As I recently posted, there are very good reasons why churches should be tax exempt. One Nashville church, though, found that its attempts to reach out to the poor and needy in the community resulted in a very large property tax bill. Their case is an example of the increasing attacks on church tax exemption.

Christ Church Nashville is a large, vibrant congregation in Nashville, Tennessee.  The church completed an addition to its church building in 2004. The addition was designed for the purpose of outreach to the community. It contained an indoor playground, a chapel, a café connected to a bookstore, and an indoor gymnasium with a fitness center. Christ Church’s desire in constructing these facilities was to become a gathering place for the community. The church reasoned that there were people surrounding its campus that would not normally come into a traditional church, so it sought to open itself to those people as a place of gathering and religious outreach.

The fitness center operated on a suggested donation of a very small amount, and  immediately became a favorite place for youth in the community. It was staffed by a full-time pastor who saw many youth involved in drugs and destructive social behavior turn their lives over to Christ through the ministry of the fitness facility.

The café/bookstore was staffed by a full-time pastor and became a favorite place for many individuals in the community. Stories abound of people who sought refuge at the café and bookstore during difficult times in their lives. The pastor would counsel them, give them books from the bookstore to help them in their struggles, and even provide food free of charge to the hungry.

In 2007, a representative of the taxing authority toured the facility and made a determination that the café/bookstore and the fitness center were “retail” areas and should be taxed. The taxing authorities did not see these areas of the church for the mission-oriented areas they were. The church never made any money on either the fitness center or the café/bookstore. In fact, the church gave away much more than it took in. And for good reason – these areas were not moneymakers for the church. They were ways to reach out to the community to share the love of Christ with those in the vicinity of the church. Yet because the taxing authorities refused to see the value of what the church was doing, they slapped the church with tens of thousands of dollars in property taxes.

The church appealed the taxes and is being represented by ADF. This case is important because it represents a direct attack on the tax-exempt status of a church that wanted to reach out beyond the four walls of the church to draw in the community. The government should not be allowed to tax churches simply because it thinks, in its own judgment, that a church is not fulfilling a religious mission or purpose.

We continue to fight on behalf of Christ Church Nashville to protect it from arbitrary taxation. If your church is facing something similar, or you know of a church that is, please contact ADF.  We stand ready to defend the Church’s right to be free from taxation—free of charge.

Why is your church tax exempt?  Why should it continue to be tax exempt? If I were to sit down and ask you these questions, would you have a clear and coherent answer? I suspect this is something we seldom think about. After all, tax exemption for churches has always been given and we assume, because of its historical longevity, it always will be given.

The fact that most Americans cannot explain why their church is tax exempt indicates a forgotten history and is emblematic of a society that has systematically devalued the church as a beneficial societal institution.

Whenever I litigate a case about church tax exemption or Pulpit Freedom Sunday, the inevitable media comments go something like this: “Churches should pay taxes just like everyone else! They have tons of money, so why can’t they pay their fair share? Why should churches get a free ride? Make them pay!” Comments like these are more prevalent today than any other time I can remember.

Cases involving local governments attempting to tax churches are also becoming more prevalent. For example, ADF recently litigated and won a case against the City of Mission, Kansas, for attempting to impose a “driveway tax” on churches. Or consider the case of Liberty Assembly of God in New Hampshire which was slapped with a property tax bill simply because the local taxing authorities rifled through the church buildings and concluded that because some rooms were “untidy,” the church was not using them for a religious purpose.

So why should churches be tax exempt? There are very sound and valid reasons for church tax exemption. First, there is the “social benefit” theory of tax exemption. This recognizes the fact that churches provide great benefits to society by their good works. Churches minister to the poor and needy in the community, provide numerous social services for the downtrodden among us, and reach out to the “least of these” in thousands of different ways. The social benefit theory justifies tax exemption for churches as a kind of bargain – churches provide needed services, so they are entitled to tax exemption.

