A Compromise on Taxing Churches? December 19, 2010

A Compromise on Taxing Churches?

Reader Chas wants to get your ideas about a way to tax churches:

I had an employee several years ago who belonged to a pretty liberal church. Somehow the topic came up that their church building needed some work and in debating their budget the church elders compromised and decided they would do the work only if they also raised and spent an equal amount on charitable works. That always seemed to me a pretty responsible ideal.

It made me think… tax-exempt status for churches does have the effect of subsidizing them. They also get the benefits of things like police and fire protection without contributing towards it. Rather than eliminating it entirely, what if we limited the tax-exempt status to churches who are willing to open their books to show that a certain minimum percentage of their income goes to real charity work?

My first thought was I liked the idea, but I think it’s impossible to implement. Churches already flaunt their tax-exempt status by endorsing political candidates and nothing happens. Where’s the IRS in those cases? Adding the additional burden of getting auditors to look at churches’ books to verify everything is asking too much. And we can’t trust the church to handle the bookkeeping correctly.

Not to mention: Which charities would be acceptable to give to? Only Christian-based ones?

I’m not the expert in these matters, though. Can someone shed more light on this particular idea? What are the biggest problems (and are there any ways to get over them)?

If — and it’s a big if — churches were forced to pay taxes, is there any compromise to get out of it that would be good enough for you?


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  • Gordon

    No, they should be paying taxes.

  • The tea party solution would be to remove the tax-benefit churches enjoy by giving it to all businesses. Of course then the federal government would have to have major cuts. We might have to reduce defense spending down to what Russia spends and then trust in Jesus to protect us. I just don’t see it happening… Americans love the idea of the world’s largest military too much.

  • The main point is that no matter how much income a church has, at least in Australia, they are not, by definition, carrying on business. They fall well within the definition of a not-for-profit community organisation. If they’re not carrying on a business, they shouldn’t pay tax. Just because one doesn’t happen to like the activities or ethos of a community group does not mean that they don’t serve the needs (even if one thinks they are imagined needs) of the members of that community group.

  • Some Churches spend all their money on prosletyzation – terrible. Not only should charity law be changed to ensure proper minimums go to cause and limit directors salaries and not allow expensive advertising or paid collectors taking most of the money, but churches should go under the same rules with only their charitable activities tax free, their prosletyzation and anything else taxed as per any business.

  • Churches sell religion. That makes them a business. So, they should be taxed like a business and not get tax exempt status.

  • Carlie

    No. It is still giving them a preference in what that money goes to, when everyone else who pays taxes can’t decide what that money goes to.

  • “Some Churches spend all their money on prosletyzation – terrible.”

    I’m not sure I follow the logic here. Why is it terrible that a church spends the money it has been given by people who believe in the cause (and who have already paid taxes on their earnings) to promote the cause those people believe in? That seems to me to be the exact reason churches are given money – and I’m not sure why it’s a problem that somebody decides to allocate some of their paycheck to promote a cause – if they didn’t put it through the books of a third party they wouldn’t be taxed a second time – this is one part of the fight against tax exempt status I can’t fathom. If they were spending the money on executive bonuses for preachers then I could understand the issue…

    That’s like saying you have a problem with people donating to a political party when the money is spent on campaigning…

  • Tim

    Stay out politics, or be taxed.
    I actually never thought about the taxpayer-provided services they enjoy (firemen, police, etc.)…they should be taxed, period.

    I don’t think this charity idea would work; I agree with Hemant in that the churches can’t be trusted to keep accurate books. Also, it’s obvious the IRS doesn’t care enough to do anything about the violations churches are already committing; it would be ludicrous to expect them to care enough to check churches’ books all the time.
    Not to mention that this would only be giving more support, albeit indirectly, to all those charities with backwards priorities. Would taxing the church really justify giving more support to an organization like the Salvation Army, whose list of things more important than charity grows every year?

    This is a nice idea, but unfeasible from the IRS angle, the church angle, and the charity angle. It would simply lend undue support to misguided proselytization organizations, to whom charity is almost an afterthought to gain bragging rights.

  • It’s more simple than that. Just require all religious organizations to file for 501(c)(3) status. Many churches do already.

  • It was always my understanding that the original reason they don’t pay (property) taxes is because they are supposed to provide for the poor. Perhaps that is so far in the distant past it has been forgotten.

