Tax Exemption for Ministers’ Housing Expenses Violates the Establishment Clause

So holds yesterday’s Freedom From Religion Foundation v. Lew (W.D. Wisc. Nov. 22, 2013). Section 107(2) of the Federal tax code exempts from the income of “a minister of the gospel” (read broadly to not just be limited to Christian denominations) “the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home and to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities.”

The court analogized to Texas Monthly, Inc. v. Bullock (1989), in which the Court struck down a sales tax exemption for the sale of religious literature. Here is the court’s reasoning, which I think is persuasive, given that both cases involve tax exemptions that favor the dissemination of religious messages (both books and ministers being major mechanisms for disseminating such messages):

Consideration of the question whether § 107(2) violates the establishment clause must begin with Texas Monthly, Inc. v. Bullock, the only case in which the Supreme Court has addressed the constitutionality of a tax exemption granted solely to religious persons. In Texas Monthly, the statute at issue exempted from the state sales tax “[p]eriodicals that are published or distributed by a religious faith and that consist wholly of writings promulgating the teaching of the faith and books that consist wholly of writings sacred to a religious faith.”

The justices in the plurality opinion (Justices Brennan, Marshall and Stevens) and those concurring in the judgment (Justices Blackmun and O’Connor) agreed that the statute violated the establishment clause…. [T]he plurality emphasized that the exemption provided a benefit to religious publications only, without a corresponding showing that the exemption was necessary to alleviate a significant burden on free exercise:

Every tax exemption constitutes a subsidy that affects nonqualifying taxpayers, forcing them to become indirect and vicarious “donors.” Insofar as that subsidy is conferred upon a wide array of nonsectarian groups as well as religious organizations in pursuit of some legitimate secular end, the fact that religious groups benefit incidentally does not deprive the subsidy of the secular purpose and primary effect mandated by the Establishment Clause. However, when government directs a subsidy exclusively to religious organizations that is not required by the Free Exercise Clause and that either burdens nonbeneficiaries markedly or cannot reasonably be seen as removing a significant state-imposed deterrent to the free exercise of religion, as Texas has done, it provides unjustifiable awards of assistance to religious organizations and cannot but convey a message of endorsement to slighted members of the community.

In addition, the plurality stated that the statute seemed “to produce greater state entanglement with religion than the denial of an exemption” because the statute required the government to “evaluat[e] the relative merits of differing religious claims” in order to determine whether a publication qualified for the exemption.

In the concurring opinion, Justices Blackmun and O’Connor concluded that “a tax exemption limited to the sale of religious literature by religious organizations violates the Establishment Clause” because it results in “preferential support for the communication of religious messages.” They added that “[a] statutory preference for the dissemination of religious ideas offends our most basic understanding of what the Establishment Clause is all about and hence is constitutionally intolerable.”

Because no single opinion garnered at least five votes in Texas Monthly, “the holding of the Court may be viewed as that position taken by those Members who concurred in the judgments on the narrowest grounds.” Although [this rule] likely would make Justice Blackmun’s opinion controlling, the differences between the plurality and concurring opinions in Texas Monthly are minimal for the purpose of this case. Under either opinion, a tax exemption provided only to religious persons violates the establishment clause, at least when the exemption results in preferential treatment for religious messages.

Because a primary function of a “minister of the gospel” is to disseminate a religious message, a tax exemption provided only to ministers results in preferential treatment for religious messages over secular ones. Accordingly, I conclude that Texas Monthly controls the outcome of this case. Although this case involves an income tax exemption instead of a sales tax exemption, neither the plurality nor the concurrence placed any importance on the type of tax involved and defendants do not provide any grounds for distinguishing the two types.

Note that this does not affect broadly available exemptions that are offered pretty much evenhandedly to religious nonprofits and to other nonprofits, such as property tax exemptions (see Walz v. Tax Comm’n (1970)) or income tax deductions for charitable contributions. (To what extent particular some such exemptions do provide special benefits to religious institutions that are not provided to secular institutions is a different question.)

Note also that § 119 of the tax code provides an exemption for housing provided by the employer, when “the employee is required to accept such lodging on the business premises of his employer as a condition of his employment” — usually when the employee is supposed to be on-premises even during the off-duty hours, for the convenience of the employer. In some situations some ministers would qualify under this provision, and a court applying the district court’s reasoning (and Texas Monthly and Walz) would likely uphold an analogous provision that applies specifically to ministers, if the provision covers ministers the same way as other employees. But § 107(2) provides for a much broader exemption, with no requirement that the lodging be “on the business premises of [the] employer” or that on-premises living be “a condition of … employment.”

Thanks to readers Renee Margaret McConahy and Chett Harris for the pointer.