LDS wealth spurs question: Should churches be tax-exempt?

The practice has a long history and appears unlikely to change, especially since most places of worship don’t have a lot of money. But what about those that do?

(The Salt Lake Tribune) Places of worship around Utah, clockwise from top left: The Khadeeja Islamic Center in West Valley City; a meetinghouse for The Church of Jesus Christ of Latter-day Saints on Main Street as part of a church-owned skyscraper in Salt Lake City; St. Joseph the Worker Catholic Church in West Jordan; the Sri Ganesha Hindu Temple in South Jordan; Congregation Kol Ami Synagogue in Salt Lake City; and First United Methodist Church in Salt Lake City.

New big-dollar revelations about the wealth of The Church of Jesus Christ of Latter-day Saints are enlivening debate on a long-standing question:

Should religions be tax-exempt?

While most U.S. places of worship operate on small and sometimes hand-to-mouth budgets fed by donations, the Utah-based faith has amassed immense financial reserves and landholdings during the past half-century.

In the widest look so far at its real estate portfolio, a newly published database details nearly $16 billion in domestic holdings spread across the country. Though it’s all but guaranteed to be an undercount, that tally of nearly 16,000 parcels it owns would rank the church among the nation’s top five private landowners.

The portfolio’s riches come to light while Latter-day Saints and observers are already absorbing reports of another $52 billion or so the church holds in U.S. stock and mutual funds through its Salt Lake City-based investment arm, Ensign Peak Advisors.

The church, whose faithful members donate a tenth of their income in tithing, discloses little about its extensive financial activities — although the governing First Presidency has said it “complies with all applicable law governing our donations, investments, taxes and reserves.”

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

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 local labor, contractors and suppliers. This model is followed wherever possible, including in the operation of agricultural and commercial properties, and, as cited recently, in the church’s approach to addressing humanitarian needs.”

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

According to the database amassed by the Truth & Transparency Foundation, the vast majority of some 1.7 million acres of church property — found in all 50 states and the District of Columbia — is classified by county assessors for religious purposes, leaving thousands of U.S. meetinghouses, temples and other places of worship exempt.

To some, that highlights a wider 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, argues that “while there is nothing wrong with religious organizations amassing wealth, it is troubling that they do so while enjoying informational and tax advantages not afforded to other entities.”

Pomeroy, who graduated from Brigham Young University’s law school, wrote in a 2019 article that U.S. tax law allows entities such as the church “to bring in funds under the auspices of a nonprofit entity and then direct those funds to for-profit endeavors.”

“It is difficult to blame churches for taking advantage of a U.S. system of religious tax exemption that effectively guarantees them preferential returns on church-sourced funds when those funds are directed to profit-seeking instead of charity,” Pomeroy wrote in the Oklahoma Law Review. “Blameworthy or not, this tax structure is problematic.”

How tax breaks for churches began

Tax breaks also apply to income and sales taxes for U.S. churches, religious groups and their leaders, dating to when the country first began to define its legal separations between church and state.

The idea, in fact, extends back centuries, to tax relief granted to Christians under Roman Emperor Constantine the Great, after his conversion in the fourth century. It is also embedded in English common law, under the general premise that charities and nonprofits such as churches do good in society.

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

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

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

To several faith leaders in Utah, tax exemptions for places of worship make sense as a deeply held American value.

“I completely support it,” said Rabbi Samuel Spector at Salt Lake City’s Congregation Kol Ami. He noted that Jewish synagogues stand alone in terms of how they operate financially and do not draw financial support from a religious network akin to the LDS and Catholic churches.

“If another synagogue somewhere else gets a $20 million donation, that’s wonderful,” he said. “But that doesn’t have any impact on us whatsoever.”

The rabbi and other area faith leaders said their small budgets are sustained by donations and that most expenditures go to charity, such as food banks, sheltering the poor and helping members in need.

“Without that tax-exemption status,” Spector said, “we would be unable to provide those services because as it is, we have to struggle to survive.”

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

The Rev. Steve Aeschbacher, interim pastor at First Presbyterian Church in Salt Lake City, said there was “incredible value to society from having healthy churches, including church buildings that are available.”

The pastor noted that like many places of worship, his church’s landmark 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 those things wouldn’t be possible if we were taxed out of existence,” Aeschbacher said. “...I can’t imagine what our property taxes would be here. If we had to pay them, it might shut us down, which seems to raise some interesting constitutional problems. If effectively you’re stopping religion by taxing it, does that mean you’re infringing on freedom of religion?”

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

“Every other institution and individual has that right,” he said, “but religious organizations do not.”

Faith groups can and do, however, speak out on moral and community issues.

How the LDS Church is ‘an outlier’

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

The reason the government exempts nonprofit charities and organizations, including churches, he said, “is that, by definition, they are working for the social good.”

The LDS Church, for instance, provides extensive welfare and humanitarian services around the world. Since its 1985 founding, Latter-day Saint Charities, the faith’s humanitarian arm, and its affiliates have provided more than $2.5 billion worth of assistance in nearly 200 countries and territories. That sum represents only part of the church’s overall humanitarian and welfare spending, which it reported in 2020 amounts to 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 that they have in mind a single entity with a $100 billion investment account and $15 billion to $20 billion worth of landholdings.”

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

While the latest disclosures on LDS Church finances include some large numbers, Brunson said, he sees nothing that alters the assumptions underlying those tax benefits.

“Tax exemption has never been based on amount of wealth,” the Loyola law professor wrote via email. “And, while colloquial definitions of ‘charity’ may have changed, there hasn’t been any legal move to change it.”

As a practical matter, Brunson said, it is highly unlikely that religious exemptions will be removed from U.S. tax law anytime soon.

“No member of Congress is going to gain points by taxing churches,” Brunson said. “In most cases, it would likely raise little, if any, revenue because if churches became taxable, they would have to be allowed to deduct costs like salaries, rents, electricity, etc.

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

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

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

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