Christ enjoined His followers to “…render to Caesar the things that are Caesar’s; and to God the things that are God’s.” (Matthew 22:21, NASB) Ever since, there have been debates about where those lines actually should be drawn. The recent passage of Proposition 8 in California, which overturned the California Supreme Court’s attempt to recognize same-sex marriages, has sparked animosity toward the tax exempt status of churches.
This status is firmly entrenched in our nation’s religious history, dating back to 1798. Although not specifically addressed in regards to churches until 1894, tax exemption is such an established tradition that the IRS does not require churches to apply for that status.
In light of changing times and new attitudes, churches should revisit the basis for this exemption from taxes. IRS Publication 1828 identifies it as the result of a national “recognition of their unique status in American society and of their rights guaranteed by the First Amendment of the Constitution of the United States.” (Incidentally, the IRS describes this publication as a “living document.”) We understand how freedom of religious expression and taxation relate; the power to tax is the power to control. But what does the reference to the “unique status in American society” mean?
Herschel Hobbs wrote in The Axioms of Religion, “There are those who argue that the tax exemption of churches constitutes an establishment of religion. But this is no more true than it is that the tax exemption for eleemosynary (charitable) institutions means their establishment. The church enhances the value of all other property, adds to the desirability of any community as a place to live, builds up the civilization in many ways, and is the most efficient of all police forces. It is thus a quid pro quo to the state and more than earns its exemption from taxation.” (p.137)
Written a little over 30 years ago, we should evaluate if these criteria are still true today. Does a local church enhance the value of the structures around it? Does it make the community a more desirable place to live? Does it build up the civilization, which was probably Hobbs’ way of describing a church functioning as “salt” (Matthew 5:13) in its community?
Churches should ask themselves, “Do we earn our exemption from taxation?” Missional churches understand God calls them to engage their communities with both the good news and good works, to tell the story of Jesus and extend His compassion to every person. Christ commanded the church to be both salt and light, serving the community and sharing the Gospel of salvation.
The tax exempt status of churches relates to both of these. Congregations should be free from governmental regulation and distractions to fulfill their God-given, redemptive mission. In addition, churches are exempt from the burden of taxation because they should contribute to the general well-being of our communities, seeking the welfare of the cities (Jeremiah 29:7, NASB) where God has planted us.
However, it begs the question. What if our government did not recognize either of these functions? What if we were not free to preach the Gospel? Would we do it anyway? What if the government did not recognize the residual effect of works of compassion in the community? Would we still perform them even if no monetary benefits resulted? Would we continue to give generously to our church even if we could not deduct it from our income tax return? While tax exemptions for religious organizations may seem as certain as taxes themselves, perhaps we would do well to reexamine why we possess them and how we would respond if they were taken away.