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cwicseolfor's avatar

Is it constitutional to allow churches (and businesses owned by churches) to be tax free?

Asked by cwicseolfor (83 points ) September 23rd, 2009

Is it a law that exempts churches from taxes?

If the first amendment states:

“Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.”

then wouldn’t any law giving churches a tax free status be unconstitutional? Wouldn’t any law giving churches special treatment (for or against) be unconstitutional?

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44 Answers

dpworkin's avatar

The law is conditionally applied, e.g. Churches may not make tax free political donations.

se_ven's avatar

Doesn’t it take a law to levy a tax?

se_ven's avatar

Also, they are considered non-profit entities aren’t they?

tinyfaery's avatar

Since giving tax breaks and money to all types of churches is not establishing a religion, I’d say it is legal. Still, I don’t want my tax money going to any religious organizations. It’s simply not fair to make all citizens, no matter the affiliation, pay for religious indoctrination.

ragingloli's avatar

churches should pay a 200% tax

eponymoushipster's avatar

There’re very specific laws the religious group has to follow in order to maintain tax free status. Whether or not they abide by them is, i guess, a measure of how much they uphold their own edicts.

RedPowerLady's avatar

Isn’t this directly related to the fact that most churches are tax-exempt non-profits?

My point being that this applies to all tax-exempt non-profits and a church just happens to be one of them. I don’t think your suggesting we should single out all churches, even though they fit the non-prof guidelines and make them pay taxes just because they are a church. That would be even more silly than allowing them to be tax-exempt.

cwicseolfor's avatar

@pdworkin & @RedPowerLady : So it’s not so much that there is a law letting churches go tax free, but that churches are considered non-profits and non-profits go tax free?

In that case, I’m left thinking about the point made by @eponymoushipster, about whether or not they abide by those rules (ignoring my more cynical side, where I’d wonder about how many other non-profits’ leaders live such lavish, opulent lifestyles).

dalepetrie's avatar

I believe @RedPowerLady and @se_ven are correct. It’s not that they are CHURCHES that makes them tax free, it’s that they are not for profit entities.

I suspect why some religious leaders, particularly the televangelists can end up with seven mansions and such is probably because they become “personalities” in their own right and sell their own books and merchandise and tickets to see them which are not part of the churches from which they preach. I believe all not-for-profit entities ARE limited in how much they can pay for executive compensation.

I do not have sources to cite this, this is just what I always have been led to believe.

eponymoushipster's avatar

Televangelists who hoard money and things are in no way reflective of the life or principles of Jesus or the Bible.

‘The love of money is the root of all sorts of evil’ and ‘You received freely, so give freely’ seem to have been erased from their copies.

RareDenver's avatar

I’m not sure how it works in the US but here in the UK churches also enjoy a tax-free status, however if they have any employees that actually get paid a salary then they have to pay income tax just like everyone else.

The same as the top guy at Oxfam no doubt earns a decent salary, if you want to attract the best people you have to pay something that would approach the same they could expect in the private sector.

tinyfaery's avatar

Hey people. Non-profit means that all costs go back into the operation, it does not mean that salaries and what not are smaller than other corps. Some executives at non-profits make bank.

galileogirl's avatar

The exemption of churches from taxes originally referenced the 1st amendment.s free exercise clause and preventing the excessive entanglement of Church and State if the govt taxed religious donations or property. Today the tax exemption applies to a whole class of non-profits. There has been recent case law that might open the door in future for sales tax when the profit on the sales is used for other than charitable or religious purposes.

cwilbur's avatar

The phrasing “Congress shall make no law respecting an establishment of religion” does not mean that Congress can make no laws about religious organizations, but that Congress cannot choose one religion to be the state religion. In England, for instance, the Anglican church is the established church, meaning that it is the religion of the monarch and officially the religion of the country. The United States has no such establishment of religion.

