A Taxing Responsibility

Dear Taxing Filers:

April 15th, Tax Day! Hopefully you’re not scrambling to finish the filing task on this beautiful Monday; I usually am. Not because I procrastinate, which I do, but because ministers are paid like independent contractors, so the 15.3% self-employment tax on salary and housing allowance usually leaves a little extra needed to top off my quarterly payments from the previous year. Like many, I’m in no rush to hand off that cash. I am grateful for the continued income tax exemption provided to clergy for housing allowance, but am not confident that exemption will last. Implemented to compensate pastors who own their homes rather than live in a church manse, local municipalities like the allowance because it keeps clergy houses on the property tax rolls. Churches do not pay tax for their property, including church-owned pastors' housing. (Strangely enough, continuation of the housing allowance exemption finds its greatest protection from the U.S. military.) All this brings me to today’s musing, a brief history of the religious church tax exemption.

It’s an old allowance. Christian Emperor Constantine (272-337 BCE) famously insulated Christian churches from Roman taxation, a tradition that was continued in medieval England on the assumption that the church relieved the state of some of the expenses related to human services (put a tack in that thought; I’ll come back to it later). English tax exemption was codified in 1601 with the English Statute of Charitable Uses, which included other institutions like schools, orphanages, service organizations, museums, libraries, etc. formed to serve the common good. It was from this 17th century tradition that America rooted its own property tax-exempt system, originally in the colonies and then into the formation of the United States. In 1894 the Tariff Act provided the first formal codification of federal tax exemption for “corporations, companies, or associations organized and conducted solely for charitable, religious, or educational purposes.” The Tariff Act was declared unconstitutional in 1896, but the subsequent Revenue Act of 1913 also secured tax-exempt status “in recognition of the benefit which the public derives from churches’ ‘corporate activities’,” the wording of a 1924 Supreme Court decision defending the practice.

Later codification created the tax categories under 501(c) organizations, of which there are 29 varieties, with religious and charitable organizations #3 (thus 501(c)3). Uniquely, of the 29 not-for-profit entities, only four allow contributions to be deducted from the taxable income of the donor; this includes the charitable work of fraternal organizations and cemeteries providing interment for the indigent. This means FPCLG pays no income tax on receipts over expenses, no sales tax on items purchased for church use, or property tax. The exemption from property excise seems most tenuous.

Consider our own property between Catherine and Ashland Avenues on Elm Street. Were this residential property reflecting the real estate on the remainder of the surrounding blocks, our footprint would reflect six housing lots. Assuming comparable construction and taxation, each lot would generate about $14,000 in annual property tax revenue to our community. This provides us with an annual grant of $84,000 from the remaining taxpayers in our community. Thank you very much! Multiply that by the real estate owned by the other two dozen religious institutions in La Grange, and it quickly adds up to a substantial block of community revenue.

As I muse over these numbers, my first reaction is deep gratitude. For many churches and charitable institutions, a full-sized property tax bill would sink them. But with great generosity comes great responsibility. The cynical revenuers among us eye that lost public income and may fairly ask, is it worth it? Consider the fact that the largest private landowner in Cook County is the Catholic Archdiocese of Chicago, and the largest landowner in Illinois is the Mormon Church. It may be fair to ask if the communities are receiving a reasonable return on their investment.

I believe the Christian community is called by Christ to be outward-focused through acts of compassion, education and fellowship. Somewhere in our civic history, tax assessors agreed, but their opinion is open to revision. As we consider our meaning and purpose on this Tax Day, we should remember all our public obligations.

Doing one more review before I e-file, I remain,

With Love,
Jonathan Krogh
Your Pastor