The interesting discussion generated by my brief post on Pulpit Freedom Sunday made me decide to look more deeply into the question, to see what the major issues are.
There are two related but distinct questions at play. One is the exemption of churches from property and other taxes due to historical practice and church-state separation according to the Establishment Clause. The other is the exemption from taxes of all groups that meet the IRS requirements of being a 501(3)(c) organization.
The exemption of churches from taxation has been the practice from even before American independence but as far as I know, the constitutionality of it was not really challenged until a case that the US Supreme Court decided in 1970 in Walz v. Tax Commission of the City of New York, where it upheld the practice of granting property tax exemptions to churches, stating that it did not violate the Establishment Clause.
The majority opinion (with a concurrence) argued that while the Establishment Clause would prohibit the active support of churches by government in the form of actually giving them taxpayer money, the passive form of a property tax exemption was allowable. The reasoning was two-fold: (1) that the state had an interest in promoting organizations that improved the general welfare and (2) that the Establishment Clause discouraged entangling religion with the state, and having the state tax churches would lead to more entanglement than exempting them from taxation. In his majority opinion, Chief Justice Warren Burger wrote:
The legislative purpose of the property tax exemption is neither the advancement nor the inhibition of religion; it is neither sponsorship nor hostility. New York, in common with the other States, has determined 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. It has not singled out one particular church or religious group, or even churches as such; rather, it has granted exemption to all houses of religious worship within a broad class of property owned by nonprofit, quasi-public corporations which include hospitals, libraries, playgrounds, scientific, professional, historical, and patriotic groups.
Governments have not always been tolerant of religious activity, and hostility toward religion has taken many shapes and forms economic, political, and sometimes harshly oppressive. Grants of exemption historically reflect the concern of authors of constitutions and statutes as to the latent dangers inherent in the imposition of property taxes; exemption constitutes a reasonable and balanced attempt to guard against those dangers.
Determining that the legislative purpose of tax exemption is not aimed at establishing, sponsoring, or supporting religion does not end the inquiry, however. We must also be sure that the end result — the effect — is not an excessive government entanglement with religion. The test is inescapably one of degree. Either course, taxation of churches or exemption, occasions some degree of involvement with religion. Elimination of exemption would tend to expand the involvement of government by giving rise to tax valuation of church property, tax liens, tax foreclosures, and the direct confrontations and conflicts that follow in the train of those legal processes.
In his dissent, Justice William O. Douglas argued that he failed to see the distinction between a subsidy to religion in the form of a tax exemption and one in the form of a direct grant. He argued that allowing churches tax exemptions was the first step to government further supporting religion by more direct means, using as a metaphor the camel getting his nose under the tent. Burger countered that this practice of tax exemption had been going on for over two hundred years and showed no sign of leading to further encroachment, and if such signs manifested themselves, then they could be dealt with on a case-by-case by case basis.
We have seen in recent times some signs of encroachment with the government supporting faith-based initiatives and the school voucher program. The latter has not been a direct subsidy to parochial schools and so was allowed but such moves are coming closer to the line that Justice Douglas warned about, even if they have not obviously crossed it.
The Pew Forum of Religion & the Public Life has a good fact sheet on this question. It says that while churches have long had tax exempt status, in 1954 then Senator Lyndon Johnson, with no debate or testimony or hearings, introduced into law the requirement that all non-profit 501(c)(3) organizations had to meet the following criteria in order to qualify for and maintain their tax-exempt status:
- The organization must be organized and operated exclusively for religious, educational, scientific or other charitable purposes;
- Net earnings may not inure to the benefit of any private individual or shareholder;
- No substantial part of the organization’s activities may involve attempts to influence legislation;
- The organization may not intervene in political campaigns;
- The organization’s purposes or activities may not be illegal or violate fundamental public policy.
Churches do get one special benefit not accorded to other 501(c)(3) organizations, perhaps because of their historical tax exemptions. Churches that meet the above requirements do not have to actually apply for 501(c)(3) status but are granted it automatically, unlike other organizations. However, apart from that they are treated the same as “schools, hospitals, social services agencies, colleges and universities, scientific organizations, museums or other charitable organizations” and just like them they can lose their status if they violate those rules.
This is what Pulpit Freedom Sunday is all about. The churches argue that the IRS cannot apply these rules to them because the Establishment Clause protection from taxation (that the US Supreme Court has accepted as constitutional in the Walz case) trumps any IRS rules based on legislation. So even if churches are allowed to partake in political activity, it does not necessarily mean that other charitable non-profits can do so because they do not get Establishment Clause protection. Of course, they may try to get the same result under the Free Speech clause, but that seems unlikely to succeed since they are not forced to accept 501(c)(3) status. There are many organizations (like Public Citizen) that are willing to forego that privilege in order to openly lobby government on issues.
The Pulpit Freedom Sunday people do have a point that it is not clear that the 1954 Johnson Amendment that undergirds the IRS rules is constitutional and they have thrown down the gauntlet. It will be interesting to see if their challenge is taken up by the IRS and it goes to court and how the judges will rule. It is quite possible that they will rule that the Establishment Clause protections against excessive entanglement with the state by taxation prevent the government from imposing any conditions on churches. So interestingly, in this case it may turn out that the Establishment Clause is what actually allows churches to retain their tax-exempt status while engaging in partisan political activities, rather than prohibiting them.
Of course, I am not a lawyer of any stripe, let alone a constitutional one, so treat the above opinions with caution.