By / Dec 21

WASHINGTON, D.C., Dec. 21, 2019—Lawmakers in both the U.S. House of Representatives and the Senate passed and President Trump signed an appropriations package that included a repeal of the troubling tax on all nonprofits, including churches.

Russell Moore, president of the Ethics & Religious Liberty Commission of the Southern Baptist Convention, commented on this welcomed relief for churches and nonprofit organizations throughout the country.

“In these contentious days, finding a bipartisan area of agreement in Congress is worth celebrating. I am thankful that the House and the Senate did just that by repealing the parking lot tax on nonprofits and houses of worship in their appropriations bill. This repeal comes as a welcome relief for millions of Americans, lifting this burden from nonprofits and houses of worship around the country. Churches must never again be seen as untapped sources of government revenue. I am thankful that House and Senate leadership, along with many elected officials, worked hard on this issue. And I’m glad to see the President formalize this repeal with his signature.” 

This relief for thousands of nonprofits and houses of worship, as well as the millions of Americans who they serve, comes two years after the Tax Cuts and Jobs Act of 2017 brought with it this small provision with such significant consequences. This effort to repeal the provision was a top priority of the ERLC policy team, and its success was the result of the collective advocacy of hundreds of groups representing an array of diverse faith communities and nonprofit organizations.

As a sign of the fundamental American recognition of the separation of the state’s authority from the church, the repeal of Section 512(a)(7) was overwhelming and bipartisan. The work to repeal grew over time in both chambers of Congress among members of both parties. Significant developments, in addition to this month’s inclusion in the appropriations packaged, included:

  • The Lessening Impediments From Taxes (LIFT) for Charities Act was introduced in the House by Representatives Mark Walker (R–N.C.) and Tom Suozzi (D–N.Y.) and in the Senate by Senators James Lankford (R–Okla.) and Chris Coons (D–Del.).
  • House Majority Whip James E. Clyburn (D–S.C.) authored a bill to repeal the tax, H.R. 6504 Stop the Tax Hike on Charities and Places of Worship Act.
  • The House Ways and Means Committee included a repeal of the non-profit parking tax in Sec. 401 of Chairman Richard Neal’s Economic Mobility Act of 2019.
By / Dec 20

This week, both the House and Senate passed an appropriations bill, which President Trump is expected to sign, that includes a repeal of the troubling tax on all nonprofits, including churches, found in Section 512(a)(7) of the Internal Revenue Code. If left in the tax code, this small provision would have extracted $1.7 billion from the charitable sector over the next decade.

What tax was repealed?

In 2017, Republicans in Congress passed their long-promised tax reform legislation, the Tax Cuts and Jobs Act. Included in the package was a provision that created a new 21% tax on the value of some of nonprofit employees’ benefits.

Because of the change, tax-exempt organizations that provide parking or transit benefits to their employees were subject to unrelated business income tax on the cost of the parking provided. Even by simply allowing its employees to park in a parking lot or garage, that part of the organization’s facilities was subject to a tax on the cost of the parking provided.

As a result of the law, many churches, charities, religious schools, and hospitals were required to start filing federal Form 990-T, regardless of whether they actually engage in any unrelated business activity. In addition to filing federal income tax returns, some nonprofit employers were  required to file state income tax returns and possibly pay a state income tax.

Why was such a provision included in the original legislation?

The purpose of the change was to provide parity between for-profit and nonprofit employers on taxing employees’ benefits. But as Politico noted at the time, because nonprofits don’t pay income taxes, lawmakers couldn’t take away fringe-benefit deductions. Instead Republican lawmakers created a new 21% tax on the value of some of nonprofit employees’ benefits, such as free parking.

Why should churches and religious organizations receive such tax exemptions?

Like many nonprofit organizations, religious organizations in the United States are almost always exempt from federal, state, and local taxes because they provide vital charitable benefits to society. However, an even stronger reason for maintaining such exemptions is because they maintain a distinction between the state and the church.

As law professors Richard W. Garnett and Paul J. Schierl explain, the separation of church and state is not a reason to invalidate or abandon these tax exemptions but is instead a powerful justification for retaining them:

The point of church-state “separation” is not to create a religion-free public sphere. It is, instead, to safeguard the fundamental right to religious freedom by imposing limits on the regulatory—and, yes, the taxing—powers of governments. After all, as Daniel Webster famously argued in the Supreme Court (and the great Chief Justice John Marshall agreed) the power to tax involves the power to destroy, and so we have very good reasons for exercising that power with care—especially when it comes to religious institutions.

In complying with this tax law, churches would have needed to take new measures—such as hiring tax specialists and filing federal tax returns—that would make it easier for the federal government to regulate houses of worship.

What is ERLC’s official position on the issue?

ERLC joined the Unrelated Business Income Tax (UBIT) coalition, which includes more than 40 tax-exempt organizations, in supporting a repeal of the tax law. When the repeal passed the House of Representatives, ERLC President Russell Moore welcomed this relief for churches and nonprofit organizations throughout the country, stating:

“It’s not every day that Congress finds bipartisan areas of agreement. Thankfully, the House did just that, repealing the parking lot tax on nonprofits and houses of worship in their appropriations bill. This is essential progress in the right direction for an issue with bipartisan and bicameral support. Now it’s time for the Senate to finish the task and end this troublesome tax. Churches must not be seen as untapped sources of government revenue. I am grateful for the House leadership and the members who worked hard for this tax to be repealed and look forward to this burden being lifted from nonprofits around the country.”

