Over the past few years there has been a good deal of discussion regarding the tax exempt status of churches. The question came to the forefront when a number of conservative churches decided to challenge current law and publicly endorse candidates in both the '08 and '10 elections. They are framing the argument as a constitutional one. They are correct and they should win the argument.
I've heard many people argue that tax exemption is a benefit given by the government and the price for that benefit is the inability to make official endorsement of candidates or to lobby in a substantive way. Jim Evans in Ethics Daily goes on to argue that the genesis of tax exempt status of churches goes back to the days when churches were part of the state and it made sense that a municipality would not tax its own property. He sees this as an argument that the benefit is just that and that in order to enjoy the exemption, churches must "play by the rules." That this argument is irrelevant seems obvious to me. However the practice began, we have not had state sponsored or owned churches since the founding of the country. So what happened? At the adoption of the Bill of Rights, they forgot to tax the newly emancipated properties? Sorry, there must be some other justification that the tax exempt status was retained.
Then, there is the prohibition itself. Churches were allowed to endorse candidates until 1954. In that year, then senator Lyndon Johnson introduced a law prohibiting 501(c)(3) organizations from endorsing political candidates. At the height of the McCarthy era, he was trying to silence some of his critics as he ran for office. It was only by coincidence that churches were silenced as they fell under the same IRS code as his nonprofit enemies.
While it is accurate that churches receive their tax exempt status under Section 501 (c)(3) of the Internal Revenue code, I would argue that churches are not the same as other nonprofit organizations and in the end cannot be treated the same way. Other non-profits receive tax benefits because they provide needed services to the community. The issue is clearly seen as one of public benefit. It is a quid pro quo... the nonprofit provides services so the state helps it by removing the burden of taxes and provides that contributions are deductible on the giver's taxes. Nonprofits do not appear in the Constitution or the Bill of Rights. On the other hand, religious institutions fall under the First Amendment and the relationship between the state and religion is clearly and uniquely defined. The government does not give benefits to a religious group. There would be no constitutional justification for an act like that. They are tax exempt because they are religious organizations. period. The first amendment provides that the government will neither establish nor prohibit the free exercise of any religion.
Here is where the question of taxes comes in. The power to tax is the power to control. If the government can levy taxes on religious institutions and decide what those taxes will be, they can decide which institutions will be viable. Frankly, if the little church I serve had to pay property taxes, we would likely close. How can that not be prohibiting free exercise? And isn't telling a congregation that it cannot speak on any issue defining its ministry for it, again prohibiting free exercise? To allow that a church can say whatever it wants so long as it is willing to give up its tax exempt status establishes a multi-tiered system for religious institutions with some being able to speak and others not, this time based on their financial ability to pay taxes. Again, we are seeing free exercise attacked.
We must not forget that taxes and tax benefits have often been used as tools of influence by the state. How often does a municipality give tax benefits to entice a company to re-locate? To use this part of the IRS code to silence religious organizations from speaking on issues that they clearly see as part of their call is an example of the state using the tax code to prohibit free exercise of religion. What would stop a community from using taxes, if it were allowed to tax religious organizations, to keep a mosque from being constructed? Or a religious building of any sort that was seen as offensive to the powers that be?
There is no argument for taxing religious institutions or for prohibiting them from speaking on any issue in any way they believe their faith calls them to speak that does not conflict with the First Amendment. The government has no right to tax churches and therefor tax exemption is not a benefit the government can bestow or withdraw. That some religious organization will speak out in ways that you or I don't appreciate on political issues is part of the price we pay for religious freedom.