Reexamination of Church Property Tax Exemptions
by Courtney A. Kirkland
Table of Contents
I. Introduction 1
II. Historical Traditions of Tax Exemptions for Church Property 2
A. tax exemptions under common law 3
B. tax exemptions under equity law 5
C. Tax Exemptions following the disestablishment of religion 7
D. Madison, jefferson and the establishment clause 8
III. The Supreme Court and Religious Tax Exemptions 10
A. the Establishment clause: 3 Analytical theories 11
B. The Lemon Test 11
C. The Endorsement Analysis 12
D. The Coercion Analysis 12
E. Establishment clause rationales 13
F. The Walz Court Rationale: Benevolent Neutrality 13
G. The Mitchell Court Rationale: Legitimate Public Purpose 15
H. The Bob Jones University Court Rationale: Public Benefit balanced by Public Policy 15
I. The Texas Monthly Court Rationale 18
IV. Difficulties in Determining the Actual Burden Caused by Church Property Tax Exemptions on States and Individual Taxpayers 20
Modern Developments in the Religious Realm 20
A. newly emerging religious groups 21
B. Newly enlarged congregations 22
C. Expanding uses and expanding tax breaks for religious organizations 23
V. Necessary Change 24
A. Tax exemptions for church property are not required by the constitution 24
B. state repeal of church property tax exemption statutes 26
VI. CONCLUSION 27
I. Introduction
Under current law many churches and other nonprofits are exempt from income and real property taxes. The issue of religiously based property tax exemptions begs to be revisited as the rise of multi-million dollar mega churches continues. This paper will consider the inconsistencies seen in Establishment Clause jurisprudence and focus on the effect the inconsistencies of the court decisions have had on religiously based property tax exemptions. This paper will evaluate the various justifications for such exemptions and ultimately call for change.
This paper considers whether churches should be exempt from property taxes, Part II of this paper offers historical background of tax exemptions for religiously based properties in this country, including origin, purpose, and importance of such exemptions. Part III analyzes the relevant tests and rationales applied by the Court to deal with Establishment Clause violations. Part IV examines the modern developments of the church in comparison with a historical view of churches.
Finally, Part V suggests alternatives for necessary change; including the best alternative which concludes that there is no constitutional backing for church property tax exemptions and if the First Amendment is to be fully respected these exemptions must be done away with. Although this conclusion might be a difficult one to swallow in light of the admirable intentions and long history of granting such exemptions, historical practices and good intentions cannot be placed above respect and preservation of the Constitution.
II. Historical Traditions of Tax Exemptions for Church Property
The two traditions of common law and equity law form the foundation that the modern American laws of tax exemption for church property have grown upon. It is important to look at each tradition separately as they both have made unique contributions to the development of laws that exempt church property from taxation. However, there are “strong tensions between these two traditions that manifest themselves in both historical and contemporary property tax exemption laws.”[1] The following section examines each of the two traditions of property tax exemptions under common law and equity law separately, addresses the tensions between them and provides a foundational understanding of church property tax exemptions.
A. tax exemptions under common law
The prevailing law in most seventeenth century American colonies was modeled after the British common law that “treated religion as an affair of law and the church as an agency of the state.”[2] Churches and religions were bound, at common law, by “comprehensive ecclesiastical laws enforceable by both common law and commissary courts.”[3] The common law ruled over nearly every aspect of the church.[4] For example, the common law established the churches’ location, duties and compensation of clerics and the structure of the church corporation including how the church was to spend its endowments.[5]
In addition, to overseeing the church’s function, the common law oversaw the taxation of church properties and did not provide any automatic tax exemptions to churches.[6] Rather, any property that was, “within the jurisdiction of the Crown and its colonial delegates, including church property, was presumptively taxable at common law, unless it had been specifically exempted by legislative act.”[7] Colonial church properties were limited by three restrictions before they could be granted these specific exemptions.[8]
The first restriction established that not all church properties were eligible for the exemption. Eligibility required property of an incorporated established church devoted to acceptable “religious uses” dictated by ecclesiastical laws.[9] Certain types of church property that were not eligible for the exemption included: (1) established churches that were unused or used for nonreligious purposes, (2) churches owned by unincorporated religious groups, (3) churches of dissenting religious bodies, and (4) churches owned personally by ministers or political officers.[10]
The second restriction limited the exemption to taxes that would be collected for the upkeep and use of the church itself.[11] The established church still had to pay other property taxes such as: “quitrents, poll taxes, land taxes, special assessments, hearth taxes, window taxes, and other occasional rates on realty.”[12]
The third restriction held that the tax exemptions could be temporarily suspended in times of emergency or even relinquished completely if the tax burden on the other properties in the community became too much to bear.[13] Consequently, “in times of war, pestilence, poverty, or disaster, established churches and their clergy were required to contribute to the public coffers regardless of their eligibility for exemption.”[14]
In light of historical context, these exemptions made sense because the churches were essentially state agencies. By using their church property for the acceptable religious uses defined by the common law the church was taking over the state’s responsibility for the established religion, and, in return, the church received tax support and exemptions like any other state agency.[15] Even still, church property tax exemptions were not automatic; and if the church could gain eligibility the exemption was still limited in scope. These restrictions to eligibility and limits on the exemption were a safeguard against the established church growing rich at the expense of the people, like it had before the Reformation.[16]
B. tax exemptions under equity law
The law of equity approached church property tax exemptions from a different standpoint. Like the common law courts, equity courts held that church property was presumptively taxable and this presumption was only rebutted with a specific statutory exemption.[17] Unlike the common law courts, equity courts exempted churches from property tax based on the “charitable uses” the church was devoted to, rather than the church’s “religious uses.”[18]
Equity courts’ definition of charity stemmed from the Elizabethan Statute of Charitable Uses of 1601 and was further developed over time to include any activity that contributed to:
the benefit of an indefinite number of persons, either by bringing their minds or hearts under the influence of education or religion, by relieving their bodies from disease, suffering or constraint, by assisting them to establish themselves in life or by erecting or maintaining public buildings or works or otherwise lessening the burdens of government.[19]
In equity courts it did not matter if a churches activity was motivated by religious belief or simple human sympathy. To be charitable the equity courts were only concerned with the effect achieved by the activity. If a church was found to be devoted to charitable uses it was not given an across the board property tax exemption, but; instead, the tax exemption was proportional to the part of the property used for the charitable actions.[20]
Most churches properties were used, in addition to holding religious services, for town meetings, political events, auctions, and education courses. In fact, many were used as the community library in addition to their other public functions.[21] Under equity law, unlike the common law, both established churches and nonconformist churches were eligible to receive a tax exemption since the equity requirement had nothing to do with religious belief.
