Explainer: Federal government expected to repeal tax that affected churches
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What tax was repealed?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

ERLC’s Russell Moore Comments on House Repeal of Nonprofit Parking Tax
By / Dec 17

WASHINGTON, D.C., Dec. 17, 2019—Lawmakers in the U.S. House of Representatives unveiled an appropriations package today that includes a repeal of the troubling tax on all nonprofits, including churches, found in Section 512(a)(7) of the Internal Revenue Code.

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.

“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.” 

This tax was created by a little-noticed provision in the Tax Cuts and Jobs Act of 2017 and requires nonprofit organizations and houses of worship to pay taxes on the cost of their parking lots and transit benefits provided to employees. If left in the code, this small provision would extract $1.7 billion from the charitable sector over the next decade.

The momentum to repeal Section 512(a)(7) is both bipartisan and bicameral. Legislation on this provision passed the House in December 2018 and the Committee on Ways & Means in June 2019. As of today, this repeal is included in the text of the House Appropriations package. The appropriations package now moves to the Senate where the ERLC is joined with the UBIT coalition in advocating for final repeal.

A coalition roundtable on repealing the strange new tax on nonprofits
By / Nov 12

Jeff and Chelsea are joined by friends and coalition partners Miriam Harmer and Brian Walsh to discuss our advocacy work for a bipartisan repeal of the new tax on nonprofits and, for the first time in American history, houses of worship.

Guest biography

Miriam Harmer is Director of Congressional Affairs at the Orthodox Union where she works to promote the OU’s interest in energy, education, Israel, and religious freedom issues. A veteran of four presidential campaigns, Miriam has spent much of her professional career with the United States House of Representatives and Senate. As a Hill staffer, Miriam was a Legislative Assistant for Representative Rob Bishop, Counsel for Senator Bob Bennett, and most recently a Legislative Counsel for Senator Mike Lee, where she advised him in his position on the Senate Foreign Relations Committee. Prior to her time on the Hill, Miriam clerked in the office of Utah’s Attorney General and with the law firm of Oldaker, Biden & Belair.

Brian Walsh is a Washington, D.C.-based attorney and serves as Executive Director of the Faith & Giving Coalition, a multi-religious, multi-denominational initiative working to protect and promote faith-based and other charitable giving. Walsh previously served as Senior Legal Research Fellow at the Heritage Foundation and as executive director of an Ethics and Public Policy Center research program on freedom of religion and conscience. Walsh has testified before committees of the U.S. Senate and U.S. House of Representatives as well as the White House Privacy and Civil Liberties Oversight Board. His commentary has appeared in numerous publicans such as USA Today and The Wall Street Journal, and he has been interviewed on multiple networks including CNBC, CNN, Fox News, MSNBC, and NPR. Walsh was a commercial litigation associate with the international law firm of Kirkland & Ellis in Washington, D.C., and with Willcox & Savage in Norfolk, Virginia. He served as a law clerk to Judge Pasco M. Bowman on the U.S. Court of Appeals for the Eighth Circuit.

Resources from the Conversation

Explainer: What you should know about churches and tax exemption
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.”

Bibles Escape Trump’s Tariff Fight with China
By / Aug 14

“Whatever one thinks about trade policy, the Bible should never have been a subject of this sort of taxation,” stated Russell Moore, president of the SBC’s Ethics and Religious Liberty Commission (ERLC).

“With as many Bibles as are printed in China, the news that they will not be subject to such tariffs is welcomed news for LifeWay and other publishers of God’s holy Word,” he stated. “Even still, it is concerning that trade books and educational materials—also vital to the lives of Christians and churches—are still subject to a tariff. My hope is that this too will be addressed promptly.”

Read the full story here.

ERLC and LifeWay Respond to the Exemption of U.S. Tariffs on Bibles Printed in China
By / Aug 13

Russell Moore, president of the Ethics & Religious Liberty Commission of the Southern Baptist Convention, commented on the Administration’s decision to exempt U.S. tariffs on Bibles printed in China from the list of Chinese imports subject to additional tariffs in the coming weeks.

The news came earlier today in the United States Trade Representative’s (USTR) release of next steps to impose an additional tariff of 10 percent on a variety of products imported from China. Bibles are identified by the 10-digit HTS subheading 4901.99.0040, which was excluded from both List 4A and List 4B from the USTR today.

