LDS Wealth Begs the Question: Should Churches Be Tax Exempt?

New big-money revelations about the wealth of The Church of Jesus Christ of Latter-day Saints are stirring debate on a long-standing issue:

Should religions be exempt from taxes?

While most American houses of worship operate on small budgets and sometimes on a day-to-day basis supported by donations, the Utah-based faith has amassed immense financial reserves and land holdings over the past half-century.

In the broadest look yet at his real estate portfolio, a recently released database details nearly $16 billion in domestic holdings spread across the country. Although it is almost guaranteed to be an undercount, this tally of the nearly 16,000 plots he owns would rank the church among the top five private landowners in the country.

The riches of the portfolio are revealed as Latter-day Saints and watchers already absorb reports of an estimated additional $52 billion the church holds in U.S. stocks and mutual funds through its investment arm based in Salt Lake City, Ensign Peak Advisors.

The church, whose faithful members give a tenth of their income as tithes, discloses little about its extensive financial activities – although the ruling First Presidency has said it “complies with all applicable laws governing our donations, investments, taxes and reserves”.

Spokesperson Doug Andersen said in a written statement that the church’s underlying mission of sharing the gospel of Jesus Christ through its missionary, worship, educational, humanitarian and other efforts “is funded by the tithes and offerings of the members, and by the careful investments and reserves of the church.”

These efforts, Andersen said, “all contribute to the good of societies and humanity around the world.”

“In addition to paying appropriate taxes for any for-profit entity owned and operated by the church,” he added, “we aim to strengthen local economies through the use of labor , local contractors and suppliers.This model is followed wherever possible, including in the operation of agricultural and commercial properties and, as mentioned recently, in the church’s approach to meeting humanitarian needs.

Much of its land, however, is not subject to property taxes.

According to the database compiled by the Truth & Transparency Foundation, the vast majority of the roughly 1.7 million acres of church property — found in all 50 states and the District of Columbia — is graded by county assessors. for religious purposes, leaving thousands of American meeting houses, temples and other places of worship exempt.

For some, this highlights a larger debate about tax benefits for churches that operate for-profit businesses — as the LDS Church does.

Chad Pomeroy, a law professor at St. Mary’s University in San Antonio, says that “while there’s nothing wrong with religious organizations amassing wealth, it’s disturbing that they do it all by benefiting from informational and tax advantages not granted to other entities”.

Pomeroy, a Brigham Young University Law School graduate, wrote in a 2019 article that U.S. tax law allows entities such as the church “to contribute funds under the auspices of an entity to non-profit, and then directing those funds to for-profit enterprises”.

“It’s hard to fault churches for taking advantage of a US religious tax exemption system that effectively guarantees them preferential returns on church-sourced funds when those funds are intended for profit-seeking rather than charity,” Pomeroy wrote in the Oklahoma Law Review. . “Condemned or not, this tax structure is problematic.”

How the Tax Breaks for Churches Began

Tax breaks also apply to income and sales taxes for American churches, religious groups and their leaders, since the country began to define its legal separations between church and state.

The idea, in fact, goes back centuries, to the tax breaks granted to Christians under the Roman Emperor Constantine the Great, after his conversion in the 4th century. It is also embedded in English common law, under the general premise that charities and non-profit organizations such as churches do good in society.

The notion is based, according to the latest take from the IRS, “in recognition of their unique status in American society and their guaranteed First Amendment rights.”

“None of these exemptions are absolute, however,” says Sam Brunson, Latter-day Saint and tax law professor at Loyola University Chicago. Churches with unrelated business income pay taxes on that income, Brunson noted, as the LDS Church apparently would on its for-profit businesses.

Many states, including Illinois, apply a property tax, Brunson noted, to portions of religiously-owned properties that are rented out for income purposes.

For several Utah religious leaders, tax exemptions for places of worship make sense as a deeply held American value.

“I totally support him,” said Rabbi Samuel Spector of Congregation Kol Ami in Salt Lake City. He noted that Jewish synagogues are autonomous in terms of financial operation and do not receive financial support from a religious network similar to LDS and Catholic churches.

“If another synagogue elsewhere receives a donation of $20 million, that’s wonderful,” he said. “But it has no impact on us.”

The rabbi and other religious leaders in the region said their small budgets were funded by donations and most of the spending went to charities, such as food banks, sheltering the poor and helping members in need. .

“Without this tax-exempt status,” Spector said, “we wouldn’t be able to provide these services because as things stand, we have to struggle to survive.”

“More power for Latter-day Saints and other religious groups who are currently doing very well financially,” the rabbi added, “but that is not the situation of your average rural church or your average synagogue.”

Rev. Steve Aeschbacher, acting pastor of First Presbyterian Church in Salt Lake City, said there is “incredible value to society in having healthy churches, including available church buildings.”

The pastor noted that, like many places of worship, his iconic church building on South Temple regularly opens its spaces for community groups and other activities, while congregants also extend services and outreach to the needy.

“All of these things wouldn’t be possible if we were taxed,” Aeschbacher said. “…I can’t imagine what our property taxes would be like here. If we were to pay them, it could shut us down, which seems to raise some interesting constitutional issues. If you effectively stop religion by taxing it, does this mean that you are infringing on freedom of religion? »

Imam Shuaib Din, spiritual leader of the Islamic Center of Utah in western Jordan, pointed out that tax exemptions for nonprofits also involve trade-offs. They don’t pay taxes, he noted, but they also waive the right to endorse political candidates.

“Any other institution and individual has this right,” he said, “but not religious organizations.”

However, religious groups can and do speak out on moral and community issues.

How the LDS Church is ‘an outlier’

For Patrick Mason, head of Mormon history and culture at Utah State University in Logan, taxes represent “our collective contribution to the social good. This is how we build roads. This is how we fund schools. This is how we collectively do all those things that we couldn’t or wouldn’t do individually.

The reason the government exempts charities and nonprofits, including churches, he said, “is that by definition they work for social good.”

The LDS Church, for example, provides many social and humanitarian services around the world. Since its founding in 1985, Latter-day Saint Charities, the faith’s humanitarian arm, and its affiliates have provided more than $2.5 billion in relief in nearly 200 countries and territories. That sum is only a portion of the church’s overall humanitarian and social spending, which it says in 2020 is nearly $1 billion a year.

But when Congress passes its tax codes and the IRS develops regulations governing nonprofits, Mason said, “I can’t imagine they have a single entity in mind with a tax account. $100 billion investment and $15-20 billion in land holdings.”

“The church, since the 19th century, has been an outlier,” Mason said, “and served as a challenge to how we collectively and certainly legally think about the nonprofit status and economic power of churches” .

While the latest disclosures about LDS Church finances include significant numbers, Brunson said, he sees nothing that changes the assumptions behind these tax benefits.

“The tax exemption was never based on the amount of wealth,” the Loyola law professor wrote via email. “And, while the colloquial definitions of ‘charity’ may have changed, there has been no legal movement to change it.”

In practice, Brunson said, it is highly unlikely that religious exemptions will be removed from US tax law anytime soon.

“No member of Congress is going to earn points taxing churches,” Brunson said. “In most cases, this would probably generate little or no revenue, because if churches became taxable, they would have to be allowed to deduct costs such as salaries, rent, electricity, etc.

“Most churches,” he said, “don’t operate in the dark.”

Matthew Bowman, head of Mormon studies at Claremont Graduate University in Southern California, agrees.

“The notion is really deeply rooted in First Amendment law that goes back 150 years,” Bowman said. “It’s as settled as anything.”

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