Should Churches Be Tax-exempt?

Pastors and church-goers will certainly hear complaints from time to time about churches getting a "free ride" on taxation. Is this an unfair benefit? Or is this a reasonable application of the principle of separation of church and state? Below is my answer to a question recently posed in my local newspaper (Long Beach CA "Press-Telegram," September 29, 2007).

Q - "Should churches be exempt from taxes? Should the exemptions be revoked when a church endorses a political candidate or speaks out on elections in general?"

A -

America’s history provides three important contributions to the debate over taxation of churches. First, the Virginia Statute for Religious Freedom (1786) is a foundational document against using state tax revenues for paying clergy. This cuts both ways. Church resources shouldn’t be used to support the state either.

Second, the U.S. Supreme Court (Walz v. Tax Commission of the City of New York, 1970) determined that churches, as part of a wider body of service institutions, could be exempt from taxation. Furthermore, taxation of churches would create an unacceptable entanglement of the government in religious affairs. This decision described the proper role of government toward religion as one of “benevolent neutrality,” not that of predatory taxman. Government must not look at religious assets as another feeding trough for its programs.

Third, statutory (not constitutional) law prohibits tax exempt (501c3) organizations from supporting or opposing candidates and limits their use of funds to influence legislation. There is room to argue that this law is contrary to the free speech and free exercise of religion provisions of the First Amendment.

But restrictions on political action do not mean churches are muzzled in making moral pronouncements on how government conducts itself. I have read the sermon delivered at All Saints Episcopal Church in Pasadena that provoked an IRS investigation and I strongly conclude (though I would more often disagree with this church than agree) that the IRS was overreaching and playing “speech police.”

Separation of church and state means just that. The state should not have its hand in the pockets of the churches and the churches should not have their hands in the pockets of the state. “Separation” is not an absolute principle. Churches aren’t exempt from building codes and some assessments, and the government can aid college students on a non-discriminatory basis whether they attend religious or secular schools. But “separation” is a strong principle and tax exemptions are in line with it.

Donald P. Shoemaker
Senior Pastor
Grace Community Church of Seal Beach