As trade tensions escalated between the United States and Chinese governments, the USTR proposed tariffs on a wide variety of imports that included Bibles among other printed products such as textbooks, children’s books, dictionaries and encyclopedias. The ERLC and LifeWay Christian Resources collaborated in raising our concerns with Administration officials and submitting public comments to USTR.

Upon the announcement today that U.S. tariffs on China will now exempt the Bibles printed in China, Russell Moore commented on this important development:

“Whatever one thinks about trade policy, the Bible should never have been a subject of this sort of taxation. As Christians, we believe the Bible is the Word of God, and is thus central to our lives and mission. With as many Bibles as are printed in China, the news that they will not be subject to such tariffs is welcomed news for LifeWay and other publishers of God’s holy Word. Even still, it is concerning that trade books and educational materials—also vital to the lives of Christians and churches—are still subject to a tariff. My hope is that this too will be addressed promptly.”

In addition, Ben Mandrell, president and CEO of LifeWay Christian Resources, commented:

"For the past several months, there has been great concern among the Christian publishing community that our important work would be threatened by proposed tariff schedules. Today's announcement by the U.S. Trade Representative has given us hope that the administration has heard our concern. Nevertheless, I am troubled that the Word of God would ever be taken hostage in an international trade dispute. These past months have strengthened our resolve to get Bibles to the people who need them. Our mandate is built on obedience to Christ, regardless of any policy proposal from Washington, D.C." 

Due to longstanding supply chain issues, more than 75 percent of Bibles are printed in China. Like encyclopedias and textbooks, Bibles contain a large amount of text that must be formatted to a bound book on thin paper. China has been specializing in this printing technology for decades and is home to the world’s largest Bible-printing company, printing at least 150 million Bibles in 2016. To import Bibles from a country other than China would require time, extensive quality tests, and higher prices incompatible with the high and consistent demand for Bibles in the United States. Because such a large percentage of Bibles are printed in China, the proposed tariff would have devastated the importation of Bibles into the United States and other parts of the world where American ministries distribute God’s Word.

While the Southern Baptist ministries were encouraged at today’s development for the distribution of Bibles, the ERLC will continue to advocate for the USTR to eliminate tariffs for trade books, including children’s, educational and scientific materials under 4901.10.00, 4903.00.00, 4901.91.00, and 4901.99.00, and 4901.91.00.40. To impose tariffs on such educational, scientific and cultural materials would be a departure from long standing United States policy committed to facilitating the flow of information and knowledge.

Does your church need to pay the “parking lot tax”?
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 ChurchLawAndTax.com. Used with permission.

Southern Baptist Leaders in Texas Join ERLC in Calling for Repeal of Parking & Transportation Tax on Houses of Worship and Non-Profits
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. 

ERLC Statement on IRS guidance for nonprofit parking tax
By / Dec 12

On Monday, the Internal Revenue Service issued interim guidance to aid taxpayers in complying with a troubling new tax provision in the Tax Cuts and Jobs Acts. The tax provision that this guidance seeks to address taxes nonprofit organizations on the cost of providing parking and transportation benefits to their employees. The guidance seeks to ease the burden of parking fringe benefits for employees of houses of worship and nonprofits by helping calculate the cost of their parking benefits and determining the effect these—no longer deductible—parking expenses have on a nonprofit’s unrelated business taxable income (UBTI).

Regarding the interim guidance, Treasury Secretary Steve Mnuchin stated, “Treasury is sensitive to the concerns of the tax exempt community, and hopes this guidance can significantly limit the impact on nonprofit groups.”

As stated by Treasury, “Under this rule, employers will have until March 31, 2019, to change their parking arrangements to reduce or eliminate the number of parking spots they reserve for their employees. By making this change, many churches, schools, hospitals and other tax-exempt organizations may be able to reduce their associated UBTI.”

While the ERLC is grateful for Treasury’s attempt to ease the tax burden on nonprofit organizations and houses of worship, this guidance remains insufficient. Treasury’s assistance in providing relief through these means is limited in nature. The guidance proves to be cumbersome and a heavy administrative lift, requiring nonprofits and houses of worship of all sizes to follow a four-step calculation that varies for each organization and can even vary month to month. A permanent repeal of the language that initially created this tax burden—Internal Revenue Code Section 512(a)(7)—must be fixed through legislation.

