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Churches are exempted from a variety of taxes collected by the various levels and jurisdictions of government in the United States. For instance, they are almost always exempt from payment of property tax at the local level and from payment of income tax to both state and federal government. They are often exempt from payment of state sales tax on the products they sell. A person making a contribution to a religious organization is usually entitled to deduct the contribution from his income when calculating both his state and his federal income taxes at the end of the taxable year. A minister is usually allowed to exclude from his taxable income the rental value of the home provided to him by his church, or the cash allowance paid to him by his church for the securing of a home, when calculating both his state and federal income taxes.

This article provides an overview of the history and practice of religious tax exemption in America and addresses whether religious tax exemptions violate the Establishment Clause of the United States Constitution, which provides that “Congress shall make no law respecting an establishment of religion.” It is the thesis of this article that, in light of the history of both tax exemptions and the clause itself, and despite the conventional wisdom that tax exemption is tantamount to a subsidy, religious tax exemptions do not violate the Establishment Clause ban on direct aid to religion; that neither religious tax exemptions nor taxation of religious entities violates the prohibition on entanglement of church and state; but that, depending on the larger legislative scheme in question, and whether conventional charitable institutions are similarly exempted, religious tax exemptions may violate the norm of “equal treatment” also embodied in the clause. It is the goal of this piece to cast doubt on the current tendency of courts and commentators casually to refer to tax exemptions as “subsidies” without exploring the implications of the word choice and to urge a renewed look at the “equal treatment” and “religious gerrymandering” theories of Justice Harlan.



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