And non-profit organizations do have rules they need to abide by, but most of them have to do with spending some percentage of their income on appropriately charitable things and on not engaging in certain behaviors. I don’t think there’s any regulation on how much people in a non-profit organization can be compensated; as a result, there’s nothing illegal about a non-profit church paying its minister $5 million a year as a salary.

dalepetrie's avatar

@tinyfaery – I once worked for a not-for-profit, and it was explained to me that the CEO probably left for more money because he was limited in what he could be paid because this was a nfp.

laureth's avatar

Render unto Caesar…

ABoyNamedBoobs03's avatar

something I’ve never understood. Churches are considered non profit, but every year you see cases like the church that was built in my town three years ago that cost over 1 million dollars, (think it was 1.1 or something around there), and this church is overly lavish, it’s not like 1.1 went into making comfy pews or anything, it went to giant statues and a cool looking roof…. I mean come on. does anyone else think that’s ridiculous?

tinyfaery's avatar

@ABoyNamedBoobs03 Yeah. That’s why non-profit has a conotation that makes most people assume that the company isn’t earning and spending money.

ABoyNamedBoobs03's avatar

@tinyfaery these instances are all over the place too, it’s not like this is a rare occurrence, I can name ten different churches that are simply over the top, costing millions and millions of dollars that are just in Buffalo, (not even counting the entire western new york area), it’s absolutely absurd, there no reason for churches to be taxed for property and such, they make an awful lot of money for being “non-profit”

cwilbur's avatar

As long as they meet the legal requirements for being a non-profit organization, I think the members of the organization can spend their money on whatever they want. If they want to spend their money on statues and pretty roofs, that’s their business.

ABoyNamedBoobs03's avatar

@cwilbur but when they do things like that, clearly it’s not a “non-profit” establishment. if a small town church has 1 million plus clearly they’re making quite a bit of money, religious establishments should be taxed.

dalepetrie's avatar

Profit refers to how much you have left over after expenses. So if you make 40 million dollars and spend 40 million, you can be a not for profit.

The company I worked for was actually an interesting case study. There used to be this student loan guarantor and collection agency which ended up getting shut down, and what the Federal government did was to take the good people from that organization and create a new quasi-governmental not for profit organization using their skills and experience.

Here’s how the whole thing works…if you have a Federally guaranteed student loan, that loan is actually guaranteed by a sort of insurance company for student loans, a loan guarantee company. The Federal government pays a certain percentage of every loan to the guarantee company (it’s like insurance), and then if a loan goes into default, the guarantee company pays the government, and passes the responsibility for trying to recoup to the guarantee agency. So the guarantee agency usually doubles as a collection agency, and everything they collect, they send 77% to the government and keep 23%. And this arrangement works because essentially the guarantee agency is profitable even if they don’t collect a dime, even if they have to pay on the guarantee, because they’ve collected insurance premiums up front and far more people pay their loans than default on them. The government has insured by paying a small percentage up front that they won’t lose anything on the loan, the only thing they’re out is the insurance premium, and they can cover a great deal of that by collecting 77% of the loans in addition to the guarantee payback on the ones that they are successful collecting on.

The default process is long and involved and goes for several years before the government gives up, but eventually the government DOES give up. This is where the company I worked for came in. Basically the government said, here, you can have these portfolios of post-default student loans that have been completely written off as uncollectable. You can do further collection activites on them. AND, you can keep 100% of what you collect. The only catch? You are a not for profit organization, and anything you DON’T spend out of what you collect, you have to send back to us at the end of each year. So, this company had an incentive to spend money. But there were rules about salaries in place, they weren’t in the business of wasting money, so they kept up all their office equipment quite well, but what they also did was to spend money on employee benefits. This place had like a 4½ day work week, 5 weeks of vacation, fully paid medical and dental, a 401(k) with a 150% match, a $3,000 every 2 year employee computer purchase plan, it paid for home internet service for every employee, every department had a “cookie fund” where you’d all go out for treats every now and then, they even paid off your student loans if you still had any. Unfortunately, my boss and his boss were FUCKING ASSHOLES. They had 4 open positions under them…and employees in these positions had a 100% turnaround every 6 months (I rode the gravy train for 15, I was a long timer), yet, if you removed our department from the company, only the CEO and one other person out of 400 left the company in the 15 months I was there (counting my department, that number pretty much tripled).

