Should Churches Be Tax Exempt?

By Pastor Travis Berg

Recently, I’ve seen quite a few memes arguing for the taxation of churches.
Thantitheists-tax-the-churchese memes have pictures of mansions or of Joel Osteen on them. So, I thought I’d write a “little” post on tax exemption for churches.

First, the meme is a fallacy. Even if you believe that Joel Osteen and other megachurches have abused the church’s tax exemption, that doesn’t mean that the whole idea of church tax exemption is bunk.
A good rule for this is “abusus non tollit usum,” or “The abuse does not destroy the use.” Or, to use a different cliché, “Don’t throw the baby out with the bathwater.”

The church’s tax exemption has a long history in the US. Tax exemptions of different types were common in the Colonial period. After the Revolution and the ratification of the Bill of Rights, most states retained these exemptions. State and local governments continue to exempt churches from local taxation. In 1913 the federal government embraced this trend by exempting churches and other religious organizations from federal taxation in the modern federal tax code.

Oh, and by the way, tax exemption is neither sponsorship of religion nor a subsidy for churches. Chief Justice Warren Burger wrote that “the grant of a tax exemption is not sponsorship since the government does not transfer part of its revenue to churches but simply abstains from demanding that the church support the state.”

But just because something is old doesn’t mean we ought to follow it. Why are churches tax exempt? There are three reasons.

The first reason is that there is a “social benefit” which churches provide. Churches minister to the poor and needy in the community, provide numerous social services. The social benefit theory justifies tax exemption for churches as a kind of bargain — churches provide needed services, so they are entitled to tax exemption. Examples of these benefits are hospitals, food pantries, schools, and the like. Here in Latimer, St. Paul’s Lutheran church has, for over 90 years, provides a top-notch education through its parochial school.

The second reason is that the church provides “intangible benefits.” This is the real reason why the church is not like the Lions or similar organizations. The church preaches and teaches the Gospel to a sinful generation who needs it. The forgiveness of sins is offered every single week. Children and adults are educated in the fear of the Lord.

The third reason has to do with the first Amendment. As John Marshall, the 4th Chief Justice of the Supreme Court, said, “That the power to tax involves the power to destroy … [is] not to be denied.” The church’s taxation interferes with the 1st Amendment: “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof.” Tax exemption protects religious liberty.

So, I’m going to close this with the words of Kentucky State Representative Whittaker, which were spoken during the debates on the Kentucky Constitution in 1890:

“Let an untaxed Gospel be preached, in an untaxed church-house, from an untaxed pulpit; let the emblem of a crucified, but risen Christ be administered from an untaxed altar, and, as the spire points heavenward, . . . let it stand forever untaxed.”


Should Churches Be Tax Exempt? — 11 Comments

  1. The church was commissioned to take care of widows, orphans and prisoners.That commission in most cases has been handed over to government paid for with tax dollars.
    If you join a church and pay tithes to get reduced tuition that is income tax evasion. This method of payment also puts parents under guilt and condemnation. I think this is why so many LCMS schools struggle.

  2. @Janelle Myers #1

    Janelle, could you elaborate on “If you join a church and pay tithes to get reduced tuition that is income tax evasion.”? I’m just trying to understand your point. For clarification: Are you referring to when parents simply join the church so that their kids can go to the school, but they don’t actually go to church? So this is income tax evasion, because they can write off that their children to go private school, even though they are playing the church to get the discount. Is this right? I’ve never thought of it quite like that. Of course, we can’t prove it in most cases. But I agree with you that this is a serious problem, and they do certainly bring upon themselves judgment from God for lying to the Holy Spirit just like Ananias and Sapphira (Acts 5).

    Also, I would say that this commission in most cases has been taken over by the government. While I’m sure there is a bit of “handing over” going on, it’s probably more accurate to say that the government has infringed on this responsibility that once belonged to churches. Look, for example, at adoption agencies, which refuse to adopt children to homosexual couples. They are driven out of business. It is becoming increasingly more difficult for churches to carry out these works of mercy due to the overwhelming bureaucracy.