Read more:

Does your church need to pay the “parking lot tax”? by Elaine Sommerville and Frank Sommerville

ERLC Supports Technical Fix of Tax Law on Church Parking Taxation by Policy Staff

ERLC Delivers Coalition Letter to Congress Calling for Repeal of Parking & Transportation Tax on Houses of Worship and Non-Profits by Elizabeth Bristow

By / Oct 18

In a recent forum on LGBTQ issues for Democratic presidential candidates, former Texas Congressman Beto O’Rourke said that churches and other religious institutions that oppose same-sex marriage should lose their tax-exempt status. Andrew T. Walker wrote about O’Rourke’s statement.

Here is what you should know about churches and tax exemption.

What does it mean to be “tax-exempt”?

Tax exemptions reduce or entirely eliminate an obligation to pay tax on income or transactions at the local, state, or federal level. Tax-exempt usually refers to the status of certain businesses and organizations that have a general federal tax exemption. Donations to such tax-exempt organizations are usually tax deductible (i.e., they reduce the amount of taxable income and thus the amount of tax required to be paid).

What types of organizations are tax-exempt?

An organization may qualify for tax-exempt status if it meets the qualifications under subsection 501(c) of the Internal Revenue Code (i.e., the section of the U.S. legal code that addresses federal tax law). The most common and well-known type is 501(c)(3)—corporations, funds, or foundations that operate for religious, charitable, scientific, literary, or educational purposes. These types of organizations are more commonly referred to as nonprofits or charities.

Currently, there were 29 types of organizations listed under 501(c). Some examples are 501(c)(4) [Nonprofit organizations that promote social welfare], 501(c)(5) [Labor, agricultural or horticultural associations], 501(c)(6) [Business leagues, chambers of commerce, etc. that are not organized for profit], and 501(c)(7) [Recreational organizations].

What is the difference between a nonprofit and a charity?

These terms are often used interchangeably. But while all charities are nonprofits, not all nonprofits are charities. The one condition shared by all nonprofits is that they do not pay out profits. As the IRS states, “No part of the organization’s net earnings can inure to the benefit of any private shareholder or individual. A private shareholder or individual is a person having a personal and private interest in the activities of the organization.”

What constitutes a charity, though, is more difficult to define, because the meaning of the term has changed over time. Prior to the twentieth century, charity was usually reserved as a designation for organizations whose purpose was to provide relief to the poor. But the term has expanded to include a variety of activities that promote the public interest or social welfare. The IRS notes that on numerous occasions courts and other authorities have expressed the view that the term “charity” cannot be restricted or confined. Under IRS rules, organizations that take opposing perspectives on what promotes public welfare—such as Americans United for Life and Planned Parenthood Federation of America—can both be classified as charities.

Why does the government provide some tax exemption to 501(C) organizations?

The rationale for granting tax exemption to certain private entities, according to the IRS, is based on the theory of shared social responsibility. As the IRS points out, the government and its citizens jointly share the responsibility for the well-being of the entire nation:

Early governmental authorities granted tax exemption because they were either unable or unwilling to satisfy obvious social needs. Later, exemption was extended or continued for organizations whose purposes and activities were socially desirable. Today, of course, government conducts many of the activities previously done only by private philanthropy. Even today some needs can be better met by private philanthropy. The present system for tax exemption reflects this philosophy. This dual system of public and private philanthropy seems likely to persist well into the indefinite future.

Do churches have to file for tax-exempt status?

No. Under Internal Revenue Code 508(c), churches are exempt from having to notify the IRS that they quality as an 501(c)(3). If a church meets the requirements of 501(c)(3), it is automatically exempt from federal income tax.

Doesn’t this allow any group to claim to be a church or religious organizations and avoid paying taxes?

The IRS is tasked with neutral and impartial enforcement of the Internal Revenue Code and is additionally constrained by the First Amendment to the Constitution, which mandates governmental neutrality toward churches and religious organizations.

Yet as the IRS clarifies, this “does not mean that these First Amendment rights are absolutes or can be asserted as a screen for any kind of conduct. While the court has found within the religious clauses of the First Amendment both a freedom to believe and a freedom to act, it has also found that the former is absolute while the latter is not. (Reynolds v. U.S., 98 U.S. 145 (1978).)” What this means is that when a group makes its beliefs and programs a basis for seeking tax exemption, the IRS “has an obligation to inquire whether such preferences should appropriately be extended to such group.”

There are two basic questions the IRS considers when determining whether a church or religious organization is described in 501(c)(3) and qualifies for tax-exempt status:

(1) Are the organization's beliefs and tenets sincerely held?

(2) In practicing its beliefs, does the organization meet all the requirements for 501(a) exemption set out in 501(c)(3)?

As the federal courts have ruled, the Constitution does not condone a taxpayer's subversion of the law through the guise of religious belief. To be entitled to the protection of the First Amendment to the U.S. Constitution the religious belief must be sincerely held. For instance, if the IRS found evidence indicating that the founder or members formed a “church” to avoid drug laws, the IRS could properly question the sincerity of the religious belief.

Despite this oversight power, the IRS has seldom cited the sincerity requirement in denying tax exemption.

Doesn’t giving churches a tax exemption violate the separation of church and state?

The concept of the separation of church and state is often misunderstood. “Church-state separation is not meant to create a religion-free civil society or public sphere,” says law professor Richard W. Garnett. “Instead, its purpose is to safeguard our fundamental right to religious freedom, by limiting the regulatory powers of government and by distinguishing between political and religious institutions.”

As noted above, the First Amendment to the U.S. Constitution mandates governmental neutrality. Churches and other religious organizations cannot be denied the same benefits as other organizations simply because they are religious.

In fact, the exemption prevents an undue and unnecessary entanglement between religion and the state. For example, as Tobin Grant observes, for the purposes of taxation the government may audit organizations, has rules about what counts as legitimate business expenses, and regulates how businesses perform their accounting. “To do this for churches means that the government would define what is and is not legitimate and then act to ensure compliance,” says Grant. “This raises a constitutional issue as Congress cannot make laws that affect the free exercise of religion.”

