Should churches have tax exemptions?
- The Hartford Institute for Religion Research estimates that there are about 350,000 “religious congregations” in the US.
- An estimated 30,000 congregations shut their doors in the United States from 2006 to 2012.
- The IRS classifies churches as 501c3 organizations, though they are not required to submit applications or pay any fees to organize as other 501c3 charitable organizations do.
- Licensed and ordained ministers are permitted to deduct all housing expenses from their annual tax returns and are exempt from paying property taxes.
- After having their tax-exemption status withheld for more than 25 years for being a “commercial enterprise,” the Church of Scientology negotiated the restoration of tax exemption in exchange for a payment of $12.5 million in 1991.
The First Amendment of the US Constitution identifies the separation of religious freedom and freedom of speech from the state as critical components of the foundation of the United States of America. This means that the government should have as little involvement with religious institutions as possible and vice versa. Taxing churches would break this separation and therefore violate the US Constitution. Churches receive almost all of their income from after-tax donations made by their members or the community. Therefore, imposing taxes on churches would result in double taxation.
It is difficult to see Lakewood Church in Houston, TX, which has an annual budget of $90 million, and not think they should be paying taxes. However, we must remember that only about 0.5% of Protestant churches in the US are megachurches. While larger churches may be able to handle losing their tax exemption status, many smaller churches already struggling to get by would be forced to close.
Besides the costs of operating the church (salaries, electricity, etc.), the church would ideally use a good portion of its donations to help serve its community. The countless ministries offered by churches depend on the needs of their specific community. Some of the most common services are soup kitchens, homeless shelters, and support groups. It would be difficult to calculate the value of all of these programs, both financial and otherwise. Nevertheless, these ministries provide much relief to the federal and state governments that would otherwise have to establish programs to meet these needs.
The practice of exempting churches from paying taxes can be traced back to the early days of the Roman Empire. Churches ensured governments that their followers were law-abiding citizens. At a time when the majority of society was largely uneducated, churches worked in cooperation with the government to make sure that constituents remained morally grounded in the church teachings and maintained societal order. In exchange, the government rewarded churches by providing tax relief. Clearly, tax exemption is what binds Church and State, not what separates them.
Churches do not operate in the same ways as traditional not-for-profits. Just as gyms, yoga studios, and other health centers provide lifestyle and well-being services, churches also sell something: spiritual health products. Churches offer services that are available for a nominal and required “donation,” or fee, in addition to regular fundraisers, capital campaigns, and merchandise sales that occur often enough to be considered revenue. While some might argue that their purpose is charitable in its truest sense, many churches offer little to no benefit outside of their paying members.
Finally, if churches are permitted to receive exclusive tax exemption, they should be held to the same standards as other nonprofit organizations by demonstrating the impact they are having on the communities they serve. Just as nonprofit hospitals and social service organizations are legally required to report their financial and social implications, churches that receive tax exemption should also be transparent with their funds and held to the same standard as other nonprofit businesses.