  3. @Janelle Myers #1

    Interesting point that would not hurt to be discussed.

    Some thoughts off the top of my head concerning the tuition issue.

    Is it tax evasion to just say, you get a break on tuition because you are a member of the church?

    While it would be tax evasion to say if you want reduced tuition you need to give a set amount a month to the church?

    Also I am not a tax account etc…, But is there not a tax write off for parents in the tax code for fees etc.. paid for school?

    I think there other reasons that Lutheran Schools struggle then the tuition/tax issue. But it is an interesting topic.

  4. Where do parents get an income tax break for sending their children to a private school? Not from the IRS.

    The Lutheran school does get less money because of parents who join the church and do not contribute to the church and get a reduced rate of tuition. Perhaps the school should charge all children the same and give scholarships to needy member students whose parents are active members.

  5. As a Chartered Advisor in Philanthropy (who often lectures on the subject of charitable tax strategies to CPA’s & attorneys) I can confirm there is no income tax deduction for private education tuition or fees.

    Someone may confuse a 529 plan, which grows income tax free for educational expenses as being a tax break, but as there’s no deduction when one contributes to a 529, it would be a real stretch to call this option a “tax break”.

  6. Even if they were able to deduct their tuition at a parochial school, that would hardly be tax “evasion”–a term that refers to a criminal act designed to avoid paying taxes, nor would it even be tax “avoidance”, something legal and not unethical. It would only represent the parents sparing the public schools the cost of educating their child. @Janelle Myers #1

  7. I will leave aside any discussion of the constitutionality of the IRS. Frankly in the issue under discussion, the IRS play little or no role anyway. Pastor Berg has given a very good historical overview and nature of tax exempt status for Churches in America.

    Besides, the IRS is very reluctant to get involved in any but the most egregious cases of individual exemptions as to the issue of church giving.

    I believe, having been there and done that, the issue regarding tuition is quite a simple matter with a simple explanation – one which answers all objections thus far. One quick observation. The account of Ananias and Sapphira has nothing to do with tax law, or the taxing authorities, hence the IRS has nothing to do with the discussion at hand. A quick review of the text confirms this – they had land which was theirs to do with as they wished, as St. Peter clearly states. Either they promised all proceeds to the Church and then withheld a certain amount, or they pretended they gave the whole sale price when they did not, or a bit of both is not the issue even – but only, that they had lied to the Holy Spirit.

    A parochial school is the primary method by which the Church educates its young, but also, a primary and very good way of reaching out to the lost. In short, it is the primary “mission” of that Church. While each – the Church and the School, have individual budgets, they are usually then combined as a “Unified Budget.”

    I dare not speak for all, but where I served, tuition simply did not cover all the school’s expenses. Oh, they certainly gave it the Old College try, but the truth was, pricing the tuition way high would be unlikely to be a draw to outsiders, and a sure cause for dissension within the congregation. I don’t remember how Ole Jim figured out the whole thing – he was a genius with the figures, but I do know that the Church often helped the school – but no great mystery there – the school was after all, the main mission of the Church, not that there were not others as well. There are some very well-to-do flocks who have been blessed with with sizable endowments from members and wills and the like, and some are able to actually foot the entire bill of tuition for all members outright, only charging non-members.

    Anyway, in the less-heeled flocks, tuition is a necessity charged of all. Because members also give to the Church’s general budget, every one is paying for the school, especially the older members with no children at home or attending school any longer. And those getting a “reduction” – see said reduction going to the Church in tithes, some of which then go to the school anyway, so the “taxable” issue is a wash, and a useless worry.