Most importantly, tax exemption for churches promotes religious liberty. “Governments do not refrain from taxing religious institutions merely because it is politically convenient or socially acceptable to support them,” adds Garnett. “They do and should continue to refrain from taxing churches because their power over them is limited, because ‘church’ and ‘state’ are distinct and because religious freedom is fundamentally important.”

“Tax exemption for churches is not a ‘reward,’ but a recognition that the power to tax is the power to destroy," said ERLC President Russell Moore. “And, indeed, with these comments Congressman O'Rourke threatens to destroy every church, synagogue or other religious institution that does not adopt his viewpoint on sexual ethics over and against their own traditions and authoritative texts. That is not the American way.”

By / Jan 28

Concerns and questions arose last year regarding an obscure provision in the Tax Cuts and Jobs Act of 2017—a provision requiring all employers, including churches, to pay an unrelated business income tax for parking provided to employees.

Legal and accounting experts differed on how the so-called “parking lot tax” would work, and whether it would actually constitute a tax on most churches once the Internal Revenue Service finally interpreted the provision for enforcement purposes. The IRS finally eased the uncertainty—albeit temporarily—when it issued interim guidance in late December.

In short, the IRS has provided its initial interpretation, which may foreshadow its ultimate position when it eventually provides permanent guidance. The good news: most churches will not face this tax. The bad news: some churches will. This article briefly offers four tips for determining whether your church’s parking situation will still trigger this tax.

The four steps

In IRS Notice 2018-99, the IRS provides a four-step analysis for owned (or leased) parking lots. The analysis has the potential to be a four-step analysis, but many churches will be able to stop the analysis after the second step.

The steps are:

  1. Determine the number of spaces specifically reserved for the church’s employees. The expenses related to these spaces create unrelated business income. For example, if the church has 500 parking spaces and designates 50 parking spaces exclusively for employees, then 10 percent of the expenses associated with the parking lot will count as unrelated business income. (For churches desiring to avoid this automatic potential for taxable income, the IRS is allowing employers to remove the reserved space designation as late as March 31, 2019, and the IRS will consider it retroactive to January 1, 2018.)
  2. Determine the use of the remaining spaces. Utilizing the example in Step 1, analyze the use of the remaining 450 parking spaces—those parking spaces not exclusively designated for employee use. If at least 51 percent of the remaining spaces in the parking lot are available to the general public, then all the remaining spaces are considered as utilized for the general public, and the expenses related to those spaces do not create unrelated business income. For churches, the spaces available to their attendees are classified as general public use, even if they are unoccupied most of the time. Therefore, if more than 225 of the 450 remaining spaces in our example are empty or used by members or visitors, then all the spaces are considered as used for the general public, and none of the associated expenses are included in unrelated business income. However, if employees primarily use the spaces, then the expenses related to these spaces do create unrelated business income.
  3. If it is determined in Step 2 that the parking spaces are not primarily used for the general public, then determine the number of spaces reserved for non-employee use. For example, reserved non-employee spaces include spaces reserved for visitors and customers. The expenses related to these spaces do not create unrelated business income.
  4. If it is determined in Step 2 that the parking spaces are not primarily used for the general public, then it must be determined what expenses will be allocated to the employee spaces. The church may use an actual number of spaces and number of days the employees use the parking spaces, or it may adopt any reasonable method to determine this usage on a typical day. The employee usage is multiplied by the actual parking expenses to arrive at the unrelated business income amount. For example, if the church has 500 parking spaces and regularly has 300 employees utilizing parking spaces, then the church will treat 60 percent of its total parking expenses as unrelated business income.

Most churches may avoid filing Form 990-T if their unrelated business income amount is less than $1,000 during the year. For example, if the church has 500 parking spaces and 100 spaces are specifically reserved for employees (Step 1 of the above analysis) and the church had parking lot expenses of $4,000, the expenses subject to reporting as UBI would be one-fifth of that amount—or $800. If there was no other unrelated business income, no Form 990-T is required because the $800 is below the $1,000 filing requirement.

Additionally, if a church has another source of unrelated business income, a loss from the other source may be netted against the income created through this provision and reduce the amount of tax due.

Adapted from an article that first appeared on Christianity Today’s Used with permission.

By / Dec 19

WASHINGTON, D.C., Dec. 19, 2018—Southern Baptist leaders in Texas join the Ethics & Religious Liberty Commission of the Southern Baptist Convention in calling for a repeal of the parking and transportation tax on non-profit organizations, including houses of worship found in the Tax Cuts and Job Act of 2017. 

Nathan Lino, pastor of Northeast Houston Baptist Church in Houston, Texas and Dr. Robert B. Sloan, president of Houston Baptist University, published an op-ed in today’s Houston Chronicle calling the provision fundamentally troubling for the future of religious freedom.  

“There are important reasons why non-profits and houses of worship are not taxed in the United States” write Lino and Sloan. “The bright line that separates the domain of church from the domain of state must be guarded. One of the most fundamental powers the state has is the authority to tax. Houses of worship ought not be taxed because houses of worship ought not be regulated by the government.”

In addition to the provision’s threat to religious freedom, Lino and Sloan also argue that the tax is “counterproductive to American values.”

“The operational costs on nonprofits and houses of worship to pay this tax will likely exceed the federal revenue generated from it,” they write. “At the heart of public service is the pursuit of the public good, whether through elected office in D.C. or through the charitable sector in religious communities. We ought to all be able to agree that the public good is not served by a tax like that. This new burden dropped on the doorsteps of nonprofits and houses of worship is one government leaders must reconsider and repeal before the year ends.” 

ERLC President, Russell Moore, also recently wrote an op-ed in the Wall Street Journal, calling for an end to the tax on houses of worship. 

Moore writes: 

“The imposition of a tax burden on churches, religious schools, and other charities is a shocking change in the federal government’s orientation toward these organizations of goodwill. The new tax requires institutions to file federal Form 990-T and possibly pay taxes every year—regardless of whether they engage in any unrelated business activity. In addition to the new federal requirements, many nonprofits will then face the requirement to file state returns and possibly pay state income tax. Further, in the name of taxing parking lots, the new regulations created a new tax liability. In turn, this creates new operations costs for proper accounting and regulatory compliance at every nonprofit organization. For many nonprofits, these operations costs could exceed the amount of money actually collected by the Internal Revenue Service.”

The ERLC’s coalition letter calling for the tax repeal can be accessed here

By / Jul 18

Download the coalition letter

The Tax Cuts and Jobs Act cut taxes to the benefit of the American economy. However, a little-noticed provision in the legislation created a new policy to tax nonprofits—including houses of worship—for the first time in the history of the United States. A change this significant to the tax code affecting a part of American life as fundamental as church and charity deserves to be re-examined.

The tax code must be amended to ensure that tax-exempt organizations—including hundreds of thousands of churches—are not required to pay federal income tax and file 990-T forms with the IRS. The Tax Cuts and Jobs Act contains a provision that requires tax-exempt organizations to file federal income tax returns and pay unrelated business income tax (UBIT) on the cost of parking provided to employees. Filing a return is required even if the organizations do not actually conduct any unrelated business activities. This is a significant change in the treatment of charitable organizations. Details of the implementation are pending regulatory guidance by the Internal Revenue Service.

The newly added Section 512(a)(7) of the Internal Revenue Code states, in part: “Unrelated business taxable income of an organization shall be increased by any amount for which a deduction is not allowable under this chapter by reason of section 274 and which is paid or incurred by such organization for any qualified transportation fringe, any parking facility used in connection with qualified parking, or any on-premises. . . The [Treasury] Secretary shall issue such regulations or other guidance as may be necessary or appropriate…”

Many churches, religious schools, and other charities will be required to file federal returns for the first time in their history. In addition to the new federal requirements, many nonprofits will then be required to file state returns and possibly pay state income tax. The new regulations create tax liability and increase operations costs for these nonprofits, all because they simply have a parking lot.

The ERLC supports a solution that repeals Section 512(a)(7) of the IRS code. The Tax Cuts and Jobs Act pushed the charitable sector into uncharted waters with at least two major changes. Taxing nonprofits on basic costs of operating an institution defeats the purpose of nonprofit status, an American tradition for over 100 years. The increase in the standard deduction is a welcome change for many American families, but doing so without making the charitable deduction universal has eliminated the incentive to make charitable contributions for approximately 95% of American taxpayers. The ERLC supports the repeal of Section 512(a)(7) and the passage of a universal charitable deduction.

By / Aug 9

My earliest memory of California was a visit I took as a high school senior to the campus of a secular private university where I had received a sizable scholarship. The visit did not go well. The university thought I, an evangelical kid from Kansas City, would enjoy being hosted by upperclassmen who lived in a fraternity house. A naive 18-year-old Southern Baptist who loved DC Talk and was president of my public high school’s anti-drugs club, I found myself enduring the company of students who seemed interested only in alcohol-centric partying and drunken high speed joyrides down Sunset Blvd.

My campus visit to Wheaton College (IL) a few months later offered a stark contrast to this. Instead of a frat house full of kegs and bongs, I was hosted in a dorm full of Five Iron Frenzy CDs and Dallas Willard books. My campus tour included attending chapel and a class where the history professor opened in prayer. My visit culminated in a worship night that sealed the deal. Wheaton was the place for me.

Was my decision to attend Wheaton partially influenced by a desire to attend a “safe” college where my Christian identity and values would not be marginalized? Yes. But it was also influenced by a desire to learn in a robustly Christ-centered and academically rigorous environment; a place where my faith could deepen rather than merely survive four years of college.

Thousands of students each year make the same decision I did, for some of the same reasons. I know this because I interact with students at Biola University, a sort of “West Coast Wheaton,” constantly. I teach a freshman seminar class that affords me the delightfully nostalgic privilege of seeing in the eyes of newly arrived students a bit of myself, 15 years ago: eager, nervous, passionate for Jesus and excited for the opportunity to develop a more intellectually robust faith.

Christian higher education was a gift in my life as a Wheaton student, and it continues to be a gift as I serve on staff at Biola. That is why I am so dismayed by California Senate Bill 1146, which threatens to undermine the very distinctiveness of schools like Biola by legislating them into secular practice. The bill has been vigorously opposed by dozens of institutions in California, including Protestant and Catholic schools, as well as the national Council for Christian Colleges & Universities and various other organizations and faith leaders.

Catholic Archbishop of L.A. Jose Gomez and African-American church leader Bishop Charles Blake issued a joint statement on SB 1146, saying the bill “contradicts the state’s noble tradition of seeking to expand educational and economic opportunities for all Californians.”

Indeed, the real victims of SB 1146 are students, whose ability to attend a private religious college often depends on state financial aid like Cal Grants. SB 1146 would jeopardize this aid for students who wish to attend a faith-based institution that maintains its faith-driven convictions and policies on sexuality and moral conduct. Supporters of the bill either ignorantly assume no student would truly choose to attend a university like this; or they knowingly wish to punish students who align with these “discriminatory” institutions.

