With the Supreme Court’s recognition of same-sex marriage, religious conservatives worry that the tax-exempt status of religious institutions is under threat. In the 1983 case that stripped Bob Jones University of its tax-exempt status, the court’s justification was that its rules against interracial dating violated “fundamental public policy.” In the face of the latest marriage decision, opposition to same-sex relationships (a tenet of many conservative Christian churches) might well do the same.
This latest uncertainty raises larger questions about how the state and religion interact. Why does the government make an exception for churches in the first place? And should they keep doing so?
Nonprofits — including religious organizations — have benefited from special treatment since the early days of the United States, under the rationale that they serve public goals in ways that for-profit groups might not: filling in for social services the state couldn’t provide and helping citizens establish themselves apart from a government bureaucracy. The Revenue Acts of 1909, 1913, and 1917 helped establish the modern federal income tax system, and in doing so, made sure to excuse nonprofit groups from paying taxes on any earnings they produced and any income donated to them. State and local governments generally followed suit.
Today, the IRS’s requirements for any group seeking tax-free status are relatively simple. The organization must be set up and operated “exclusively for religious, educational, scientific, or other charitable purposes,” its earnings shouldn’t benefit private individuals, it shouldn’t attempt to influence legislation or intervene in political campaigns, and its purpose and activities may not be illegal or violate fundamental public policy. The current IRS tax guide states that churches automatically qualify for federal income tax exemption under rule 501(c)(3) without even needing to apply.
When challenged in the past, the tax-free status of churches in particular has been strongly defended by the Supreme Court. In the majority decision of Walz v. Tax Commission of the City of New York, (a 1970 case in which an New York real estate owner sued the city tax commission to end property tax exemptions for churches), Chief Justice Burger wrote that “certain entities that exist in a harmonious relationship to the community at large, and that foster its ‘moral or mental improvement,’ should not be inhibited in their activities by property taxation or the hazard of loss of those properties for nonpayment of taxes.” The decision went on to describe churches as “beneficial and stabilizing influences” on community life and affirmed that allowing churches special status was in the public interest. The tax commission won the case, and tax exemption for churches has remained relatively unchallenged ever since.
But recent developments may mean things are about to change. Does the Walz argument still stand? Do most churches still exist “harmoniously” with the community at large and should the government still rely on churches to define moral improvement? Can the public good churches provide be obtained elsewhere, without a side serving of public morality? By subsidizing religious organizations as nonprofits, is the state endorsing a view some taxpayers find repugnant?
Over the next few days, we’ll hear from: