Why the Government Shouldn’t Tax Churches

Six years before the American Revolution, an Episcopalian church bought a tract of land in colonial Virginia. But after the United States won its independence, the newly born commonwealth tried to take control of the church’s property as well as the property of every other Episcopal church in the state.

Church members fought back in a lawsuit, Terrett v. Taylor, that went all the way to the U.S. Supreme Court. The Court ultimately sided with the church members in 1815 and blocked Virginia’s attempt to seize the property, calling such “arbitrary” power “oppressive and unjust.”

By protecting the church’s right to its own property, the Terrett Court affirmed a basic limit on government power that is still crucial today: The government cannot take what belongs to the church.

Property taxes pose a similar threat. When the government can tax a church’s property, it gains a foothold inside the church’s doors. Indeed, for many communities of faith, especially minority religions and small congregations, property taxes can make it hard to get started at all. They may not be able to afford to buy a building or keep the one they have.

Taxes also give the government leverage that can be abused. Officials can threaten to impose them to pressure churches into adopting the government’s preferred views or to control what churches say and do. As an active case shows, that danger isn’t hypothetical.

In short, tax exemptions for churches prevent unjust interference with religious exercise. They promote government neutrality towards religion, remove a burden to the free exercise of religion, and follow the spirit of the Constitution.

When were tax exemptions for churches established?

American law has long protected religious freedom. Many colonists were fleeing persecution from a government with broad religious authority and were wary of government officials wielding religious power. While it took decades for some states to stop backing official churches, leaders made serious efforts to write religious freedom into the law.

As is the case today, that freedom needed fighters. Men like Thomas Jefferson, who wrote the Virginia Statute for Religious Freedom, worked hard to move the nation towards liberty. George Washington famously wrote that freedom of religion isn’t just about toleration but about recognizing a natural right inherent to human nature. And James Madison authored the First Amendment, whose opening clauses protect the right to worship freely.

Tax exemptions for churches were common in colonial times, and soon after the founding, several states passed laws specifically exempting religious property from taxation. Churches have also been officially tax-exempt since the first federal tax code was enacted.

Should churches be taxed?

Today, religious institutions still face threats of government overreach. Protections like the First Amendment and federal and state religious freedom laws go a long way toward maintaining religious liberty. So do church tax exemptions. They protect the freedom to practice one’s faith, shield churches from government control, and benefit the broader community.

Consider property taxes. Many houses of worship may not be able to afford them. That’s especially true for minority religions or those with small congregations. Without exemptions, those communities of faith could be unable to grow or even keep their doors open. That runs directly against our founding ideals and the First Amendment, which recognize the freedom to worship as an unalienable right. Even larger churches would still need to divert gifts away from ministry. Exempting churches from taxation relieves that burden and removes an obstacle to faith and service.

Exemptions also limit government interference with religion. If a church fell behind on its taxes, the government could seize its building. Exemptions help make sure that doesn’t happen. As the U.S. Supreme Court recognized over 200 years ago, “the power to tax involves the power to destroy.” Tax exemptions ensure tax enforcement cannot be used as leverage against churches.

That threat of government interference isn’t limited to physical buildings—it also applies to churches’ speech. In NRB v. Bessent, a group of churches and ministries is challenging a restriction on their ability to speak about politics. A law known as the Johnson Amendment penalizes churches that speak about political candidates. In effect, if a church speaks positively or negatively about a candidate for office, even during a sermon or homily, it risks losing its tax-exempt status. That is the leverage the power to tax creates: A government that can threaten taxes can pressure a church to stay silent. Again, this is especially true for smaller communities that rely on tax exemptions just to keep the lights on.

Thankfully, the current administration has agreed not to enforce the Johnson Amendment in some circumstances. Attorneys from Alliance Defending Freedom, National Religious Broadcasters, and Citizens for Self-Governance have asked a federal court to accept that agreement and make it permanent.

What are other benefits of church tax exemptions?

Protecting religious freedom and keeping the government out of church affairs is reason enough to keep churches tax-exempt. But there are practical reasons too.

Churches provide tangible benefits to their surrounding communities. Many churches serve those in need by providing food, shelter, and clothing. Others sponsor adoption and foster care programs. Several studies show that those programs have real, measurable effects.

For example, a 2021 study shows that, on average, a single church in rural North Carolina generates $735,800 of economic impact every year. The same study notes that churches support the local economy by providing employment and education, purchasing goods, attracting visitors, and more. And most people benefiting from these church programs were not even members of those congregations. In a more recent study, a single church in Indiana was found to have contributed over $4.6 million through direct spending, education, and other indirect impacts.

This is to say nothing of the non-economic social impacts of churches. Evidence suggests that there is a strong causal link between religious participation and lower rates of depression, suicide, and substance use.

What have courts said about tax exemptions for churches?

Perhaps the best-known case about tax exemptions for churches is Walz v. Tax Commission of the City of New York, decided by the U.S. Supreme Court in 1970. Frederick Walz, a property owner in the city, filed a lawsuit seeking to stop the New York City Tax Commission from granting tax exemptions for property used only for religious purposes. Walz claimed these exemptions unfairly benefited religious organizations and amounted to the government establishing religion, which the First Amendment forbids.

In a 7-1 decision, the Supreme Court upheld the exemptions and rejected the argument that exempting churches from taxes amounts to government-sponsored religion. Instead, the exemptions reflected a “benevolent neutrality”—neither promoting nor hindering religion—that kept the government from gaining control over churches. The Court found that the exemptions followed a long line of American history that helps guarantee the free exercise of religion.

Churches must stay tax-exempt

Over 200 years ago, the fledgling U.S. Supreme Court ruled that a state government couldn’t take a church’s property. The Court explained that doing so would violate basic principles of just governance. Throughout American history, that same ideal has rightly insulated churches from taxation.

Taxing churches at the state or federal level would break with American history and the Constitution’s longstanding protections. If the First Amendment’s promise of religious freedom is to be respected, church tax exemptions must be preserved.