Churches are Tax Exempt as a Matter of Constitutional Right
The U.S. Supreme Court stated in Lemon v. Kurtzman in 1971 that non-taxation of churches is undergirded by “more than 200 years of virtually universal practice imbedded in our colonial experience and continuing into the present.” Here is why: There is a distinction between constitutionally separate “sovereigns.” For one sovereign entity to tax another leaves the taxed one subservient to that authority. This is true both in the symbolic statement of paying the tax and in the practical effect of supporting the sovereign party. So, in our constitutional structure, states may not tax each other, and they may not tax property of the federal government. The District of Columbia does not tax the property owned by foreign governments, and New York does not tax the property owned by the United Nations.
So, too, churches in America are not subservient to the government. The First Amendment to the Constitution requires that “Congress shall make no law respecting an establishment of religion or prohibiting the free exercise thereof.” The Constitution prevents the government from wielding its authority to control churches. Churches in this way differ from all other businesses and organizations. They are a unique institution whose existence is not derived from government authority, nor even from governmental acknowledgment. Churches preceded the birth of our nation and will remain long after its death. They transcend geographic and ethnic boundaries.
While the church is not subservient to the government, neither is the government subservient to the church. Although government can aid or support virtually all types of social or educational institutions which have a public purpose with the use of tax money, the Supreme Court stated in 1948 that “no tax in any amount, large or small, can be levied to support any religious activities or institutions.” Thomas Jefferson coined the highly referenced “wall of separation” between church and state (but not in the Constitution, as many people assume). The separation he referred to must be bilateral and reciprocal. Whatever the degree of separation required by the Constitution, it is surely this: the government may not make the church subservient by taxing its existence.
In Walz v. Tax Commission, the Supreme Court noted that the church’s “uninterrupted freedom from taxation” has “operated affirmatively to help guarantee the free exercise of all forms of religious belief.” The much misunderstood “separation between church and state” is in truth designed to restrict the sovereignty of each over the other. That is, it is designed to achieve a position for each that is neither master nor servant of the other. Exemption from income taxation is essential for respect of the church as a separate sovereign entity. Otherwise the government has the power to encumber and even terminate churches if such taxes are not punctually paid or cannot be so paid in full. Indeed, as the high court noted many years ago, “the power to tax involves the power to destroy.”
The fact that the Constitution mandates a tax exemption for churches is one of the best reasons why churches are not taxed.