Monday, April 15, 2013

Taxing churches: the devil is indeed in the details

Near my first church in a rural area with a population of turkeys and deer far larger than people (a few bearded, cranky old gobblers who were members of my wonderful church I count in the latter number) there was an old Methodist church building, vacant save for one service per year when former members would come and have a nostalgic service.

The building was small, had a simple frame construction, no accoutrements like stained glass windows, heat or air conditioning. It had just the sanctuary and a couple of small adjacent rooms. I suspect that the entire building and every stick of furniture in it was constructed by members with volunteer labor.

We have certainly gone way beyond that in our church buildings and amenities.

In addition to the usual sanctuary, office, and educational spaces churches by the tens of thousands have recreational facilities both indoor and outdoor. Back in the 1970s I was member of a church that had in addition to a basketball court, a bowling alley, snack bar, fitness room.

Fast forward to now and you can find megachurches that have all of the above plus coffee shops, bookstores, food courts, and who knows what else.

Here's a question: When churches have revenue producing components (coffee shop, snack bar, bookstore health club, etc.) should they lose some of their property tax exemption and be taxed?

Maybe. Maybe not.

Take a look at the case where Nashville tax authorities have won a case against a pentecostal megachurch:
Megachurch denied property tax exemption for gym and bookstore/cafe

Taxing the third space
These links are summary pieces by my blogging CPA friend Peter Reilly who does a good job scrutinizing some aspects of taxation concerning churches and ministers.

The megachurch involved had a fitness center which was not only used by members (for a small annual fee) but also by non-members who bought membership into the center. The bookstore/cafe was a commercial enterprise that sold various types of the liquid delivery system for our only approved drug, caffeine, and also assorted books, religious and other, and the usual 'Jesus junk' impulse items.

For this their property's tax exemption was cut from 100% to 93%. They sued. So far the church has lost but intends to appeal.

The church makes a reasonable case that these commercial activities (for which they claim not to have made a profit) are part of their religious mission to provide safe "third spaces" for not only members but others in the community.

The tax assessors responded with the cogent point that virtually any use could be subsumed under such a broad "third space" principle.

Indeed. How about an authentic "Cheers" bar for some among us who would expand the drug delivery by adding alcohol, in moderation of course? Now that would be some kind of third space.

How about a full service restaurant featuring holy ham hocks or some other religiously labeled dish (fried chicken might work in a Baptist church but there's a lot of competition there)? You get the picture.

The church in Nashville maintains that colleges have commercial bookstores with coffee shops and non-profit hospitals have health clubs, so why shouldn't churches be granted the same?

Not a bad point. Hmmm, this church taxation business is not so simple as it used to be.

The modern megachurch is far from the plain country church I described above. Apart from receiving tithes and offerings, they can be and often are huge revenue generators. Instead of taking love offerings, churches often sell tickets, have box offices for events, and even sell premium VIP tickets for patrons who want closer contact with the latest Christian celebrity. Bookstores and coffee shops are almost de rigeuer for the megas nowadays. No self respecting mega would be without those.

At some point, we Christians might help ourselves by not expecting to be completely tax exempt and do what Starbucks or Anytime Fitness has to do - pay some taxes and level the commercial playing field somewhat.

We will see where this goes. Since almost all churches are completely tax exempt already, there is only one way this can go.

BTW, I happen to have a third space myself - the Subway restaurant in town where the folks are really friendly and I can go retro and read a printed newspaper and drink unsweet tea. Everyone there knows my name: "preacher." They pay taxes. I'm glad to help them do so with my business.


Rick Patrick said...


Do you secretly work for the IRS? Do they give you kickbacks? First my precious Minister Housing Allowance and now the Church's Property Taxes...

If you ever suggest that we pay sales tax on offering plate receipts, it will absolutely be the last straw!

William Thornton said...

Rick, do sell tickets to events held in tour church sanctuary? Food court? Sell Jesus junk in a bookstore that is next to your office?

Would you acknowledge that there are legitimate questions involved here?

Unknown said...

