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Do religious institutions have a free-exercise right to tax exemptions?

The Supreme Court has been clear that the simple act of taxation is not in and of itself a violation of either the First Amendment's free-exercise or establishment clauses. This does not mean, however, that it is impossible for a tax to violate either or both of the First Amendment’s religion clauses. If a tax were targeted in discriminatory ways or became so oppressive that it substantially constrained a religious group's ability to function, then it could possibly violate the free-exercise clause. Likewise, the administrative details of enforcing a taxation scheme could become so intricate and require so much interaction between the state and a religious organization that a court would find sufficient entanglement to violate the establishment clause, as interpreted through the Lemon test.

May the government constitutionally place conditions on religious tax exemptions?

Yes. The Internal Revenue Service requires that 501(c)(3) nonprofit organizations (a category that includes tax-exempt religious organizations) refrain from partisan politicking if they are to receive tax-exempt status. The U.S. Circuit Court of Appeals for the District of Columbia held in Branch Ministries v. Rossotti (2000) that a religious institution had no affirmative right to a tax exemption and that the IRS was justified in conditioning a church’s tax-exempt status on its willingness to abstain from political advocacy. In 1992, the church took out a newspaper ad to ask Christians to vote against then-governor Bill Clinton because of his political stances, also including a request for donations to the ministry. The court determined that this sort of political advocacy was not central to the church’s religious practice, and therefore restraining from such speech was not a burden on its free-exercise rights.

The government may also condition tax exemptions on compliance with government policies. In the Supreme Court's 1983 decision in Bob Jones University v. United States, the university's tax-exempt status was revoked because the school enforced racially discriminatory policies. Questions remain as to whether legislatures or administrative agencies can condition exemptions on an organization’s promise not to discriminate on the basis of religion or sexual orientation, aspects of which might legitimately relate to the organization’s religious beliefs.

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