To access extended pro and con arguments, sources, and discussion questions about whether churches should remain tax-exempt, go to ProCon.org.
Churches* in the United States have been unofficially federally tax-exempt since the country’s founding until they received an official federal income tax exemption in 1894. Additionally, all 50 U.S. states and D.C. exempt churches from paying property tax. Donations to churches are tax-deductible.
The IRS Tax Guide for Churches and Religious Organizations uses the term church “in its generic sense as a place of worship including, for example, mosques and synagogues.”
The tax exemption for churches can be traced back to the Roman Empire, when Constantine, Emperor of Rome from 306-337, granted the Christian church a complete exemption from all forms of taxation following his supposed conversion to Christianity circa 312. Church property used for religious purposes was tax-exempt in medieval England, based on the rationale that the church relieved the state of some governmental functions, and therefore deserved a benefit in return. The English Statute of Charitable Uses of 1601, which included churches along with all other charitable institutions, formed the basis of America’s modern tax exemption for charities.
By the time of the American Revolution, nine of the 13 original colonies were giving some kind of tax relief to churches.
During the 19th Century, opposition to churches retaining property tax exemptions was expressed by at least three US presidents: James Madison, James Garfield, and Ulysses S. Grant.
US churches’ federal income tax exemption was not formerly enacted as legislation until the Tariff Act was passed by Congress in 1894, providing tax exemptions to “corporations, companies, or associations organized and conducted solely for charitable, religious, or educational purposes.” This was the first time the federal government declared any group exempt from paying taxes, as opposed to its earlier practice of only listing entities subject to taxation. Although the Tariff Act was declared unconstitutional in 1896, the church tax exemption was reinstated by the Revenue Act of 1913, which defined the modern American income tax system. On Jan. 14, 1924, the US Supreme Court interpreted the reason for the exemption in Trinidad v. Sagrada Orden: “Evidently the exemption is made in recognition of the benefit which the public derives” from churches’ “corporate activities.”
The US Internal Revenue Service (IRS) classifies churches as 501(c)(3) nonprofit charitable organizations, which are exempt from federal income tax and are able to accept tax-deductible donations. Unlike secular charities, however, churches are automatically considered to be 501(c)(3) organizations, and, while they may do so voluntarily, they are not required by law to submit an application for exemption or pay the application fee. According to the IRS, the fees are $275 for form 1023-EZ and $600 for Form 1023 as of Jan. 20, 2023.
PRO
- Exempting churches from taxation is constitutional and maintains a long American tradition.
- Exempting churches from taxation contributes to the public good.
- Most churches follow the rules and would struggle to exist without the tax exemption. The IRS should enforce the rules rather than eliminating the tax exemption wholesale.
CON
- Exempting churches from taxation is unconstitutional.
- Exempting churches from taxation forces taxpayers to subsidize religion, while costing the government billions in tax revenue.
- Too many churches have taken advantage of the tax exemption by being politically active, being “sham” religions, or using the tax exemption to line the pockets of extravagantly wealthy faith leaders.
This article was published on January 24, 2023, at Britannica’s ProCon.org, a nonpartisan issue-information source.