The decision Friday by U.S. District Judge Barbara Crabb could have far-reaching financial ramifications for pastors, who currently can use the untaxed income to pay rental housing costs or the costs of home ownership, including mortgage payments and property taxes.
“It’s a really big deal,” said Annie Laurie Gaylor, co-president of the Madison-based Freedom From Religion Foundation, which filed the lawsuit. “A church currently could pay a minister $50,000 but designate $20,000 of it a housing allowance so that only $30,000 would be taxed as salary.”
Crabb acknowledged in her decision that the exemption is a boon to ministers, referencing a 2002 statement by then-U.S. Rep. Jim Ramstad of Minnesota that the tax exemption would save clergy members $2.3 billion in taxes from 2002-2007. But she said the magnitude of the benefit only underscores what’s wrong with the law.
The exemption “provides a benefit to religious persons and no one else, even though doing so is not necessary to alleviate a special burden on religious exercise,” Crabb wrote.
Although I conclude that § 107(2) violates the establishment clause and must been joined, this does not mean that the government is powerless to enact tax exemptions that benefit religion. “[P]olicies providing incidental benefits to religion do not contravene the Establishment Clause.” Capitol Square Review & Advisory Board v. Pinette, 515 U.S. 753, 768 (1995) (plurality opinion). In particular, because “[t]he nonsectarian aims of government and the interests of religious groups often overlap,” the government is not “required [to] refrain from implementing reasonable measures to advance legitimate secular goals merely because they would thereby relieve religious groups of costs they would otherwise incur.” Texas Monthly, 489 U.S. at 10 (plurality opinion). Thus, if Congress believes that there are important secular reasons for granting the exemption in § 107(2), it is free to rewrite the provision in accordance with the principles laid down in Texas Monthly and Walz so that it includes ministers as part of a larger group of beneficiaries. Haller, 728 A.2d at 356 (noting that Texas amended statute at issue in Texas Monthly to grant sales tax exemption to broader range of groups). As it stands now, however, § 107(2) is unconstitutional.
The next thing that needs to go is religion’s exemption from property taxes.
Congrats to Annie Laurie, Dan, and the gang of attorneys at FFRF.