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Remove Religious Tax Exemptions? Not Likely.

Many of us in Texas and elsewhere like to think that the tax exemptions for religious institutions have always been there. According to a recent news article, that isn't quite accurate. Apparently the exemptions began in the late 1800s, and they vary by state.

Why does this matter? Because a recent study indicated that tax exemptions based on religion add up to $71 billion annually. A 1988 Texas tax law, rejected by the U.S. Supreme Court, is an important part of the story.

Apparently the religious tax exemption has always been controversial. Presidents James Monroe and Ulysses S. Grant opposed the exemptions, which have been defined and redefined in the past 100 years. Part of the confusion lies in state-by-state differentiations.

The study, conducted in Florida, had these findings regarding religious property and institutions:

  • Annual state property taxes could be worth $26.2 billion.
  • Capital gains tax exemptions could be worth $41 million annually.
  • Clergy claim about $1.2 billion via the annual parsonage allowance.

Some of the more recent court cases which are defining or challenging the exemptions include:

  • A 1969 U.S. Supreme Court case ruled that tax exemptions for religious organizations do not violate the Constitution's establishment clause.
  • In 1988 the U.S. Supreme Court rejected a Texas exemption for religious publications.
  • Several challenges to the parsonage allowance have failed.
  • A 1996 Colorado ballot initiative to repeal tax exemptions for nonprofits, including religious institutions, was defeated by a 60 percent margin.

The important lesson here is that tax law is fluid. It changes over time, sometimes by inches and sometimes by miles. Our blog posts endeavor to keep our readers up to date on Texas tax law changes.

Source: USA Today, "Study challenges tax exemption for religious organizations," Kimberly Winston, June 15, 2012

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