At the founding of the United States, churches were unofficially exempt from government taxing. In 1894, churches received official federal income tax exemption and have maintained that status since. However, the topic of taxing churches has been a divisive one, with some people wanting the federal government to revoke these tax benefits.
What Are Churches Exempt From?
Federal taxes that religious organizations are exempt from include income and property taxes, which most other businesses are required to pay by law. The IRS categorizes tax-exempt churches and religious organizations as entities organized for religious purposes or used to advance religion and worship.
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Reporting and Investment Taxes
Unlike other charitable organizations, religious organizations do not have to report any sort of financial information to the IRS, although the IRS encourages doing so. They also do not pay taxes on investments, which allows churches to invest extra revenue into areas like stock.
Additionally, religious organizations pay no sales tax, which means when representatives make travel or supply purchases, they are exempt from paying the normal sales tax that many states require.
Lastly, religious organizations pay no property taxes. Property taxes help fund important local services, such as health care, firefighting, police departments, schools and infrastructure.
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On the one hand, proponents of keeping churches tax-free argue that exemption upholds the separation of church and state. Because some churches contribute to the public good through charitable acts and social services (e.g., homeless shelters, food banks, after-school programs, family assistance), they earn their tax exemption.
Many people believe smaller churches and their services would struggle to survive if they lost tax-exempt status.
On the other hand, opponents argue that this exemption violates the same church and state separation. They note this financial benefit implies the U.S. government supports religion and gives special treatment to religious organizations.
Moreover, if religious institutions use services like roads, schools and health care, then why don’t they contribute to property taxes? Some people believe this special treatment from the IRS can be seen as favoritism and is therefore unconstitutional.
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Contact Jacobson Jarvis Today for Support
Because the debate about taxing churches has been on the table for decades, it’s important to understand the pros and cons. Additionally, you should be familiar with the details of what exactly religious organizations are exempt from.
Whether you’re a 501(c)(3) organization, a small social club or a religious institution, Jacobson Jarvis provides an unmatched quality of work and customer service for the entire nonprofit community. Interested in learning more? Contact us today to get started.
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