So, my point being, if you spend the money, it’s revenue, but it’s not “profit”.

cwilbur's avatar

@ABoyNamedBoobs03: “Non-profit” does not mean that the organization does not make a profit. It means that any profits it makes are sunk back into the organization, not distributed to shareholders (because, generally, it doesn’t have shareholders).

The church may have a lot of money, but as long as it doesn’t have shareholders taking home money from dividends, it’s still legally a nonprofit. It can buy gold-plated toilets, it can pay its chief pastor a salary of $5 million a year; as long as it doesn’t have shareholders and pay dividends, it’s still a nonprofit.

And its tax-exempt status is not automatic—it has to be granted by the IRS, and getting that status means that there are strict requirements on its behavior and activities. As long as it meets those standards, it’s tax exempt, no matter how much money it spends on statuary and roofs.

@dalepetrie: Even if you have $40 million in revenues and only spend $20 million, as long as the other $20 million doesn’t go to shareholders in the form of dividends, you’re still a nonprofit.

ABoyNamedBoobs03's avatar

@cwilbur that’s exactly what I’m talking about, it’s a flawed system.

galileogirl's avatar

@cwicseolfor Iwas referring to the free exercise clause not the establishment clause

cwilbur's avatar

@ABoyNamedBoobs03: Except that I think it accomplishes just what it set out to do, so I don’t see the flaws. You don’t seem to like that people can spend tax-exempt money on things you don’t approve of, but that doesn’t seem at all like a flaw to me.

galileogirl's avatar

Re: Non-profits
The govt is not going to allow these organizations to just amass large amounts of money any more. The private universities that have consistently taken in more in donations than they have distributed in scholarships etc have been put on notice that they can lose their tax exempt status. Also the profits from church business are being tested in several cases underway now and may become taxable or have criteria attached that may limit what can be done with those funds.

cwilbur's avatar

@galileogirl: You have some kind of citation that private universities have been put on notice? A friend of mine works in the group that handles charitable giving for one of the Ivy League schools, and has not heard of such a thing.

galileogirl's avatar

Unfortunately I don’t keep a file of every news story I read or hear but it was around tax time this year, I heard the story either on 1 of the 3 broadcast networks or MSNBC and there was another article in one of the professional periodicals I read. Both Harvard and Yale were referenced.

ABoyNamedBoobs03's avatar

@cwilbur so you see nothing wrong with using vast sums of money on overly lavish and unnecessary monuments instead of putting it to better use in more charity or the like? that’s my problem, if you’re priorities are to break the bank on giant statues instead of actually using it to help people, when the basis of your religion is to put morality in front of self promotion that seems pretty damn flawed to me. There is absolutely no reason religious enterprises should be exempt from taxes.

cwilbur's avatar

@ABoyNamedBoobs03: I see no problem with people who are complying with the tax law spending their money any way they see fit. I might not make the same decisions, but it’s not my money, and I have no moral right to take it away from them.

You don’t get to tell other people what the basis of their religion is, or should be, and you don’t get to dictate to other people what their priorities should be or how they are required to spend their money. It’s as simple as that.

tinyfaery's avatar

Except, the money they save by not paying taxes makes others have to pay more taxes, people who don’t have the money to pay. Church tax breaks are just as bad as corporate tax breaks and corporate welfare. Just because it’s legal doesn’t make it right.

cwilbur's avatar

@tinyfaery: and the money they would pay in taxes, while in fact being money they would not spend on statues or roofs, is also money they would not spend on running soup kitchens and homeless shelters.

Suppose that the church that @ABoyNamedBoobs03 detests so much for having statuary is one of the linchpins of the local homeless shelter, and spends twice as much on that as it would on taxes. He’s so focused on the statuary that he disapproves of that he fails to note everything else the church does.

tinyfaery's avatar

And then the government could use those taxes to help the needy, WITHOUT the religious connotations.

cwilbur's avatar

Or it could use them to start wars and line the pockets of campaign contributors, also WITHOUT the religious connotations.

tinyfaery's avatar

That’s another problem alltogether.