Backers of SB 1146 say the bill’s main point is to protect LGBT students who find themselves as students of a religious college whose values and policies affirm traditional sexual ethics. As a safeguard for students who may inadvertently find themselves in this predicament, SB 1146 maps out extensive disclosure requirements so that a religious college’s policies and positions are crystal clear to any prospective student (though they have never been hidden). If this is all SB 1146 were about, California’s faith-based colleges would not be fighting it. These schools are more than happy to be clear about their convictions and conduct standards. The problem with SB 1146 is not that it requires religious schools to disclose their religious policies, but that it would make it impossible for these schools to implement the policies without being subject to lawsuits. It would also make it impossible for many low-income, minority and first-generation students to afford to attend schools that practice those policies.

Ultimately SB 1146 is an assault on choice. It would remove from the marketplace of higher education the option of a distinctly faith-based university whose policies on student conduct, admissions standards, and housing and hiring are (scandal!) based on said faith. Removing choice in this way is un-American and unnecessary. The fact is, there exists and always should exist a multitude of options in this country for people to choose an education that best serves their needs.

As Archbishop Gomez and Bishop Blake state:

It is important to remember that no one is compelled to attend a private religious college or university. Those who do so make a deliberate decision because they are seeking an academic environment and community in which they can live, learn and serve with others who share their beliefs, values and aspirations.

Those who desire this sort of community should be free to choose it, just as atheist students should be free to choose a school where they may avoid being baited into debate by the kid from God’s Not Dead. An atheist shouldn’t pretend that Wheaton or Biola is their only option for a college education, just as the gay couple shouldn’t pretend that the conservative Baptist baker is their only option for a wedding cake.

The recent court case, which resulted in the Christian dating site being forced to tailor its settings to include gay and lesbian options, is another example of this. There are dozens of other dating websites LGBT singles can use to find their perfect match. Rather than forcing a company whose religious identity is foundational to its brand (literally in its name) to function in a secular way, why couldn’t the courts simply provide the plaintiffs with a list of the many similar dating websites that don’t claim a particular set of convictions on sexual ethics?

My wife Kira has Celiac and thus lives a gluten-free lifestyle. It’s not always easy to find restaurants that accommodate this allergy, and sometimes it is downright frustrating when a restaurant we might otherwise want to try is ruled out as an option. But Kira accepts this and doesn’t demand that Panera Bread suddenly purge itself of bread (literally in its name) so as to become a perfect lunch spot for her. She doesn’t sue the popular artisan donut shop because they won’t make the browned butter bourbon donut gluten-free. No, she simply finds the bakeries and restaurants that do have ample gluten free options, and goes to them. She recognizes that fluffy croissants full of gluten are beautiful things for those (like me) who can enjoy them, just as gluten-free buckwheat crepes are a delicious treat for GF folks. It’s OK that there are establishments that only cater to one or the other. The food scene as a whole thrives when experts in one culinary niche or another are allowed to focus on doing a specific thing well rather than trying to be all things to all appetites.

The same goes for a pluralistic society. America is stronger when it is comprised of a diverse array of communities that are allowed to be meaningfully different from one another. Mandating homogeneity of belief and behavior, which SB 1146 does in higher education, weakens a democratic society. Note that one can affirm this principle without resorting to an “all are equally valuable options!” relativism. I can believe that a religion is false and dangerous, or that a diet of chocolate croissants is bad for people, without wanting to legally remove them as options.

I wouldn’t want a world where schools like Wheaton were the only available options to high school seniors. But neither would I want a society where schools like Wheaton were not viable options for weird students of sincere Christian faith.

America is a country where the freedom to choose weird options has always been protected. This has been especially pronounced in California, long the pluralistic incubator of America’s most gloriously niche communities and lifestyles, whether gluten free bakers, gay Republicans, all-male cowboy-philosopher colleges on cattle farms (Deep Springs College), or Christian liberal arts colleges with 30-foot murals of Jesus-as-a-Russian-Jew(Biola).

Proposed laws like SB 1146 are a step backward for American pluralism and Californian openness. As if inspired by a dystopian science fiction novel, the backers of the bill seek to enforce a top-down uniformity of acceptable belief and behavior on students of faith in California. To students like I once was, who desire to attend a college that believes the Bible is true and that obedience to Jesus is more important than authenticity to the self, SB 1146 simply says: “You need not apply.”

Recently, ERLC released a statement, signed by a diverse coalition of religious leaders, calling for the defeat of this legislation in California. You can add your name to this list here.

By / Jun 7

The tax-exempt status of religious institutions remains a topic of discussion in American public life.[1] From time to time, public debate regarding this issue flares up, and this appears to be one of those times. Within the last year, several prominent news outlets have published articles and opinion pieces debating the wisdom of tax exemptions. (See, e.g, the September 2015 debate sponsored by The Washington Post, and Mark Oppenheimer’s Now’s the Time to End Tax Exemptions for Religious Institutions)

The current flare up was fanned into flame by the oral argument heard in Obergefell v. Hodges. (See Michael J. DeBoer, Justice Scalia and Clergy Solemnization of Same-Sex Marriages) During the argument, Supreme Court Justice Samuel Anthony Alito, Jr. asked the Solicitor General of the United States, Donald B. Verrilli, Jr., whether the tax-exempt status of religious colleges and universities that oppose same-sex marriage could be in doubt if the Court were to recognize same-sex marriage as a fundamental right. More specifically, Justice Alito observed that the Court in Bob Jones University v. United States[2] had held that “a college was not entitled to tax-exempt status if it opposed interracial marriage or interracial dating,” and he asked if “the same would apply” to religious colleges and universities if they oppose same-sex marriage.[3] The Solicitor General responded: “I don’t think I can answer that question without knowing more specifics, but it’s certainly going to be an issue. . . . I don’t deny that, Justice Alito. It is . . . going to be an issue.”[4]

Two months later, the Supreme Court in a 5-4 decision recognized a new constitutional right—the right of same-sex couples to marry.[5] The Court held that the Fourteenth Amendment to the United States Constitution requires states to license marriages between two people of the same sex and recognize such marriages when they are lawfully licensed and performed out-of-state.

