Should Churches be Taxed?

The Catholic League reported on March 5th that the Kansas House of Representatives was considering a bill that would remove the sales tax exemption for churches.  It is unclear at this point whether the bill has any chance of success, but it raises an issue that has been assumed, but not debated much, in American history - should churches be taxed at all?

Jesus made it very clear that as citizens of whatever country we live in, we should pay our taxes.  But the question of whether churches should be taxed at all is a different question altogether.  And it is one that judicial case law has not discussed much.

It has been assumed from the foundation of our country that churches should remain tax exempt.  In 1890, Kentucky State Representative Whittaker summed up the sentiment nicely when he said, "Let an untaxed Gospel be preached, in an untaxed church house, from an untaxed pulpit; let the emblem of a crucified, but risen Christ be administered from an untaxed altar, and, as the spire points heavenward, . . . let it stand forever untaxed."

In 1970, the United States Supreme Court noted the "undeviating acceptance given religious tax exemptions from our earliest days as a Nation.  Rarely if ever has this Court considered the constitutionality of a practice for which the historical support is so overwhelming."  Walz v. Tax Comm’n of City of New York, 397 U.S. 664, 681 (1970) (Brennan, J. concurring).  The very next year, the Supreme Court noted that nontaxation of churches is undergirded by "more than 200 years of virtually universal practice imbedded in our colonial experience and continuing into the present."  Lemon v. Kurtzman, 403 U.S. 602, 624 (1971).

Churches, as nonprofit organizations, are exempt from taxes not because of the public benefits that churches provide, although that is also a reason for exemption.  Rather, it is their very existence as non-profit entities that justifies church tax exemption.  Taxation naturally applies to profit-makers, the generators of revenue upon which government depends.  In his book, Why Churches Should Not Pay Taxes, Dean Kelley makes a powerful argument.  He states, "Other entities, which are not in the wealth producing category to begin with [such as churches], do not need to explain why they are not taxed any more than do the birds of the air or the rivers that flow to the sea. . . .  [Taxation] would be pointless, since they are not in any meaningful sense producers of wealth."

In fact, taxing such nonprofits discourages their existence and amounts to double taxation.  All citizens, whether or not involved in a church or other nonprofit, are taxed on their individual incomes.  As Kelley notes again, "To tax them again for participation in voluntary organizations from which they derive no monetary gain would be ‘double taxation’ indeed, and would effectively serve to discourage them from devoting time, money, and energy to organizations which contribute to the up building of the fabric of democracy."

There are many more reasons why churches should not pay taxes, but just these few demonstrate that the Kansas legislature should never let this bill see the light of day.