House Ways and Means Chairman, Kevin Brady (R-Texas) has made this issue a priority by including a full repeal in the House tax bill that was released on Monday (Section 405). Congressman Mark Walker (R-N.C.) and Sen. James Lankford (R-Okla.) have both introduced legislation in the House and Senate, respectively, that would repeal this troubling tax provision (H.R. 6460 and S. 3332).

ERLC’s President Russell Moore commented on the tax provision,

Beyond the practical downsides, Congress should also consider first principles. Taxing houses of worship is deeply un-American—no matter how large or small the tax burden. The proper separation of the state from the church is at the heart of the American project. As the Founders understood, the power to tax is the power to destroy. Tax laws don’t exist to give special privileges for religious organizations. They are meant to recognize that, unlike in other places and at other times, the state here doesn’t regulate, or subsidize, the worship of God.

The ERLC continues to urge the House and Senate to swiftly repeal Section 512(a)(7) through any appropriate legislative package before the end of the calendar year.

Are churches being taxed?
By / Dec 6

You may have read that ERLC president Russell Moore is calling on Congress to repeal a new tax on nonprofits, including houses of worship like the churches of the Southern Baptist Convention. As Moore wrote in a recent Wall Street Journal op-ed, “A little-noticed provision in the Tax Cuts and Jobs Act of 2017 now looms over faith communities in America, raising serious questions about religious freedom and the First Amendment.” If news of this tax comes as a surprise to you and your church, you are not alone in your concerns.

The new tax is found in Section 512(a)(7) of the Internal Revenue Code, and it created a policy by which all nonprofits are taxed for the cost of parking and transportation benefits provided to employees. The intention of the new policy seems to be parity in the treatment of employee benefits between for-profit and nonprofit entities. However, the ERLC believes the impact on nonprofits as a whole and houses of worship, in particular, were both unanticipated and unintended.

In effect, Section 512 (a)(7) directs the IRS to collect a federal tax on houses of worship for the first time in American history. This is the reason a number of representatives and senators are working toward a repeal of this policy. Broad agreement is rare in Congress, but this is an issue with significant consensus. Most offices on Capitol Hill do not believe the IRS should levy taxes on their constituents’ churches.

Large legislative initiatives like the 2017 tax reform almost always come with some unforeseen consequences that are later corrected through the regular order of technical fix amendments. Rep. Mark Walker (R–N.C.) and Sen. James Lankford (R–Okla.), who both voted for the 2017 reform, offered legislation earlier this year to repeal the tax. The Walker and Lankford legislation, titled the Lessening Impediments From Taxes for Charities Act, or LIFT Act, would strike 512(a)(7) from the code. The author of last year’s reform himself, House Ways and Means Committee Chairman Kevin Brady (R–Texas), recently offered a technical fix for repeal through a manager’s amendment to a recent tax bill. These leaders are joined by many members on both sides of the aisle in support of repealing this tax.

A practical reason for repeal is the cost of this policy. According to the Joint Committee on Taxation, this tax is estimated to extract $1.7 billion from nonprofits over the course of a decade. This tax would take funds for the federal government that would otherwise be used to serve local communities and in so doing impose heavy administrative burdens on smaller organizations that have never had to file 990-T tax forms. The cost of compliance costs alone could exceed the total revenue collected from this policy.

More fundamentally, the tax policy presents a break from American precedent. The proper separation of the domains of church and state is an enduring ideal of this nation. The American people have historically refrained from directing the government to tax houses of worship in order to preserve religious liberty and prevent coercion and abuse of state power. If the federal government is granted the authority to tax houses of worship, these two separate domains will be financially enmeshed in a way that threatens religious liberty.

As Chief Justice John Marshall famously stated in the 1819 McCulloch v. Maryland ruling, “the power to tax involves the power to destroy.” Russell Moore made the ERLC’s commitment to religious freedom clear when he wrote in the aforementioned op-ed, “tax laws don’t exist to give special privileges for religious organizations. They are meant to recognize that, unlike in other places and at other times, the state here doesn’t regulate, or subsidize, the worship of God.” The tax code ought to uphold, not undermine, this fundamental principle.

This issue is a top priority for the ERLC for the remainder of the 115th Congress. The ERLC continues to call on Congress to repeal this tax on nonprofit parking and transportation benefits through any appropriate vehicle before the end of the year.