  • Benjamin

    The confounding issue is that there are various levels of taxation assessed by various levels of government. A local nonprofit or charity might be exempt from state income taxes, sales taxes, local property taxes, or any combination thereof, and still have to pay federal income taxes because they don’t have some 501(c) status with the IRS.

    In my own opinion, when all is said and done, I believe that churches should pay taxes on all levels. If there are legitimate charity arms associated with that church; a soup kitchen or the like, then let that entity seek nonprofit, 501(c) status. The church can realize some benefit from supporting that wing of its institution through the usual means of donations and tax write-offs.

    If churches were taxed, I think the primary effect would be seen on the state and local levels, since the federal income tax question frankly pales in comparison to the valuable real estate taxes churches don’t have to pay.

  • I’m with Zachary Moore — just have them follow the existing laws for non-profits. No need to make up a special set of rules for churches.

  • PJB863

    It should be pointed out too, that it’s not just the real estate the church itself sits on, oftentimes, there is a parsonage or two, or sometimes more. Then there’s the schools and convents.

  • Philbert

    A non-profit doesn’t have to be a charity, it just has to be non-profit and meet the other obligations (like not endorsing candidates for office).

    I guess I don’t understand the question “if churches were forced to pay taxes, is there any compromise to get out of it that would be good enough for you?” Is this question directed at churches? Tax revenue IS what we (as non churchgoing taxpayers) would get out of it.

  • Erp

    I will note that one big difference between churches and standard charities is the former don’t need to reveal any money flow info to the government or anywhere else (unless filing for bankruptcy). Standard charities have to report how much they took in, how much they spent and how much their highest paid employees get every year.

    Some churches do have their books fairly open. One can find the budget of the Episcopal Church in the US.

  • Robbo

    What kills me is when Christians think giving to their church is charity. They give their 10% tithe to the church and look down on people, like me, who give a smaller percentage of their income to real charities.

    I want to say: your tithe isn’t charity, it’s a membership fee!

  • i know the Constitution prevents it, but i think churches should be treated like any other for-profit business. i like the idea that those which want to be should be created as not-for-profit businesses and i suppose that is my “compromise.” but the bald fact is that many american churches really are just like large corporations and are in it not just for the “souls” but for the $$$. look at all the “prosperity gospel” and televangalist types. private jets, mulitmillion dollar person estates, sprawling church complexes with bookstores, day cares, gyms, educational facilities. and they aren’t paying a goddamn dime in taxes, despite receiving all the things our taxes buy for them: roads, police and fire services, etc.

    the Founders lived in a different time, and religion played a vastly different role in their world than it does in ours. it won’t happen any time soon, but modern religion is a primary force in the movement to bankrupt and destroy everything good about this country. the fact that the IRS rarely goes after churches that blatantly and repeatedly meddle openly in politics is a big part of the problem. it’s a real shame modern politicians are so cowed by the religious, they’ve failed to do their job and keep church and state separate and now it’s probably too late for them to even try to return to that.

  • Chris

    If the churches and the filthy rich paid taxes what a better country we would have,maybe.

  • Mr Z

    The simple answer here is no. Churches are managed by humans so we know that any loophole will be taken advantage of. Any solution that requires extra work to deal with them is also right out. If they want credit for charitable work, let them get it the same way that the rest of us get it. Show the tax man the receipt. Any charity must qualify the same as charities I give to. Remember, atheist groups are not given this shelter from taxation yet they are charitable, and manage to meet and socialize without it. Churches do not need tax exempt status. They do not need equal access programming etc. When religion is treated fairly in society then there WILL be a wall of separation.

    If they can’t do their taxes right they have no need of government support… period. There is no valid reason to think that churches will disappear if they are not given special tax shelters. When the government is fully in debt as it is, paying your fair share is important in society. They use city resources without guilt yet many cities are having trouble paying for those services these days.

    Fair dinkums, some churches do contribute directly to their communities. Put them at the top of the list of organizations that will be able to easily comply. Good for them.

    ‘give unto Cesar what is Cesar’s’ is how the quote goes I believe. Christian’s follow a man who taught that religion does not require a special building, never mind a building with special artifacts, artworks, or meeting rooms.