As a result of the Court’s Obergefell ruling, states and the federal government are changing their laws, and some of these changes will directly affect people of faith and religious institutions. Nevertheless, the opinion of the Court in Obergefell, which was written by Justice Anthony M. Kennedy, offered virtually nothing to address the tax-exemption concern Justice Alito raised. The following paragraph is all that the Kennedy opinion offered on the issue and the other religious liberty concerns:

Finally, it must be emphasized that religions, and those who adhere to religious doctrines, may continue to advocate with utmost, sincere conviction that, by divine precepts, same-sex marriage should not be condoned. The First Amendment ensures that religious organizations and persons are given proper protection as they seek to teach the principles that are so fulfilling and so central to their lives and faiths, and to their own deep aspirations to continue the family structure they have long revered. The same is true of those who oppose same-sex marriage for other reasons. In turn, those who believe allowing same-sex marriage is proper or indeed essential, whether as a matter of religious conviction or secular belief, may engage those who disagree with their view in an open and searching debate. . . .[6]

One month after the Obergefell ruling, Internal Revenue Service (IRS) Commissioner John Koskinen indicated to a Senate subcommittee that, in the remaining two and a half years of his term, the IRS would not take action to remove the tax-exempt status of religious colleges and universities based on their beliefs on same-sex marriage.[7]

For people of faith in America, the tax-exempt status of religious organizations is not “going to be an issue,” as Solicitor General Verrilli surmised. For them, the tax-exemption issue has been a longstanding concern, and it will remain so. Their concern regarding tax exemptions, however, extends well beyond the financial implications. For them, tax exemption is about organizational autonomy and freedom from governmental control. It is about their fidelity to fundamental beliefs, core values, and faith-inspired missions. It is about government seizing the power to define what qualifies as right belief and the threat of government rewarding compliance and punishing noncompliance with government-defined orthodoxy.

Those religious institutions that have publicly expressed a commitment to the biblical definition of marriage and the traditional Christian understanding of sexuality and marriage feel the pressure of the tax-exemption debate acutely. But again, for these organizations, the concern extends beyond the potential impact on their properties and their bottom lines. For them, the concern is existential in a deeper sense—losing tax-exempt status would mean losing their freedom from governmental control over beliefs and values and governmental intrusion into questions of organizational identity and mission. As to this concern, Justice Kennedy’s remark and Commissioner Koskinen’s representation have done little to allay fears.

As Christians engage publicly on the tax-exemption issue, several fundamental points regarding taxation and several well-established justifications for tax exemptions should be kept in mind.[8] The following points and justifications for tax exemptions are not ranked in order of strength. Rather, they are organized so as to take up historical, social, and policy grounds first (in Part 1 of this essay) and then constitutional grounds and other points second (in Part 2).

Religious and Other Nonprofit Organizations Have Been an Enduring Feature of American Society, and Americans Form Them to Pursue a Variety of Shared Purposes.

Religious organizations, charitable institutions, and other nonprofit associations have been constructive features of American society since the colonial period. In 1835, Alexis de Tocqueville, an early observer of America, provided the following reflection on the place of nonprofit organizations and voluntary associations in American society:

Americans . . . constantly form associations. They have not only commercial and manufacturing companies . . . , but associations of a thousand other kinds, religious, moral, serious, futile, general or restricted, enormous or diminutive. The Americans make associations to give entertainments, to found seminaries, to build inns, to construct churches, to diffuse books, to send missionaries to the antipodes; in this manner they found hospitals, prisons, and schools. If it is proposed to inculcate some truth or to foster some feeling by the encouragement of a great example, they form a society. Wherever at the head of some new undertaking you see the government in France, or a man of rank in England, in the United States you will be sure to find an association.[9]

Americans continue to associate together and form organizations to accomplish cultural, economic, educational, political, religious, scientific, social, and other purposes.[10] Exempting these organizations from taxation has helped to ensure that this feature of American society (the voluntary, nonprofit sector) remains vigorous and endures for future generations.

Religious and Other Nonprofit Organizations Contribute Many Benefits to Society.

Religious and other nonprofit organizations confer a wide range of public benefits and often meet needs that government might otherwise seek to meet.[11] These benefits include cultural, educational, philanthropic, and other contributions.[12] In the tax-exemption debate, attention should be given to the public benefits these organizations contribute because tax exemptions originated in political and social philosophy and charitable trust doctrine, not economic theory (where much focus is placed today).[13]

In addition to conferring these public benefits, religious and other nonprofit organizations promote freedom, republican ideals, and civic virtue. Nearly two centuries ago, Tocqueville wrote about the constructive role religion and religious organizations in America play in maintaining a free society:

Religion in America takes no direct part in the government of society, but it must nevertheless be regarded as the foremost of the political institutions of that country; for if it does not impart a taste for freedom, it facilities the use of free institutions. . . . [Americans] hold [religion] to be indispensable to the maintenance of republican institutions. This opinion is not peculiar to a class of citizens or to a party; but it belongs to the whole nation, and to every rank of society.[14]

So understood, governments give tax exemptions as a quid pro quo—they exchange tax exemptions for the benefits these institutions confer. As one federal court has explained, “the public is willing to relieve an organization from the burden of taxation in exchange for the public benefit it provides.”[15]

