Taxing Church Property: An Imminent Possibility?

by Jeffrey Warren Scott

Mr. Scott is assistant pastor of Grace Temple Baptist Church in Waco, Texas.

This article appeared in the Christian Century, April 2, 1986, p. 327. Copyright by the Christian Century Foundation and used by permission. Current articles and subscription information can be found at This material was prepared for Religion Online by Ted & Winnie Brock.


The foundation has been laid for taxing church property and perhaps even church income. The power to tax religious institutions must be construed as the power to limit the free exercise of religion. Levying property taxes upon churches would have the effect of closing the doors of thousands of small congregations that operate on a shoestring.

In 1977 the chief counsel of the Baptist Joint Committee on Public Affairs, the late John Baker, warned of a coming crisis for the church over the issue of property taxation. Because a growing population was placing increasing demands on the government for public services, Baker was convinced that government would begin to look for additional sources of revenue, and that church property would be a prime target for taxation.

What was clear to Baker in 1977 is even more obvious in 1986. Government obligations and deficits have continued to escalate, pushing the federal debt ceiling higher and higher. The Reagan administration has responded to the crisis by trying to shift many social programs down to the state level. The result has been -- and will continue to be -- an enormous burden on states’ already strained budgets.

The potential impact of this shift on churches becomes apparent when one realizes that the average local government receives 64 per cent of its general revenue from property taxes and that churches own a vast amount of untaxed property. In 1976, one study estimated that church property was worth at least $118 billion (Martin A. Larson and C. Stanley Lowell, Praise the Lord for Tax Exemption [Robert B. Luce, 1969]) In times of budget difficulty, it is only natural that churches will be considered for taxation.

To be sure, state and local government budgets have been strained before with little threat to churches’ tax-exempt status. This time, however, courts have made it possible to remove the property tax exemption currently enjoyed by the churches. To understand the courts’ dramatic shift it is necessary to understand the history of the exemption.

The notion of tax exemption for church property is an old one. Genesis 47:26 records Pharaoh exempting the priests’ land from taxation, and Ezra 7:14 indicates that none of the priests, Levites, singers, porters or ministers of the house of God were to be charged tax, toll or custom. In the days of Roman Emperor Constantine, church buildings and the land surrounding them were exempt. Centuries later, European countries continued the tradition of exemption, albeit because the church frequently controlled the state.

In the U.S., property tax exemption for churches began in colonial days and continued with the birth of the new nation. In 1802, for instance, the Seventh Congress specifically exempted religious bodies from real estate taxes. On the state level, specific exemptions from property taxes for churches were established in Virginia in 1777, New York in 1799, and the city of Washington in 1802. "The exemptions [for churches have continued uninterrupted to the present day," Justice William 3. Brennan has said. ‘They are in force in all 50 states" (quoted by Leo Pfeffer in "The Special Constitutional Status of Religion," Taxation and the Free Exercise of Religion, edited by John Baker [Baptist Joint Committee on Public Affairs, 1978], p. 711).

The Supreme Court’s shift away from the time-honored position of tax exemption first became apparent in 1970 when the court handed down its opinion in Walz v. Tax Commission of the City of New York. Walz had sued to enjoin the New York City Tax Commission from granting property tax exemption to religious organizations for properties used solely for religious worship. He argued that the exemptions indirectly required him to make a contribution to religious bodies and thereby violated the establishment clause of the First Amendment. In a close 5-4 decision, the court held that exempting church property was permissible, but not constitutionally required.

Many church groups filed amicus curiae briefs urging that the court declare a constitutional requirement of property tax exemption for churches. However, the court sidestepped this question, preferring to focus instead on the establishment clause. The court reasoned that property tax exemption differed from a tax subsidy -- which would be impermissible under the entanglement principle of the free-exercise clause -- because:

the government does not transfer part of its revenue to churches but simply abstains from demanding that the church support the state. . . . There is no genuine nexus between tax exemption and establishment of religion.

