Decades ago, the Supreme Court upheld tax exemptions for churches. The New York law in Walz exempted “real or personal property used exclusively for religious, educational, or charitable purposes as defined by law and owned by any nonprofit corporation or association organized or conducted exclusively for one or more of such purposes.” Laws similar to it exist in almost every state. Chief Justice Burger defended the exemption by equating it to the tax exemption enjoyed by nonprofit organizations. Justice Douglas dissented on the grounds that a tax exemption for churches supports the establishment of a religion, thus violating the Establishment Clause of the First Amendment. I must agree with Justice Douglas.
Currently, the Internal Revenue Service treats churches rather specially. First, the IRS automatically grants exemption to churches, while the nonprofit organizations that Chief Justice Berger likened churches to in Walz must file for exemption. Second, the IRS does not compel churches to file a 990 form. Tax-exempt 501(c)(3) charities are required to file 990 forms, which account for finances. The 990 filing requirement checks charities and guarantees that no individual profits from funds raised and that charity money raised goes to nonprofit purposes. If a charity appears to be a moneymaking machine rather than a true charity, the charity must pay taxes.
The tax regime covering churches is in dire need of reform. Levying a property tax on churches is a fair and constitutionally minded alternative to church taxes enacted in European countries that tax the very act of attending church. Opponents on each side of the property tax debate claim “to exempt church property while taxing that of other nonreligious groups appears to violate the ‘no special benefit’ principle of the [E]stablishment [C]lause. To tax church property while exempting that of other nonprofit groups appears to violate the ‘no special burden’ principle of the [F]ree [E]xercise [C]lause.” However, taxes on church property and IRS regulation reform are fair solutions to the dilemma for the following reasons.
First, depriving churches of their automatic tax-exempt status would not deprive them of tax-exempt state entirely. It would simply require them to apply for an exemption like charities. The current practice of automatic exemption from taxes is inherently suspect – it invites abuse. If churches had to file a 990 form, the most extravagant and profitable mega churches might, and should, lose their tax-exempt status. It would improve accountability of churches, which is certainly a necessity in light of increased political involvement by churches in recent campaigns. To truly maintain separation of church and state, the state should hold the church accountable as a so-called charitable organization. Otherwise, churches have free reign to masquerade as houses of worship while bleeding congregants’ wallets dry, funding political groups, or acting as vehicles for political activism. Such unaccountable influence over the political process is toxic. If churches were taxed, they may seize the opportunity to become more openly politically active, but accountability would accompany that new opportunity.
Second, exempting churches from property taxes demonstrates a special benefit to churches, not a burden. When a small church of 50 congregants and a small parking lot enjoys its tax exemption, it clearly benefits. However, when a mega church of 16,000 square feet and acres of parking takes advantage of its unquestioned tax exemption, its benefit is exponentially larger than the former’s. Thus, the property exemption helps large, powerful groups on a bigger scale than small, emerging religions, and allows them to get away with gaming the system. The result is unfair and clearly benefits and enables the most prevalent religions. As articulated by Justice Black,
Neither a state nor the Federal Government can set up a church. Neither can pass laws which aid one religion, aid all religions, or prefer one religion over another. Neither can force nor influence a person to go to or to remain away from church against his will or force him to profess a belief or disbelief in any religion. No person can be punished for entertaining or professing religious beliefs or disbeliefs, for church attendance or non-attendance. No tax in any amount, large or small, can be levied to support any religious activities or institutions, whatever they may be called, or whatever form they may adopt to teach or practice religion. Neither a state nor the Federal Government can, openly or secretly, participate in the affairs of any religious organizations or groups and vice versa. In the words of Jefferson, the clause against establishment of religion by law was intended to erect ‘a wall of separation between Church and State.’
It is problematic for churches to be tax-exempt without question because doing so “aid[s] all religions, or prefer[s] one religion over another,” by exempting all religions or only those deemed legitimate enough to be recognized by the government.