Several United States Supreme Court decisions reflect this understanding. In 1924, the Court acknowledged that the income-tax exemption is designed to assist organizations based upon the public benefits they confer.[16] The Court stated that “the exemption is made in recognition of the benefit which the public derives from corporate activities of [corporations organized and operated exclusively for religious, charitable, scientific, or educational purposes], and is intended to aid them when not conducted for private gain.”[17] In 1970, the Court observed that tax exemptions draw upon “an affirmative policy that considers [religious and nonprofit organizations] as beneficial and stabilizing influences in community life” and that states had found the exempt classification “useful, desirable, and in the public interest.”[18] In 1983, the Court similarly recognized that “[c]haritable exemptions are justified on the basis that the exempt entity confers a public benefit—a benefit which the society may not itself choose or be able to provide, or which supplements and advances the work of public institutions already supported by tax revenues.”[19] In 1990, the Court added that “exemption from federal income tax is intended to encourage the provision of services that are deemed socially beneficial.”[20]

Consequently, when governments exempt from taxes nonprofit organizations that confer public benefits, they advance social goals by easing the burden on organizations that are contributing to the good of society.[21] Conversely, removing tax exemptions and imposing taxes on currently exempt organizations would have the deleterious effects of hampering the ability of these organizations to provide benefits and depriving beneficiaries of services.

Religious and Other Nonprofit Organizations Ensure Institutional Pluralism in Society.

Nonprofit organizations, including tax-exempt organizations,[22] collectively constitute the voluntary nonprofit sector of American society, which is distinct from the government sector and the for-profit sector.[23] As one commentator has explained, the nonprofit sector provides balance in civil society, and it “is seen as being essential to the maintenance of freedom for individuals and a bulwark against the excesses” of the government and for-profit sectors.[24] Religious and other nonprofit organizations thus promote diversity among institutions in society, and tax exemptions promote institutional pluralism.[25]

In 1983, Supreme Court Justice Lewis F. Powell, Jr. embraced this institutional pluralism rationale and added a point about viewpoint diversity:

[Tax exemptions play an important role] in encouraging diverse, indeed often sharply conflicting, activities and viewpoints. As Justice [William J. Brennan, Jr.] has observed, private, nonprofit groups receive tax exemptions because “each group contributes to the diversity of association, viewpoint and enterprise essential to a vigorous, pluralistic society.” Far from representing an effort to reinforce any perceived “common community conscience,” the provision of tax exemption to nonprofit groups is one indispensable means of limiting the influence of governmental orthodoxy on important areas of community life.[26]

Institutional pluralism thus serves to limit government influence over beliefs, values, and activities in society. Additionally, Christian organizations, by recognizing divine authority and citizenship in another kingdom, offer a vision of sovereignty that challenges the authority claims of human government.

Tax Exemptions Immunize Religious and Other Nonprofit Organizations from Tax Liabilities, Thereby Safeguarding Organizational Viability and Ensuring a Robust Voluntary/Nonprofit Sector.

State and federal tax laws impose income, property, sales and use, and employment-related taxes on individuals and organizations, exposing them to various liabilities, including tax payments, fees, interest, and civil and criminal penalties. Consequently, tax exemptions immunize qualified organizations and purposes from tax liabilities.

By granting exemptions and immunizing organizations from tax liabilities, government helps to ensure that these organizations have the financial ability to operate, confer benefits, meet social needs, and improve society and that the nonprofit sector and society flourish.[27] In 1970, the Supreme Court recognized the constraining effect that tax liabilities have on nonprofit organizations. It observed that state property tax exemption laws are predicated on a public policy determination that those institutions that “exist in a harmonious relationship to the community at large” and “foster its moral or mental improvement” “should not be inhibited in their activities by property taxation or the hazard of loss of those properties for nonpayment of taxes.”[28]

The money that nonprofit organizations do not have to pay in taxes can be reinvested in the organizations and used to serve beneficiaries. Additionally, any surpluses (net earnings) may be used to operate and improve facilities, retire debt, and expand or improve services.

The historical, social, and policy reasons that have been discussed in Part 1 of this essay provide sound justifications for retaining tax exemptions for religious organizations. But constitutional reasons also exist, and these will be discussed in Part 2, along with several additional points regarding taxes and tax exemptions.

Note: This essay is adapted from his article “Religious Hospitals and the Federal Community Benefit Standard—Counting Religious Purpose as a Tax-Exemption Factor for Hospitals,” which was published in the Seton Hall Law Review in 2012.

[1] In this essay, the author will use the terms “religious institutions” and “religious organizations” interchangeably. These two terms are broad and encompass an array of religious institutions, including churches, synagogues, and mosques; religious educational organizations; religious social welfare organizations; and religious institutional health care providers. The term “church” is narrower than “religious institution” and “religious organization,” and the law applicable to churches provides some different rules than those that apply to religious organizations. This essay does not discuss the definitions or tests for determining what constitutes religion, whether an activity is religious, whether an organization is religious, or whether an entity is a church. Rather, this essay assumes that all organizations discussed herein are bona fide religious organizations.

[2] Bob Jones University v. United States, 461 U.S. 574 (1983).

[3] Transcript at page 38. For the official transcript of oral argument, see The transcript citations herein reference pages of the Question 1 transcript.

[4] Transcript at 38.

[5] Obergefell v. Hodges, 135 S.Ct. 2584 (2015).

[6] Id. at 2607.

[7] Sarah Pulliam Bailey, IRS Commissioner Promises Not to Revoke Tax-exempt Status of Colleges That Oppose Gay Marriage (Aug. 3, 2015),

[8] For thoughtful discussions of the various rationales for tax exemptions, see Nicholas P. Cafardi & Jaclyn Fabean Cherry, Understanding Nonprofit and Tax Exempt Organizations 51-60 (2006); Bruce R. Hopkins, The Law of Tax-Exempt Organizations 9-21 (11th ed. 2016).

