NCPA - National Center for Policy Analysis

Yes, Churches Should Remain Tax Exempt

May 5, 2017

NCPA Senior Fellow Pamela Villarreal writes for Inside Sources:

Recently, the Trump administration has indicated the desire to do away with the "Johnson Amendment," a law enacted in 1954 as part of the Internal Revenue code that prohibits tax-exempt organizations from engaging in strictly political activities. These activities include contributing to campaign funds or publicly taking a position for or against a candidate or piece of legislation.

Opponents of repealing the Johnson Amendment argue that since nonprofits are tax-exempt, they should not participate in political debates. Essentially, they argue that repealing the Johnson Amendment would allow nonprofits, particularly churches (which seem to be the prime target of civil liberties groups), to endorse candidates and positions at taxpayers' expense. Thus, such a repeal would violate the separation of church and state.

But what about the tax-exempt status of churches in general? In recent years, the debate over the 200-year-old tax-exempt status of churches has lifted its ugly head. Opponents of continuing the tax-exempt status for churches argue that with all the money collected by churches and the fact that they occupy valuable real estate in many high-cost cities, it is only fair they pay taxes, including federal income taxes and state/local property taxes.

There are many reasons they should remain tax-exempt. First, defining the "profit" of a nonprofit church would be difficult. The IRS already has in place exceptions where nonprofits can be taxed, such as if an organization rents out space for an event not related to its purpose or earns income in any other non-related activities.

However, because churches are not selling a "consumer good" per se, it would be nearly impossible to tax them as a regular for-profit business. For the IRS to determine what assets and income of a church would be taxed would involve excessive meddling in church affairs, which would likely be unconstitutional.

Salaries earned by church employees are already taxed at the individual income tax level, and revenues spent on operations and fulfilling their mission would be considered expenses in the for-profit business world. While there has been some media spotlight on "mega churches" that pay their pastors and top-level employees exorbitant salaries, the amount of money spent on salaries by a nonprofit should be debated by a church\'s own governing board and its membership, not by the government.

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