IFAS | Freedom Writer | March 1996 | legal.html

Colorado debates abolishing
tax exemption for churches

By Barbara A. Simon, Esq.

John Patrick Michael Murphy, a personal injury attorney and host of a weekly talk show is leading an effort to eliminate almost all property tax exemptions for churches and nonprofit organizations in Colorado. Tax-exemption would be retained for nonprofit schools and universities, groups that provide housing for prisoners, orphans, the elderly, the disabled, and the homeless.

The effort is taking the form of a ballot initiative to be voted on by Colorado voters this November.

Some of the initiative's supporters view the initiative as an effort to halt the influx and growth of evangelical Christian organizations. Colorado Springs is host to more than 70 religious organizations, among them the Navigators, Focus on the Family, and the International Bible Society. State officials estimate that the amendment would put nearly $3 billion worth of land and buildings on the state tax rolls, providing nearly $70 million in new property tax revenue. The amendment would require that the money be used to reduce taxes for state residents.

Some of the initiative's opponents believe that the initiative represents an "attack" that "undermines the entire nonprofit sector and may produce permanent damage." In a January 14, 1996 The New York Times article, the Reverend Lucia Guzman, executive director of the Colorado Council of Churches, stated that the initiative, if successful, may force many small churches to close.

Assuming that the ballot initiative is successful, will it pass constitutional scrutiny? In the 1970 case of Walz v. Tax Commissioner of New York, the Court upheld the exemption authorized by state law for "real or personal property used exclusively for religious, educational, or charitable purposes as defined by law and owned by any corporation or association organized and conducted exclusively for one or more such purposes and not operated for profit." Walz, a property owner and taxpayer, contended that the exemption indirectly compelled him to support religious organizations owning exempt property. The Court, finding for the Tax Commission, held that the First Amendment "will not tolerate either governmentally subsidized religion or governmental interference with religion." Chief Justice Burger found that the legislative purpose served was legitimate, that historically exemptions recognize the "beneficial and stabilizing influences" of nonprofit groups. The Chief Justice argued that governmental involvement with religion existed with or without the exemption and that "elimination of the exemption would tend to expand the involvement of the government by giving rise to tax valuation of church property, tax liens, tax foreclosures, and the direct confrontations and conflicts that follow in the train of those legal processes." The Court found that upholding the tax exemption provided less opportunity for excessive entanglement of church and state. The Court also rejected any "nexus between tax exemption and establishment of religion." Another case which addressed the constitutionality of tax exemptions for religion was the 1989 case of Texas Monthly v. Bullock. In that case the Court struck down a state sales and use tax exemption for periodicals published or distributed by a "religious faith" which consisted entirely of writings either "promulgating the teachings of the faith," or "sacred to a religious faith."

During the years between Walz (1970), and Texas Monthly (1989), the Court formalized a standard of review for Establishment Clause cases. Taken from Lemon v. Kurtzman (1971), the Court established a three-prong test to determine if a governmental action is neutral toward religion, and therefore passes constitutional muster. First, the governmental legislation must have a secular purpose; second, the primary effect must be one that neither advances, nor inhibits religion; and third there must not be excessive governmental entanglement with religion.

In Texas Monthly v. Bullock, the Court held that when exemptions are granted, they must fall to a "wide array of nonsectarian groups as well as religious organizations." The Court also found that the exemption was confined exclusively to religious publications which gave it insufficient "breadth" to serve a secular objective. The governmental exemption failed the first prong of the Lemon Test, that it have a legitimate secular purpose. The governmental exemption also failed the third prong of the Lemon Test, that of excessive entanglement between government and religion. The Court found that under the exemption, public officials were asked to determine whether a message or activity is "consistent with the teachings of faith."

In light of Texas Monthly and Walz, will Colorado's proposed repeal of exemptions for some nonprofits pass constitutional muster? The initiative seeks to eliminate almost all property tax exemptions for churches and nonprofit organizations. Tax exemption would be retained for nonprofit schools and universities, and groups that provide housing for prisoners, orphans, the elderly, the disabled, and the homeless.

The initiative appears to be discriminatory on its face. Nonprofits that provide education through schools and universities and nonprofits that provide housing to certain segments of society will receive the benefit of tax exemption, while nonprofits that provide food, clothing, and medicine for perhaps the very same segment of society will not receive the benefit of tax exemption.

What is the rational basis behind this discriminatory initiative? There appears to be none. For a governmental action to be found constitutional, it must have, at minimum, a rational basis. There seems to be no rational basis behind this proposed state action.

Could Colorado decide to do away with all tax exemptions? Theoretically, it could. If it did, there would be challenges, especially from religious organizations, who realize the strength of Chief Justice Burger's argument in Walz that governmental involvement with religion existed with or without the exemption and that "elimination of the exemption would tend to expand the involvement of the government," and that by upholding the tax exemption there would be less opportunity for excessive entanglement between church and state.

© 1998 Institute for First Amendment Studies, Inc.