[9] 2 Alexis de Tocqueville, Democracy in America 106 (Phillips Bradley ed., Henry Reeve trans., Alfred A. Knopf 1945) (1835).

[10] From the colonial period onward, English legal sources have shaped the perspective of Americans regarding religious, charitable, and other exempt organizations and charitable purposes. One prominent English legal source, the Statute of Charitable Uses of 1601, recognized an array of charitable purposes that were deemed to benefit society in general and the poor in particular, including organizations to relieve the poor, maintain the sick, operate schools, repair bridges, ports, churches, and highways, educate orphans, maintain houses of correction, aid young people in trades and crafts, and redeem prisoners. See 43 Elizabeth I, c. 4 (1601) (Eng.).

[11] See Barrett Duke, Tax Exemption, Churches, and the Communities They Serve (Apr. 13, 2016),; Marshall Griffin, Southern Baptists Serving Their Neighbors: Service Initiatives of Southern Baptist Churches,; Andrew Lewis, Some Positive Benefits Churches Bring to Communities (Mar. 13, 2008),; David O’Reilly, A Study Asks: What’s a Church’s Economic Worth? (Feb. 1, 2011), For information regarding charitable giving in the United States in 2014 and the categories of religious and charitable organizations receiving these gifts, see Giving USA, Americans Donated an Estimated $358.38 Billion to Charity in 2014; Highest Total in Report’s 60-year History (June 29, 2015),

[12] One federal court has explained that one reason for such exemptions is that the organization “performs a public service and benefits the public or relieves it of a burden which otherwise belongs to it.” St. Louis Union Trust Co. v. United States, 374 F.2d 427, 432 (8th Cir. 1967). Additionally, a report of the House Committee on Ways and Means observed:

The exemption from taxation of money and property devoted to charitable and other purposes is based upon the theory that the government is compensated for the loss of revenue by its relief from financial burden which would otherwise have to be met by appropriations from public funds, and by the benefits resulting from the promotion of the general welfare.

H.R. Rep. No. 75-1860, at 19 (1939).

[13] Bob Jones Univ., 461 U.S. at 587-92; McGlotten v. Connally, 338 F. Supp. 448, 456 (D.D.C. 1972); Robert E. Atkinson, Jr., Theories of the Special Tax Treatment of Nonprofit Organizations, in Federal and State Taxation of Exempt Organizations ch. 15 (Barbara L. Kirschten & Frances R. Hill eds., 1994); Hopkins, supra, at 9 (stating that the law of tax exemptions for nonprofit organizations “has little to do with any underlying tax policy. Rather, this aspect of the tax law is grounded in a body of thought rather distant from tax policy: political philosophy as to the proper construct of a democratic society”).

[14] Tocqueville, supra, at 305-06.

[15] IHC Health Plans, Inc. v. Comm’r of Internal Revenue, 325 F.3d 1188, 1195 (10th Cir. 2003).

[16] Trinidad v. Sagrada Orden de Predicadores de la Provincia del Santisimo Rosario de Filipinas, 263 U.S. 578, 581 (1924).

[17] Id.

[18] Walz v. Tax Comm’n of City of New York, 397 U.S. 664, 673 (1970).

[19] Bob Jones Univ., 461 U.S. at 591.

[20] Portland Golf Club v. Comm’r, 497 U.S. 154, 161 (1990).

[21] Hopkins, supra, at 11-17.

[22] The terms “tax-exempt organization” and “nonprofit organization” are not synonymous. Tax-exempt organizations are a subset of nonprofit organizations. Nonprofit status is a matter of state organizational and trust law. Tax-exempt status is a matter of state and federal tax law. To be exempt from tax, an organization must be a nonprofit organization and meet the legal requirements for qualifying for exemption from a state or federal tax, such as state or federal income, sales/use tax, or property tax. Consequently, a tax-exempt organization must be nonprofit, but a nonprofit organization is not necessarily tax exempt.

[23] Hopkins, supra, at 5-6.

[24] Id. at 5. See also Hosanna-Tabor Evangelical Lutheran Church & Sch. v. Equal Emp’t Opportunity Comm’n, 132 S.Ct. 694, 712 (2012) (“Throughout our Nation’s history, religious bodies have been the preeminent example of private associations that have ‘act[ed] as critical buffers between the individual and the power of the State.’”) (quoting Roberts v. United States Jaycees, 486 U.S. 609, 619 (1984)). In 1973, the Treasury Secretary testified that tax-exempt organizations “are an important influence for diversity and a bulwark against over-reliance on big government.” Dep’t of the Treasury, GPO Bookstore Stock No. 4800-00210 Proposals for Tax Change (1973).

[25] Hopkins, supra, at 11-12, 15-16.

[26] Bob Jones Univ., 461 U.S. at 609 (Powell, J., concurring) (quoting Walz, 397 U.S. at 689 (Brennan, J., concurring)).

[27] One legal commentator has observed:

[In providing for exemptions and charitable deductions,] Congress is not merely “giving” eligible nonprofit organizations “benefits”; the exemption from income taxation (or charitable deduction) is not a “loophole,” a “preference,” or a “subsidy”—it is not really an “indirect appropriation.” Rather, the various provisions of the federal and state tax exempt system exist as a reflection of the affirmative policy of American government to refrain from inhibiting by taxation the beneficial activities of qualified tax-exempt organizations acting in community and other public interests.

Hopkins, supra, at 16.

[28] Walz, 397 U.S. at 672 (internal quotation marks omitted).

Michael J. DeBoer
Michael J. DeBoer is an Associate Professor of Law at Faulkner University, Thomas Goode Jones School of Law. He holds degrees from Indiana University, Valparaiso University, Southeastern Baptist Theological Seminary, and Liberty University.