One corollary of the “social benefit” theory that is often overlooked is what I have termed the “intangible benefit” theory of tax exemption. This highlights the intangible and often unseen benefits provided by churches to the community. Things like reduced crime rates resulting from transformed lives, suicides prevented when people surrender to Christ, and people with destructive behavioral patterns that harm the community changing into hard-working and virtuous citizens who contribute to the well-being of the community. It is difficult to put a price tag on these types of intangible benefits provided by churches, but there is no question that they exist.

An interesting study conducted a few years ago attempted to put a value on the economic worth of one church. The study estimated that the First Baptist Church of Philadelphia provided over six million dollars of economic value to the community, a figure that is nearly ten times the church’s annual budget.

It is easy to see the benefits provided by churches. In fact, churches provide more social services and intangible benefits to the community than they would ever pay in taxes. It makes no sense to tax churches because the tax dollars taken from the church reduce the amount of benefits it can provide to the community. In a very real sense, taxing churches harms society.

But there is also a constitutional reason why churches are tax exempt. Our history is one of an unbroken practice of exempting churches from taxation. Churches were exempt from the very first time the tax code was passed at the federal level, and have remained exempt in every iteration of the tax code ever since. Every state in America also exempts churches from property taxes. When the U.S. Supreme Court decided a case regarding the property tax exemption of churches, called Walz v. Tax Commission, it stated that providing a tax exemption for churches was a less intrusive option under the Constitution than requiring churches to pay taxes.

That makes sense when you stop and think about it. As the Supreme Court said in a very early case, “The power to tax involves the power to control.”  Taxation is, in essence, a very strong assertion of control by a sovereign over its subjects. Exempting churches is a way to ensure that the state cannot control churches.

Overall, there are very good reasons why churches are tax exempt. We need to remember these reasons and proclaim them to others in society who reflexively shout that the Church should pay its fair share. We should take up the cause of passionate defenders of church tax exemption like Kentucky State Representative Whittaker. During the debates on the Kentucky Constitution in 1890, he loudly proclaimed, “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.” Amen.

In a major but interim defeat for the New York City Department of Education, the U.S. Court of Appeals for the Second Circuit  late yesterday denied the City’s request to stay the preliminary injunction. The Second Circuit gave detailed instructions to the parties and to the lower court on how to proceed with the litigation, requiring the District Court to issue a final decision by mid-June, so that the appeals court could rule on the constitutionality of the policy before school starts in the fall.  This means that the churches and other religious groups will be able to meet through the end of the summer at least and possibly longer.

Today, the NYC Department of Education has been rejecting applications by churches to use the schools unless they have a disclaimer on their churches’ websites saying that the churches’ speech is not endorsed by the Department of Education.  This is petty because it unrealistically assumes that people reading the churches’ websites will mistakenly interpret a statement that the church “meets Sunday morning at P.S. XYZ  in Brooklyn” to mean government endorsement of the churches’ speech. Many churches are putting the disclaimer on their websites and reapplying to meet in the schools.

We are hoping that this matter can be successfully resolved soon, with the New York Legislature ordering NYC to repeal the ordinance, or the appeals court strikes it down.

Every time I talk about Pulpit Freedom Sunday, I inevitably get a comment from an audience member that goes something like this, “You know, if churches just unincorporated, they wouldn’t be subject to the IRS,” or “Because churches aren’t required to apply for tax exemption, they aren’t subject to 501(c)(3) of the tax code.” People have told me that churches have willingly gagged themselves in exchange for tax exemption and that they should just unincorporate or give up their exemption letter from the IRS and they could then be free to do what they want. Behind these questions and statements lies an admirable heart for the independence of the church. But these also demonstrate a fundamental and potentially dangerous misunderstanding of the law.

This misunderstanding has been propagated in different ways through the years in movements, booklets, and websites. The basic argument is that churches are free and if they don’t incorporate or ask for tax exemption from the government, then the IRS can’t regulate them or force them to pay income taxes (or do anything else for that matter).