Had the court ruled that the tax exemption was a subsidy, there is little doubt that the 5-4 decision would have been reversed and the exemption declared unconstitutional.

In 1972 the federal courts began making the same shift. In Christian Echoes National Ministry, Inc. v. U.S., the Tenth Circuit Court addressed what the Walz decision had sidestepped, and held that "tax exemption is a privilege, a matter of grace rather than a right."

The major shift of the Supreme Court came in 1983 when, in Regan v. Taxation with Representation, the court held 8-3 that tax exemption was equivalent to a tax subsidy. The question before the court involved tax exemption for nonprofit organizations -- religious, charitable, scientific, public-safety-oriented, literary or educational. Justice William H. Rehnquist spoke for the court:

Both tax exemptions and tax deductibility are a form of subsidy that is administered through the tax system. A tax exemption has much the same effect as a cash grant to the organization of the amount of tax it would have to pay on its income.

The significance of this decision is often overlooked. If tax exemption is a form of subsidy, then church property tax exemption is a clear violation of the establishment clause of the First Amendment. All that is necessary to make church property tax exemption a thing of the past is for an irate taxpayer who is tired of high taxes to file suit to force churches to pay their "fair share." With the Regan v. Taxation precedent in effect, the court could easily slip from the 5-4 Walz v. Tax Commission position and rule property tax exemption for religious institutions to be unconstitutional.

Another omen of the impending ill is found in the Bob Jones University v. U.S. decision, which was issued the day after Regan v. Taxation. In Bob Jones, the court declared that religious schools that are tax-exempt or that receive tax-deductible contributions must comply with government policy or lose their tax-deductible status. Bob Jones University had been following religiously motivated practices that had the effect of discriminating against blacks. The court upheld the Internal Revenue Service’s decision to withdraw the university’s right to receive tax-deductible contributions because discrimination was contrary to public policy.

The danger of the Bob Jones decision is that if the university can be forced to comply with public policy in order to retain its tax status, then all other nonprofit institutions -- with churches listed first in the tax regulation -- can be forced to do likewise. The logical end of the Bob Jones decision would be to take away the tax-exempt status of churches that actively oppose U.S. military involvement in Central America, that speak out against current policy on nuclear weapons, or that provide sanctuary to aliens in violation of Immigration and Naturalization Service policy.

When Regan v. Taxation is linked with Bob Jones, the court’s direction on the question of tax exemption for churches is clear: the foundation has been laid for taxing church property and perhaps even church income.

First, tax exemption for churches has helped a pluralistic society in which a broad spectrum of religious perspectives -- including irreligion -- can flourish. Such pluralism safeguards against extremism and should be maintained.

Second, taxing church property and income would destroy the free exercise of religion that the Bill of Rights seeks to protect. The old principle that the power to tax is the power to destroy is still valid. In regard to taxing door-to-door religious solicitation, the court held in Murdock v. Pennsylvania in 1943:

The power to tax the exercise of a privilege is the power to control or suppress its enjoyment. . . . Those who can tax the exercise of this religious practice can make its exercise so costly as to deprive it of the resources necessary for its maintenance.

The power to tax religious institutions must be construed as the power to limit the free exercise of religion. Levying property taxes upon churches would have the effect of closing the doors of thousands of small congregations that operate on a shoestring. Many downtown churches would be forced out by the property taxes on their valuable land, and their buildings would be replaced by high-rise office complexes.

A third reason for not taxing church property is the excessive government entanglement that such taxation would bring. What agency would be responsible for assessing the value of the property, and how would the value be calculated? To what extent will the government require inspection of church property and, in the process, its records? These are but a few areas of church-state entanglement that would come with church property taxes. Of course, with government intervention comes government regulation, which could extend into many aspects of church life. Such entanglement must be viewed as unconstitutional.

As the budget deficits of the federal, state and local governments increase, the possibility of taxing church property also rises -- despite the long history of tax exemption. To help avert such an occurrence, religious groups must become alert to court actions on church-state issues, and they must become more vocal in asserting the constitutionality of church property tax exemption.