Tax exemptions on church property used for specific worship purposes or religious work may be most easily defended because of the charitable and community work performed. Serious problems come into play, however, when church property is used for commercial purposes.
Sometimes this is a problem because of fraud. In the mid 1970s, five Connecticut priests set up a large mail order business. It was tax-exempt because, in theory, the proceeds were supposed to go to charitable and religious work. The reality of the situation was that they lived in a luxurious mansion and drove expensive cars: the proceeds all went to fuel a comfortable lifestyle available to few and partially supported by those tax exemptions.
Sometimes, the problem might be a legitimate disagreement. The tax-exempt status of the Christian Brothers winery in California was questioned by the federal government in the 1950s. Although members of a monastery, their wine and brandy were available in stores across the country. The government sued them for back taxes, but the brothers claimed that the production of wine was a sacerdotal activity, not commercial.
Courts sided with the government, deciding that the marketing and distribution of the products overrode any claim that they were solely religious in character, leaving open the possibility that a product which is only distributed to churches might survive such a legal challenge in the future.
This, then, is the question before us: to what extent should the business activities of a religious organization be tax exempt? To what extent should they be allowed to compete with non-religious businesses in the same market, but with a government-provided advantage?
I don’t have a definitive answer here because each situation is going to be different. However, it seems certain that lines do have to be drawn because not every possible business activity done by a religious group should be granted an automatic tax exemption. Only those which specifically involve religious products, go to benefit a religious mission, and which are aimed at religious members should merit consideration.
Commercial interference with religious tax exemptions can also occur even when the religious organization is not directly involved in the commercial activity. Churches are some of the biggest real estate owners in the United States, and because of that, they may often be involved with renting or leasing space to other, non-religious entities.
Thus, for example, a church might own a large parcel of land where a mall is built. In the end, the church is the owner of the mall and receives proceeds from the commercial activity that occurs there. Should those proceeds be tax exempt, allowing the church to compete with other malls unfairly?
A much more common scenario where religious tax-exempt property is used for religious reasons would be something like providing space for housing a church custodian. On the one hand, the custodian has no role in the religious mission of the church (in the way a priest or minister would). On the other hand, providing that housing is not done for the purposes of commerce or profit. Should that portion of church property remain tax exempt?
Also growing in commonality is the presence of cell phone towers on church property, sometimes disguised as church steeples. Churches have used their immunity to local land-use statutes and zoning requirements to have towers erected where they would otherwise be prohibited. Income from telecommunications companies which own these towers can be substantial, but should it be exempt from taxation?