Third, tax subsidies for churches do not dissipate into the air. Private individuals and businesses absorb the subsidies lost by exemption. Consider the previously mentioned mega churches. If you live near a mega church, your taxes may spike to compensate for the loss of property taxes suffered by the municipality for exempting the church. Churches own billions in real property – but they pay nothing in taxes for it, so the general public must. This costs taxpayers upward of $70 billion per year.
Fourth, tax-exempt status is a privilege that churches must earn, not simply be granted. While assuming that churches participate in charitable work is a nice thought, it might not be entirely true of every church. Abuses of tax-exempt status have been recorded and are difficult to solve without any check on church functions. Senator Chuck Grassley (R-IA), ranking member of the U.S. Senate Committee on Finance, released a memo in 2011 noting the lack of transparency among large, media-based religious organizations in America led by multimillionaire ministers. The aim of his investigation, which began in 2007, was to “improve accountability and good governance so tax-exempt groups maintain public confidence in their operations.” Grassley’s investigation involved six tax-exempt ministries, each considered nonprofits worth tens of millions of dollars. Only two ministries participated fully in the report; the others refused to share information or limited the information they shared. Those two ministries – Joyce Meyer Ministries and the World Healing Center Church – were commended for their progresses to reform church finances. Grassley’s investigation ultimately found no wrongdoing and preferred “‘self-correction’ by churches and religious groups [over] legislative or regulatory solutions.” Despite this cop-out conclusion to a three-year investigation, Grassley’s memo comments “requiring churches to file an annual information return does not offend either the Free Exercise Clause or the Establishment Clause.” I find this highly significant and difficult to argue against. Truly religious organizations, apparent equivalents to charities, would not be burdened by filing an information return like the 990 form. Instead, non-charitable organizations disguised as churches would deservedly lose their great financial advantage of tax exemption. Requiring an information return and taxing churches do not offend the Establishment Clause and in fact preserves it by treating each religious organization equally and withholding favor from any certain group.
Religious organizations should be required to pay property taxes and to file for tax-exempt status if they wish to be exempt. IRS regulations need to be reformed and revised to eliminate tax loopholes. If religious organizations are strictly charitable, nonprofit organizations – as they love to be portrayed – they should be held to the same standards as secular nonprofits and should not be given free passes simply for their churchly label.
 Walz v. Tax Comm’n of New York, 397 U.S. 664, 700 (1970).
 N.Y. Tax Law § 1 (McKinney 1939).
 Walz, 397 U.S. at 696.
 Id. at 701.
 Internal Revenue Service, Tax Guide for Churches & Religious Organizations (2012).
 John Witte, Jr., “Tax Exemption of Church Property: Historical Anomaly or Valid Constitutional Practice?,” 64 S. Cal. L. Rev. 363, 414–15 (1991).
 Mathew Encino, “Holy Profits: How Federal Law Allows for the Abuse of the Church Tax-Exempt Status,” 14 Hous. Bus. & Tax L. J. 78, 87-88 (2014).
 Everson v. Bd. of Ed. of Ewing Twp., 330 U.S. 1, 15-16 (1947).
 Dylan Matthews, You give religions more than $82.5 billion a year, Washington Post (Aug. 22, 2013), http://www.washingtonpost.com/blogs/wonkblog/wp/2013/08/22/you-give-religions-more-than-82-5-billion-a-year/.
 U.S. Senate Committee on Finance, “Grassley Releases Review of Tax Issues Raised by Media-based Ministries,” (Jan. 6, 2011), http://www.finance.senate.gov/newsroom/ranking/release/?id=5fa343ed-87eb-49b0-82b9-28a9502910f7.
 Memorandum from Theresa Pattara & Sean Barnett, staff members of the U.S. Senate Committee on Finance, to Senator Chuck Grassley (Jan. 6, 2011).
 Laurie Goodstein, Tax-Exempt Ministries Avoid New Regulation, N.Y. Times (Jan. 7, 2011), http://www.nytimes.com/2011/01/08/us/politics/08churches.html.
 Pattara & Barnett, supra note 14.