    Churches are filled with humans, thus there is NO way to stop them from being political. Now, add to the fact that they truly are bigoted organizations who use government hand outs to oppress other citizens and you have nothing but FAIL. The government is subsidizing oppression of some citizens and this is pure WRONG.

    IF, and I do mean ‘IF’ religions were not fountains of oppression and bigotry it might be fair to assess their charitable work in respect of taxation. That is not the case though.

    FTP

    It is a large unfairness to other citizens that such arguably objectionable organizations get special status of any positive kind. It’s time such inequality ended… forever.

  • Lobar

    This wouldn’t work, I think. My understanding is that the tax-exempt status of churches stems from the free exercise clause of the 1st Amendment. You can’t tax churches because their money is (ostensibly) being used for religious practice, thus taxation is interference with free exercise. Their tax-exempt status is only at risk if it can be demonstrated the money is being used for other purposes, like political campaigning.

    So even a church did nothing with their tithes other than bling out their pews and bibles, you couldn’t Constitutionally tax them, as they’re free to practice their religion as they see fit.

  • If they can’t stay out of politics, tax the bastards.

  • Chas

    What kills me is when Christians think giving to their church is charity. They give their 10% tithe to the church and look down on people,

    -That’s kind of the way I see it. It doesn’t seem as much like a “charity” if all the funds just go to their own operating expenses and recruitment/indoctrination efforts

    And how does the tax exempt status work for the mega church corporations who have things like their own TV shows and publishing divisions? If they are into regular retail sales above and beyond the occasional fund raising bake sale or rummage sale shouldn’t at least that division be treated as a for-profit business rather than a for-prophet charity?

    On a related topic, it’s going to be interesting to see what happens to the law suit the FFRF has filed to end the Parsonage Exemption which lets clergy deduct their housing allowances from their income. http://www.ffrf.org/legal/challenges/ffrf-v-geithner/ Even if churches are tax exempt, ministers should pay the same taxes everyone else does.

  • anatman

    i agree with william burroughs: “churches shouldn’t be tax exempt, they should be taxed double. they should be taxed out of existence.”

  • Colin

    I agree with Zachary that all churches should simply be required to be 501(c)(3) status, just like any non-profit. If they are truly doing non-profit work, then they have nothing to be worried about. I don’t want to get into the business of deciding what is good non-profit work. The only bar for me is are they making a profit.

    I think Atheist groups should be non-profit and still able to put up billboards and signs talking about God as a myth. Although I don’t agree with Christian views, they should be able to do what they want also, as long as they are not in the business of making a profit.

    If they are like the Mormons and use their church resources to make themselves richer, they no longer qualify. All books should be public and open for inspection.

    Oh, and things like buying homes and cars for pastors should no longer be a shelter for those bastards. They should have to pay full taxes on this compensation.

  • Churches are businesses and should be treated as such. If they wish to be treated as a tax free charity they should have to do whatever any other charity does to prove its worth. It’s an antiquated notion that a church is a charitable organization just for existing and while we may all imagine the quite little corner temple that runs a food bank and shelter we can quickly forget the huge mega churches, scientology centers, mormon temples and catholic monoliths that rake in monumental profits, contribute nothing of value to their community and use up community resources in the process.

    I consider it a real loss for a neighborhood to have a church as it constitutes land that pays nothing into the town’s taxes yet uses up space that could otherwise be a business or residence.

  • I don’t know how to make it work with churches, but locally, the City of Pittsburgh gets the local non-profits (typified by the huge profit-driven non-profit hospital system UPMC) to fork over a significant amount of money as a “contribution” against the threat of the city seeking to revoke their non-profit status.

  • The original intent of giving churches tax free status was that if you could tax something you could control it and control of churches was seen as a violation of the principles of the First Amendment. You know me, I would love churches to go out of business…but I would rather they go out of business because people stop showing up, rather than have them taxed to death. That’s like I would rather Kent Hovind go out of business because people stop buying his DVD’s, rather than have him in prison (as it is, his business is still alive and well being operated by his family).

    I have also suggested in the past, like Zachary has, that churches should need to file as non-profit organizations. That would help weed out the churches that are essentially businesses.