Thus, there was great tension in the different ways the courts ruled on churches. The common law benefited established churches only, whereas equity courts provided exemptions to any church devoted to charitable uses regardless of religious uses. In some of the American colonies, “the sharp contrasts between these two traditions had begun to soften.”[22] Unfortunately for the nonconformist churches the “softening” favored established churches at their expense. In Everson v. Board of Education, the Supreme Court remarked that “these practices became so commonplace as to shock the freedom-loving colonials into a feeling of abhorrence.”[23] This was the status of church property tax exemptions going into the American Revolution.
C. Tax Exemptions following the disestablishment of religion
Many early state constitutions typically directed that “all the laws which have heretofore been adopted, used and approved... and usually practiced on in the courts of law shall still remain and be in full force, until altered or repealed by the legislature.”[24] Thus, in most of the states, churches that were already established continued to receive the traditional tax exemptions granted by the common law and equity law courts.[25] This colonial law continued until the movement toward the disestablishment of religion became prominent. At this point the states traded in their early state constitutional provisions for a new provision that stated “taxation shall be equal and uniform throughout the State, and all property, both real and personal, shall be taxed in proportion to its value.”[26] Thus the presumption was that all property was to be taxed and tax exemptions were exceptions to the general rule. Tax exemptions were only to be granted to advance “public welfare” or if some other “good and compelling reasons” could be discerned.[27] With this advancement in the laws of church property tax exemption, it will be helpful to look more closely at the movement surrounding the development of the Establishment Clause of the United States Constitution.
D. Madison, jefferson and the establishment clause
Religious liberty was not discussed at the Constitutional Convention, but was considered in the subsequent proposal for the Bill of Rights.[28] The Virginia experience is the most informative place to look when deciphering the original meaning of the First Amendment’s Religion Clauses because “Virginia . . . provided a great stimulus and able leadership for the movement” towards disestablishment.[29] The able leadership was a reference to James Madison, “the leading architect of the religion clauses of the First Amendment”[30] and Thomas Jefferson, who along with Madison played “leading roles in the events leading to the adoption of the First Amendment.”[31]
Madison wrote Memorial and Remonstrance Against Religious Assessments in opposition of the renewal of a tax levy that would support the established church.[32] Through this work, Madison was able to create such a protest amongst the people of Virginia that the law was not renewed. In considering the meaning behind the First Amendment, and ultimately the legitimacy of the modern church property tax exemption, it is important to consider Madison’s beliefs on the effect of state interference with religious liberty. In Memorial and Remonstrance he wrote:
True religion did not need the support of law; that no person, either believer or non-believer, should be taxed to support a religious institution of any kind; that the best interest of a society required that the minds of men always be wholly free; and that cruel persecution were the inevitable result of government-established religions.[33]
Madison recognized that even if the amount of government funding for religion was minimal it could, and would, only lead to more support. Madison had seen the common law’s restriction of liberty and did not want that continue. In Walz, Justice Douglas agreeing with Madison’s beliefs stated, “The present involvement of government in religion may seem de minimis. But it is, I fear, a long step down the Establishment path.”[34]
Jefferson, although also concerned with government established religion, focused in on the individual’s freedom of liberty and choice of religion. The Virginia Assembly enacted Jefferson’s Virginia Bill for Religious Liberty which served as “the precursor for the creation of the First Amendment.”[35] In his statement accompanying the bill Jefferson directed that:
To compel a man to furnish contributions of money for the propagation of opinions which he disbelieves is sinful and tyrannical; that even forcing him to support this or that teacher of his own religious persuasion, is depriving him of the comfortable liberty of his giving his contributions to the particular pastor, whose morals he would make his pattern.[36]
This bill not only freed Virginia from established religion and provided for freedom of religious conscience, but also enumerated both Madison and Jefferson’s ideals and laid the groundwork for the First Amendment. The religion clauses, based on the foundation laid by the Virginia experience, states that “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof.”[37] With this language and an understanding of the beliefs of Madison and Jefferson that were its basis, it seems simple enough to conclude that after the Revolution the colonies prized religious liberty and saw the importance of disestablishing the church. From this one might think it is obvious that the logical path moving forward would be one where churches were not given property tax exemptions, so as to not violate the establishment clause, however, this would not be the case. Forgoing logic and freedom for tradition, tax exemptions for church property were continued in the new America.
III. The Supreme Court and Religious Tax Exemptions
A single sentence contained in the First Amendment establishes two religion clauses: “Congress shall make no law (1) respecting an establishment of religion, or (2) prohibiting the free exercise thereof.”[38] This one sentence is found in every legal issue rising from a government action that involves religion, including issues of church property tax exemptions. Such tax exemptions must comply with both the Establishment Clause and the Free Exercise Clause by way of the 14th Amendment making these clauses applicable to the States.