This view is wrong under the law as it exists today. But in order to understand this, we need to take a few steps back. Churches are unique in that they enjoy a special status under the tax code. Normally, to be considered exempt from income taxes, an organization must apply for an exemption from the IRS and demonstrate that it meets the requirements to be considered one of the exempt categories of section 501(c) of the tax code. Every organization that does not fall within one of the exempt categories of section 501(c) of the tax code is considered taxable.

But churches are different. Under section 508(c)(1)(A) of the tax code, churches are exempt from applying to the IRS for tax exempt status. Thus, churches are automatically exempt from income taxes under the federal tax code without first applying to the IRS for recognition of exempt status.

This is where the misunderstanding comes in. Some think that this unique status of churches under the tax code means that churches are not regulated by the tax code at all.  This view is wrong.  The bottom line is that whether or not a church applies to the IRS for recognition of tax exempt status or chooses not to do so, they are still subject to the tax code.

Cases have dealt with this issue. In Taylor v. Commissioner of Internal Revenue, the United States Tax Court agreed that, under section 508(c)(1) of the tax code churches do not have to apply for tax exempt status and are considered automatically exempt. But the court also stated, “Nothing in section 508(c)(1) relieves a church from having to meet the requirements of section 501(c)(3).”  Basically what the Taylor court was saying is that churches are still subject to the restrictions in section 501(c)(3) of the tax code even if they never apply to the IRS for recognition of tax exempt status.

In a similar case called Universal Life Church v. Commissioner of Internal Revenue, the Tax Court stated:

Section 508(c) exempts various organizations, including churches from the notification requirements of section 508(a). Thus while most organizations claiming tax exempt status under section 501(c)(3) must inform the Commissioner of their application for exempt status… churches need not make such a notification.

Despite this, the Tax Court went on to hold that this unique status does not prevent the Commissioner of the IRS from auditing a church.

The upshot of these cases is that even though churches are not required to apply for a tax exemption from the IRS, churches are still subject to the restrictions in section 501(c)(3) of the tax code. That means all churches are required to abide by 501(c)(3).  And if you think about this logically, it makes sense.  The way the federal tax code works is to begin from the assumption that all organizations are taxable unless they meet an exemption from taxation specified in the tax code.  Thus, for a church to be considered exempt from taxation, it must meet a specific exemption under section 501(c) of the tax code.  The specific exemption that churches fall under is section 501(c)(3).

And this is where the problem arises because the restrictions on churches in 501(c)(3) are unconstitutional. The passage of the Johnson Amendment in 1954 added a restriction to 501(c)(3) that allows the IRS to censor a pastor’s sermon from the pulpit.  That’s what Pulpit Freedom Sunday is intended to address. It doesn’t help for churches to hide their heads in the sand and pretend like the tax code doesn’t apply to them. Instead, churches should stand and boldly confront the unconstitutional restriction and regain the right of pastors to speak freely from their pulpits without any restriction.  If you are a pastor, visit our website and sign up to participate in Pulpit Freedom Sunday.

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Churches and other religious groups will be able to return to NYC public schools for their worship services, because of a preliminary injunction granted by Chief Judge Loretta Preska late Friday afternoon in Manhattan.  The court ruled that NYC’s ban on private worship services meeting during non-school hours violates the Free Exercise of Religion Clause of the First Amendment, and NYC cannot justify its policy by claiming that it is needed to avoid an Establishment Clause violation.  This is a great victory for religious liberty.

NYC will undoubtedly appeal the preliminary injunction to the U.S. Court of Appeals for the Second Circuit, and also ask that court to stop the preliminary injunction pending the appeal.  ADF attorneys stand ready to respond to that appeal and to fight any attempt to stop this court order that protects religious freedom.

NYC’s policy against worship services also could be eliminated by the state legislature. The New York Legislature comes back into session this week, and the Assembly could take up the bill passed by the New York Senate.  If it goes to the floor, it is likely to pass, because a majority of the Assembly members have signed onto the bill.  This policy needs to go, either by legislative repeal or court injunction, because it opposes this nation’s strong commitment to religious liberty.  Much will likely happen this week.  Stay tuned and pray.