    Now – what about those who “join” the Church just for the tuition break? Frankly, I have never met such souls! No one can just up and join the Church, leastwise, not in the LCMS. There is the not-so-little issue of Pastor’s Classes for Membership that effectively prevents any abuse in that direction, so again, a non-issue. However, in what was always a joyous event – often the non-member children ended up being the best evangelists, and School programs and especially the Christmas programs and congregational sing alongs aided. I would say the greater majority of families became happy members long before any tuition break was ever discussed!

    And a word of advice aside to young, new pastors – never, ever EVER try to get creative with the children’s Christmas play. Words to the wise! If you try, you will get an immediate education in congregational priorities no Seminary could ever give you! Trust me on that puppy!

    One more word to the wise – it seems to be when any of us – in comments here or where or whenever, arbitrarily make judgments upon others without clear, Scriptural proof of the accusation, we are simply out of place. For that, Jesus Himself thought it so important that He personally outlines what steps to be taken. So we should all be quite judicious and careful in doing so. And since most of us have the entire lumberyard in our eye, seeing out neighbor’s speck is a mighty arduous task. The Lord’s judgment on inappropriate judging outside His channels hardly sounds any better than what Ananias and Sapphire came to realize!

    One final point – if everyone one of us truly tithed – the full 10 percent of everything, not only would we be blessed beyond expectations as promised, but we would not even be having this conversation, now would we? No. The comments veered from the theme and line of direction of Pastor Berg’s excellent article, but that is the nature of comment sections. Understandable, but be sure your facts are clear.

    That is our biggest and best blessing, to have the world say of us, as Church Father Tertullian urged us many centuries ago:

    “Behold! See how they they love one another!”

    Pax Domine – pb

  8. @Kenneth Howes #6

    It would only represent the parents sparing the public schools the cost of educating their child. @Janelle Myers #1

    The public schools get their “state aid” (portion of state tax dollars) based on the number of student ‘warm bodies’ in their seats when roll is taken each day. That is by no means the whole cost of educating an individual child (the rest comes from local taxes) but some educators seem to think it’s extra money that they are “cheated out of” by private schools.

    That they have the use of the local tax money, paid by everyone, including private school parents (and people without children), is not mentioned so much. ;

  9. This whole discussion of parochial school tuition affects relatively few and is off the subject of tax exemption for churches.

    Although the next argument, in the war against religion, will be that ALL children need to be in the public schools, where they can be indoctrinated properly in approval of homosexuality, all sorts, and “transgenderism”, [that ‘one in a thousand’ mental disorder being used to argue that men aren’t men and women aren’t women because they have the identifying ‘equipment’, but because of the way they “feel” that day!]

    Trannies completely wipe out the gay/lesbian argument that they were “born that way” (since the trannies can change their identity with their clothes) but in a war against religion, which it basically is, don’t expect logic!

  10. I’m not following the “intangible benefits” described by the author, since the state has no interest in the unique doctrines of religious organizations (Christian, Jewish, Muslim, etc.). An intangible benefit that I would understand is that most every religion cultivates and encourages the pursuit of virtue through spiritual and intellectual understanding — a pursuit which must benefit society at large regardless of the doctrinal motivations (Law, Gospel, enlightenment, etc.).

    Arguments against tax exemptions for churches appear to be motivated not only with regard to church revenue. Many religious organizations continue to oppose lifestyles that more people think should be acceptable everywhere, so to reduce church net revenue by removing tax exemptions is to weaken churches and their socially conservative and seemingly threatening message.

  11. @Janelle Myers #1

    The Church was commissioned to administer Word and Sacrament to its members (The Means of Grace; forgiveness of sins), not to take care of widows, orphans, and prisoners. Helping others may be a by-product of Christianity, that is, fruits of faith, but it was not the reason for commissioning the Church.

    Church members are not forced to tithe, so the fact that their local Christian day school may offer them a reduced tuition rate is a moot point re: tax evasion.

    I would say that tax exemption is a trade-off for the fact that churches used to be funded by the state through the taxes paid by it citizens, but is no longer done now that congregations are independent from the state.

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