About Religious Liberty: Chapter 7

Religious Institutions and Taxes

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Religious institutions—churches, mosques, temples, and other places of worship—do not have to pay federal taxes to the Internal Revenue Service. State and local governments may also exempt religious and non-profit organizations from taxes that would otherwise be applied to privately owned real estate.

If religious organizations receive income from parishioners and followers, why don’t they pay federal taxes on earnings/donations like everyone else? It’s a long-standing question. If the IRS required religious organizations to pay taxes that would mean citizens would be supporting institutions and groups that they oppose or prefer not to fund. In other words, citizens should have the right to support only the religions they prefer or choose. According to many scholars, tax exemptions are basic to the free exercise of religion. Being exempt from taxes means religious institutions do not support government and government does not get entangled with religion. In addition, by being tax-exempt, religious institutions are able to provide some social services, which saves the outlay of tax funds for federal and state programs.

For decades, the Church of Scientology of California (CSC), has won and lost and won again attempts to gain IRS tax exemptions. CSC, which also has a major headquarters in Tampa, Florida, was founded in 1957 by L. Ron Hubbard, whose beliefs have been published in numerous books, newspapers, magazines, and websites. Tom Cruise and John Travolta are two of its celebrity members. According to Scientology’s website, it

is a religion that offers a precise path leading to a complete and certain understanding of one’s true spiritual nature and one’s relationship to self, family, groups, Mankind, all life forms, the material universe, the spiritual universe and the Supreme Being….Scientology addresses the spirit—not the body or mind—and believes that Man is far more than a product of his environment, or his genes. Scientology further holds Man to be basically good, and that his spiritual salvation depends upon himself, his fellows and his attainment of brotherhood with the universe. Scientology is not a dogmatic religion in which one is asked to accept anything on faith alone. On the contrary, one discovers for oneself that the principles of Scientology are true by applying its principles and observing or experiencing the results. The ultimate goal of Scientology is true spiritual enlightenment and freedom for all.

To reach this kind of enlightenment and freedom, the process involves a methodology called Dianetics that supposedly “can help alleviate unwanted sensations and emotions, irrational fears and psychosomatic illnesses (illnesses caused or aggravated by mental stress)” until they reach a news state of Clear. “A Clear is a person who no longer has his own reactive mind and therefore suffers none of the ill effects that the reactive mind can cause.” To reach clear, people are helped and trained by auditors, or ministers of Scientology. Much of the process to Clear is explained in a documentary titled Going Clear. Scientologist members must complete rituals that appear bizarre to many Americans, and getting to a state of Clear is so far out-of-mainstream concepts of a religion that the IRS has often refused to make tax exceptions for the church. Yet, after dozens of lawsuits and other confrontations with the IRS, the agency granted the Church of Scientology a tax exemption in 1993, which is still applicable.

Nevertheless, arguments against exemptions continue, not only for Scientology but also for other religious groups. In the first place, the major denominations own properties worth billions of dollars that could be a source of tax revenue. Funds could help support state and local governments, which are expected to provide social services along with regular maintenance of streets, highways, and other public properties.

Although the tax-exempt status has not been denied often, it can be revoked if many of the activities of a religious organization are devoted to influencing legislation or to campaigning for candidates for public office. The IRS “absolutely” prohibits religious institutions “from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office. Contributions to political campaign funds or public statements of position (verbal or written) made on behalf of the organization in favor of or in opposition to any candidate for public office clearly violate the prohibition against political campaign activity.  Violating this prohibition may result in denial or revocation of tax-exempt status and the imposition of certain excise taxes,” so says the IRS code. Yet, some activities may be permitted, such as nonpartisan voter education, nonpartisan programs to hear views of political candidates, and getting out the vote efforts.

According to Robert W. Wood, a Forbes magazine contributor, to receive a tax exemption, the IRS determines whether the organization has a

Distinct legal existence;

Recognized creed and form of worship;

Definite and distinct ecclesiastical government;

Formal code of doctrine and discipline;

Distinct religious history;

Membership not associated with any other church or denomination;

Organization of ordained ministers;

Ordained ministers selected after completing prescribed study;

Literature of its own;

Established places of worship;

Regular congregations;

Regular religious services;

Sunday schools for religious instruction of the young;

Schools for preparing its members.

In a 2017 court case, the rules for religious groups receiving government funds appeared to be overturned. The case began when the Trinity Lutheran Church of Missouri Child Learning Center, a non-profit preschool that operates on church property, wanted to replace a gravel playground with a rubber surface material. In 2012, they applied to the state’s Department of Natural Resources, which offers grants to nonprofit groups. But the department denied the grant for resurfacing because of its strict policy to refuse funding for any applicant owned or controlled by a church, sect, or other religious entity. Missouri Constitution states, in part, “no money shall ever be taken from the public treasury, directly or indirectly, in aid of any church, section or denomination of religion.”

The district court agreed with the Missouri constitution, and the case was appealed to the U.S. Supreme Court (Trinity Lutheran Church Of Columbia, Inc. V. Comer, Director, Missouri Department Of Natural Resources), alleging that the Department’s failure to approve its application violated the Free Ex­ercise Clause of the First Amendment. The High Court in a 7-2 decision found that “laws that deny an otherwise generally available benefit because of religious status are unconstitutional.” In short, Trinity Lutheran received its grant.

However, that decision prompted Rev. Barry W. Lynn, former executive director of Americans United for Separation of Church and State, to write in USA Today in June 2017: “By asserting that houses of worship have a legal right to public funds in some cases, the high court has imposed a modern-day version of a church tax on all of us.”


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