The following is a comment by Dan Scott, pastor of the Nashville megachurch involved in the tax case. He had trouble leaving it on my blog so he had Peter Reilly forward it to me:

I actually agree with much of what you say here. As pastor of the Nashville church you mention, I am aware that the misuse of tax exemption by religious bodies has colored the public's perception of our case. However, we believe we are shouldering an important responsibility in our community; by giving minorities, immigrants and low income families -- an increasing part of our congregation, by the way -- a place to learn English, make friends and move beyond their present limitations.

There may be better ways of doing what we do; the YMCA has probably done a better job than we with the gym we built, for example. However, we must either minister to the area of the city we are in, or move out to the suburbs as many churches have done.

So we do not resent the legitimate issues you raise. However, we do need a response that's better informed than one that asks us to retreat to the kinds of infrastructure we employed when we were ministering in small towns and rural areas; to communities without gangs, one parent families, linguistic melting pots and all the rest that our globalized urban contexts now present to us.

There is probably a better way than what we are doing but we have not found it yet. Satirical jabs at large churches are easy to write, and often deserved, but is not ultimately helpful if we are going to find a real solution that doesn't force us to abandon these urban challenges.

Unknown said...

Dan, thanks for the comment and I appreciate the manner you have responded here and in what I have read concerning your tax case.

I did use some satirical humor but I am familiar enough with what is happening in some churches, tax free of course, that even my humor was not far from the mark. In the long run I fear we lose credibility with the taxpaying public as a result of insisting on full tax exempt status for enterprises that are clearly partly commercial.

Retreating to the church of a century ago is not I asked of you or anyone. What I stated is that the matter is complicated. We may minister freely in this country. Thank God for that. But an honest assessment should be made of what falls under ministry, how it is conducted, how it is similar to tax paying commercial enterprises and whether or not it should be taxed.

The devil is in the details.

Thanks for the comment.

RLBaty said...

I used to work openly for the Internal Revenue Service; at least that is what they tell me to try and jog my memory! :o(

William, you might want to copy one of Peter's commenter's notes about how the LDS folks have both exempt and non-exempt bookstores.

From what I observe, the LDS folks are experts at navigating the tax issues; winning some, losing others.

I am again reminded of what one preacher/elder/lawyer put it:

> Pigs get fat.
> Hogs get slaughtered.

I think that helps to explain what we see happening, at least in part, with regards to the "precious" housing allowance issue and property tax issues.

As you properly note, can we expect those issues to move but one way; and quite appropriately so, in my opinion.

Unknown said...

My guess Robert is that we will not see the housing allowance move much at all but, who knows? I think a cap on it would be politically feasable and reasonable. I also think that in spite of its intracacies and complications, a tightening of the availability of the HA to certain church or church related employees would be a reasonable change.

The point not yet mentioned here is that when churches are allowed to have a variety of revenue producing activities with a tax exempt status, the tax burded falls more heavily on others.

Dr. James Willingham said...

Before the IRS was foisted upon us and LBJ got his grudge law passed (getting even for some preachers that had opposed one of his elections in Texas), no one ever spoke of such thing as taxing churches. Why? Because the churches and the clery, and Baptists in particular, supported the Patriots' Cause in the American Revolution. Just consider. Elijah Craig and the Committee of Baptists in Va. met with the colonial legislators and made an agreement that in exchange for their freedom to practice their faith, the Baptists ministers would go back to their communities and encourage their young men to enlist in the Patriots' Cause (read "enlist in a Civil War against a duly constituted government). they were so effective that in one instance, their was one who regiment of colonial Va. militia with the last name of "Craig." A direct descendant of Elijah Craig was a personal friend of mine and a Baptist preacher, too. My grandmother was a Craig, and she named our son, a Baptist minsiter before he was born. I dare say we descend from some of those Craigs who took part in the Revolution and that is just one family strand involved. There were many more. The Baptists were the Cannon Fodder, while the Presbyterians were the mid-level officers and the Anglicans and others were the Generals. One Baptist did make it to General, I understand, John Gano, a chaplain and the last man to address the Continental Army before it disbanded. Reason for not taxing was the support of the Revolution and the other was the contribution made to creating a society that was wholesome.