    There was a church last year that had a thriving coffee shop and less people attending church. So they shut the church down, put religious materials all around the coffee shop and kept it open. Should it still be tax exempt? How about this… If a place is operating as a business, 9-5, M-F, then starts having church services in the back room attended by the owner and a few friends. Should they be able to have the whole property rezoned as a church and get the tax benefits and keep the business operating a part of the church? How about the two churches just down the road from me who rent most of the building out during the week to a charter school? My tax dollars are paying for that. There needs to be better way of drawing the line between a church and a business. Having them file as a 501c3 would be a way to do that.

    On the other hand, what if the government could have threatened the black churches in the south fighting for civil rights, with the loss of their tax exempt status if they opposed the governments policies? If they are tax free to start with and can’t be made to file, that’s not an issue. Churches were included in the 501c3 status in 1954 by Sen. Lyndon B. Johnson, although the IRS has said that filing is optional.

  • Bob

    Sorry, but why does taxation make a worldview based on rules and principles handed down from a non-existant deity any more palatable?

    If a group like the American Family Association gave extensively to charity, would it make their views on homosexuality or abortion more valid? Because that, it seems, is where we’d end up.

    If you’re wrong, you can’t pay to be right.

  • ManaCostly

    They should not be forced to pay charity money instead of taxes. It will only uphold the image that religion does only good in the world. Which is, ofcourse, a lie

  • Sean

    Why do you want to walk up to the bee’s nest and poke it with a stick??? Religion is fading in this country, their membership is down, as we advance, humans are slowly outgrowing religion. I realize it still might take another hundred years but they are going away. Why give the church an issue to divide us. Let them die on their own.

  • I wrote about this on my blog:

    http://www.theatheistrabbi.com/2010/12/why-is-us-taxpayer-buying-stained-glass.html

    Basically, the difference between churches and all other 501(c)(3) not-for-profit organizations is that churches are exempt from filling out IRS Form 990. This is the form that provides transparency about revenues and expenditures and other basic services and businesses of a not-for-profit. Some religiously affiliated organizations file them because they receive government or private grants (though the “Faith Based Initiative” funds do not require a Form 990, which is a huge problem).

    Other religiously based not-for-profits file them because it’s the ethical thing to do. The vast majority of churches, synagogues and mosques do not file the form and therefore are not subject to any oversight or transparency requirements.

    The simple solution to the problem is to require the Form 990 for all tax-exempt organizations, including churches.

  • Mr. Z…

    atheist groups are not given this shelter from taxation yet they are charitable

    Actually, most atheist groups are 501c3’s, or could be. And, if an atheist group gets a building they could file for an exemption to property tax as a 501c3 as long as that property was used to fulfill the mission of the organization (as it appears in their 501c3 filing). That might very by state. That is still more onerous than churches have to go through, but the option is there.

  • CatBallou

    Flaunt or flout?

  • Kevin

    Let’s pull this into the realm of ethics, I’m sure the churches would agree with that, hmmm?

    Ethical standards are universally applicable.
    Therefore everyone should get taxed by the same set of standards. That would be individuals, businesses, non-profits, and churches.
    To have exemptions, exceptions, and different sets of standards is either unethical or not an ethical absolute. If it is not an ethical absolute, then it is a mere opinion, and isn’t really worth squat.
    Either church tax-exempt status is unethical, or it is an opinion and a fiction/fantasy that we seem to accept is OK, so we need to wake up and tax the ${BADWORD} churches and ignore their opinions on the matter, since they don’t have an ethical leg to stand on.

    Oh…. and there’s the issue of the fact that they haven’t been paying taxes for decades… imagine the penalties that the IRS would impose on the churches is the IRS, properly, applies the same penalties to the churches that they do to individuals.

    Tax the churches, and if they can’t pay up on their delinquent taxes, then take the churches and either raze the buildings and salt the earth, or turn the land into either a parking lot, a bar, or a porno-palace.

  • I concur with the majority here. Treat them like any other nonprofit and make them file the same papers proving their both non-profit and revealing the salaries of their officers. And, of course, those officers, from ministers on up, should have to report all their income honestly.

    It’s not often but the IRS does prosecute. AU has had some success in getting churches prosecuted for violation. It’s short but here’s a list of churches they’ve had the IRS enforce tax law on:

    http://projectfairplay.org/legal/enforced/

    If you know of a church violating, I recommend going through them to report it (there’s a link on the left side of that link above) since the IRS is probably going to be more apt to respond to a watchdog group than they are an individual, our lovely government being what it is.

