf club fails on points 2, 3, 4, 5, 6, 7, 8, 9, 11, 12, 13, and 14. Even fudging things would still leave plenty that disqualify it.
Most states require a “charitable purpose,” and many impose other conditions, such as “providing a public benefit,” “providing services to all,” “relieving the government of a burden,” “deriving most income from donations,” or “donating substantial services.” Source here (pdf), see table on last page.
That IRS flyer linked above says that churches are only exempt from FICA (SS/Medicare) for their ministry employees. They still have to pay FICA for office and custodial staff.