ABoyNamedBoobs03's avatar

@cwilbur no I don’t, I don’t fail to see what good things religious establishments or most other non profit organizations, I’m saying that the laws that “non profit” insitutions are told to follow are flawed in nature, I don’t care if you spend 500,000 a year in charity if you’re collecting 5 million in donations, because all that means is the other 4.5 million is going straight to things that don’t necessarily pertain to any charitable cause what so ever, rather, it goes to providing absolutely unneeded and excessive indulgences. I don’t having anything what so ever against religion, my whole family is religious, plenty of great things are done in the name of religion. Saying that I am projecting a blanketed dislike of religion just because I disagree with a very specific legal practice that isn’t limited to religion in any way is simply ridiculous.

cwilbur's avatar

@ABoyNamedBoobs03: I don’t really care whether you have a blanket dislike of religion. I think you have a very poor understanding of it if you think that it is, or should be, about giving every penny you have to charity.

I reiterate: no matter whether you dislike religion or not, you don’t get to dictate to other people what the tenets of their religion should or should not be, and you don’t get to tell other people what their spending priorities should be or how they should spend their money.

I also note that the Boston Museum of Fine Arts is also a nonprofit corporation, and I point out that that organization is nothing but beautiful architecture, paintings, and statuary. Should we take away their tax-exempt status on the grounds that they should shut down the museum and open a soup kitchen instead?

ABoyNamedBoobs03's avatar

@cwilbur have you been reading anything I’ve typed so far? because it honestly doesn’t seem like it what so ever.

cwilbur's avatar

Frankly, I’m not sure you’re reading anything you’re typing.

Who gets to determine what the purpose of an organization is? Who gets to determine how that organization spends its money?

You’re upset at your local churches that you think spend ridiculous amounts of money on architecture and art, and you think they should lose their tax-exempt status because you think they should be spending more, if not all, of their money on charity. And yet you don’t seem to have a problem with the Boston Museum of Fine Arts spending all of its money on art and architecture, and spending no money on charity.

I didn’t allege anything about a blanket dislike of religion, but I think it’s pretty clear that there’s one in play here.

And I reiterate, because you don’t seem to be getting it: You don’t get to say how an organization spends its money. You don’t get to say what an organization’s spending priorities should be. (And make no mistake, that’s exactly what you’re doing when you yammer about churches with $5 million in income spending only $500,000 on purposes you consider appropriately charitable.) You don’t get to determine what’s appropriately charitable, what’s unneeded, and what’s excessive.

The same rules that consider the Boston MFA’s spending on art acceptable also make churches’ spending on art acceptable. The same rules that allow the Boston MFA to offer educational programs and concerts to its members, and count that as charitable spending, also allow churches to offer educational programs and concerts to their members, and count that as charitable spending.

Churches are not merely charitable foundations, engines of collecting money from people with a vague desire to do good and redirecting it to the poor and the disadvantaged; they are also about community, and worship, and spiritual growth. You are trying to make points you can’t support about concepts you don’t understand, and frankly, it’s just not working.

ABoyNamedBoobs03's avatar

@cwilbur for the forth time, I’m saying I don’t agree with the system in place for all non profit organizations, it’s not regulated nearly enough in virtually all facets. When did I ever say more than that? not once. I said I don’t think it’s right that non profit organizations can get away with certain things, I used a church as an EXAMPLE. simply because it’s easily recognized. I said charitable organizations should be taxed, how in any of that am I making points about concepts I don’t understand? I voiced my opinion, I understand non profit tax laws perfectly fine, I don’t like them, simple as that.

BBQsomeCows's avatar

Not being able to establish a state religion the state cannot use federal coercion to influence the beliefs of any one church

Ron_C's avatar

I lived in Virginia Beach when Pat Roberstson tried to have his whole television network exempted from taxes. That shows what happens when you have a lawyer as a preacher too. Fortunately, Virgina didn’t fall for his crap. I can’t believe that people still donate to that crooked, narrow minded S.O.B.

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