    Also, there’s a brief outline of what they can and cannot do without jeopardizing their tax exempt status at the bottom of this page:

    http://projectfairplay.org/

  • Frank

    I am opposed to having special tax rules for churches at all. The basic expenses of a church, a building to hold services in, a minister to lead them, etc, have nothing to do with charity. They look to me like a business providing services to customers, and they should be taxed accordingly.

  • Having come from one of many lazy churches, I can tell you for a fact that very little of our time was spent on real charity work. Maybe once or twice a year we’d have a community block party with free food that was open to everyone. Other than that, the other 363 days of the year were spent on propigating our collective agenda, scaring away new members with hostile judgements, and having in-house parties, not really open to the public.

    If they were to be held responsilbe for actually charity work to keep their tax-exempt status, it’d be up to the government (IRS or maybe some watchdog group) to police them.

  • Hypatia’s Daughter

    Not all 501(c)3’s are charities. Many are service organizations, like the Moose Lodge or astronomy clubs, that service their members. So I have no problem with an organization being tax-exempt on its income whether it is used for members or public service (like soup kitchens).
    However, financial records of churches are private, which is why the IRS has problems of oversight. Unless they have enough proof of illegal activity to get a warrant, the IRS can only “ask nicely” for their records and hope for co-operation.
    If churches had to file a 990, like other 501(c)3’s, their tax records would become public, available to anyone. Their congregations might be shocked to find out how their church is spending their donations. (Technically, I believe the congregation has a right to these records but I doubt that too many ask for them. Who wants to question “the man o’ god” who runs your church about his financial integrity?)

  • SteveInDe

    If anything, tax exemption should be based on the same rules as those used on individuals. Money spent on building a more fabulous church building is not charity. Money spent on electing officials who are going to enforce your prejudices is not charity.

  • jolly

    Oddly enough, I believe that giving churches automatic tax exemption is probably unconstitutional because the government then has to make the decision who is and who isn’t a church. Thus the government is now involved in creating official and non-official religions.

  • Grimalkin

    Here in Canada, I think our charitable laws are quite different from what they have in the US. Churches are tax free, but that doesn’t let them off the hook. They still have to file their tax forms every single year, they still have to abide by the same restrictions that all other not-for-profits have to follow, and they still get audited just like any other registered not-for-profit. And unlike the IRS, our CRA (Canada Revenue Agency) habitually revokes charitable status from churches when they don’t play by the rules.

    That doesn’t make our system perfect, however. BC, for example, makes priest income tax-free too, as well as the property on which the priest lives – even though he’s pulling a salary just like everyone else (and many make more than I do, so it’s not like we’re talking about people who are living out a vow of poverty!).

    My biggest issue with is with how the application process works. Basically, CRA divides charitable organizations up based on their mission – so a food bank might apply as a social service, Centre for Inquiry Canada has their designation as an “educational organization” (because they are teaching people about secularism), etc. And each category gets a certain number of permissible tax-free activities. In the case of an educational organization, the spectrum of permissible activities is VERY narrow, so that CFI’s status here is always a bit tenuous.

    Religious organizations, on the other hand, get to apply under the category “Promotion of religion.” Yes, that’s considered a worthy category (*puke*). Their band of permissible activities is MUCH wider than educational orgs get, so that they can buy all their golden chalices tax-free. This gives them a huge advantage over secular organizations like CFI.

    Now, it would of course be possible for CFI to fight the regulations and be recognized as an official religion. This would grant them the ability to apply as a religious organization. But with the current terminology, I’m sure it’s obvious why they haven’t gone that route. There really aren’t enough atheists out there willing to wage a legal battle to be counted as a recognized religion!

  • pat

    For Churches and nonprofits, renting real estate owned is the business of real estate and should be taxable, not tax exempt.

    It’s very possible that it is landlords who should receive the value of the nonprofit rent in the form of tax credit, not the organization itself. If nonprofits and churches are tax exempt, why should some nonprofits pay rent while others own prooperty and pay none?

  • Karen

    We need to make this an issue for the 2012 election…..start a revolutin…tax all charities equally..Not sure how but I’m sure you have a lot more support than your realize..I’m a Christ follower that feels the same way about the issue. I’m outraged at the Churchians for what they get away with..A lot of support from many organizations.