* Professor of law at the Benjamin N. Cardozo School of Law Yeshiva University. He wishes to acknowledge the assistance of Professor Evelyn Brody and, as usual, Doris Zelinsky.
1 489 U.S. 1, 5 (1989).
2 See id. at 11 (citing Walz v. Tax Comm’n, 397 U.S. 664 (1970)).
3 Walz, 397 U.S. at 664, 673.
4 It was particularly important to Justices Brennan and Harlan in their separate concurring opinions that New York exempted not just religious properties, but also the real estate owned by a broad array of nonprofit entities. As we shall see infra, the concerns of these concurring justices have become central to the Court’s current doctrine in this area.
5 I use the term “tax benefits” advisedly since many tax provisions commonly denoted as “benefits” arguably define the tax base, rather than subsidize, and the term “benefits” carries the possible connotation that these tax provisions constitute subsidies. See infra Part I; see also Edward A. Zelinsky, Are Tax ‘Benefits’ Constitutionally Equivalent to Direct Expenditures?, 112 Harvard Law Rev. 379, 394–95 (1998). In deference to convention, I use the term “tax benefits” in this Article but I do not intend the term to indicate that these provisions are properly characterized as tax subsidies or expenditures.
6 For example, as I write this Article, the Pennsylvania Legislature is considering a sales tax exemption for all publications, the Pennsylvania Supreme Court having stricken an exemption limited to religious publications. See Ken Dilanian, Pennsylvania Lawmakers Propose Exemption For All Books, State Tax Notes, Mar. 20, 2001, at 54–28.
7 See Fred Stokeld, Bush Budget Plan Would Promote Charitable Giving, Tax Notes Today, Mar. 22, 2001, at 69–2; see also Brant Goldwyn, Faith-Based Bills Would Offer Tax Breaks For Charitable Giving, Self-Help Accounts, Daily Tax Report, Mar. 22, 2001; Patti Mohr, Bipartisan Faith-Based Bills Include Incentives For Charitable Giving, Tax Notes Today, Apr. 10, 2001, at 56–3. On the President’s faith-based initiative more generally, see Donald F. Kettl, Having Faith in Faith, 14 Governing No. 7, 12 (Apr. 2001).
8 Of course, tax benefits focused exclusively upon religious actors might be constitutional but less desirable as a matter of policy than benefits extending to secular institutions as well. My focus in this Article is limited to the constitutional considerations.
9 319 U.S. 105 (1943).
10 321 U.S. 573 (1944).
11 493 U.S. 378 (1990).
12 463 U.S. 388 (1983).
13 See Erika King, Tax Exemptions and the Establishment Clause, 49 Syracuse L. Rev. 971, 993 (1999) (“The word ‘subsidy’ has crept into our day-to-day characterization of tax exemptions.”).
14 Grant made these observations in his 1875 State of the Union Message. See Walz, 397 U.S. at 715 n.17 (Douglas, J., dissenting); see also Jean Edward Smith, Grant 570 (2001). Grant’s observations are widely quoted by those opposing tax exemptions for churches. See Rev. L. M. Birkhead, A Preacher Advocates Church Taxation, at http://www.infidels.org/lib-rary/historical/rev_l_m_birkhead/church_taxation.html (Apr. 7, 2001).
15 Grant was certainly not immune from sentiments of this sort, having issued the anti-Semitic General Orders No.11 during the height of the Civil War. See Geoffrey Perret, Ulysses S. Grant 237–38 (1997); Brooks D. Simpson, Ulysses S. Grant 163–65 (2000); Smith, supra note 14, at 225–27, 459–60. Moreover, others writing at the same time as Grant’s statement explicitly linked the issue of tax exemption with the growing power of the Catholic Church. See Stephen Diamond, Efficiency and Benevolence: Philanthropic Tax Exemptions in Nineteenth Century America, in Property-Tax Exemption for Charities: Mapping the Battlefield (Evelyn Brody ed., forthcoming 2001).
16 Marci A. Hamilton, Free? Exercise, 42 Wm. & Mary L. Rev. 823, 861 (2001).
17 See King, supra note 13, at 994 (“The source of the tendency now to characterize an ‘exemption’ as a ‘subsidy’ is tax expenditure analysis.”).
18 For more extensive discussion of tax expenditure analysis, see Edward A. Zelinsky, James Madison and Public Choice at Gucci Gulch: A Procedural Defense of Tax Expenditures and Tax Institutions, 102 Yale L. J. 1165, 1168–71 (1993).
19 See I.R.C. § 501 (1994).
20 Stanley S. Surrey & Paul R. McDaniel, Tax Expenditures 219 (1985) (“[T]he U.S. tax treatment of nonprofit organizations should be classified as a tax expenditure.”).
21 See I.R.C. § 170 (1994).
22 Surrey & McDaniel, supra note 20, at 170 (“the code’s charitable contribution tax expenditure”).
23 See, e.g., Office of Management and Budget, “Budget Analytical Perspectives, Chapter 5—Tax Expenditures,” Tax Notes Today, Feb. 29, 2000, at 40–36 item 82 (listing as a tax expenditure the deductibility of contributions for education), item 92 (listing as a tax expenditure the deductibility of all charitable contributions other than those for education and health), item 101 (listing as a tax expenditure the deductibility of contributions for health).
24 Surrey & McDaniel, supra note 20, at 133 (“More to the point was Justice Douglas’s question in dissent.”).
25 Boris I. Bittker, Accounting for Federal ‘Tax Subsidies’ in the National Budget, 22 Nat’l Tax J. 244 (1969).
26 Boris I. Bittker, Churches, Taxes and the Constitution, 78 Yale L. J. 1285, 1291 (1969).
27 Id.
28 William D. Andrews, Personal Deductions in an Ideal Income Tax, 86 Harv. L. Rev. 309 (1972).
29 Id. at 371. The other component of the income tax base is savings. This formulation reflects the well-known Haig-Simons definition of income as the sum of savings and consumption.
30 Id. at 344.
31 Professor Andrews also defines the deduction for medical expenses as base-defining. Professor Andrews’ analysis is logically extended to the deduction for state and local taxes. See Edward A. Zelinsky, The Deductibility of State and Local Taxes: Income Measurement, Tax Expenditures and Partial, Functional Deductibility, 6 Am. J. of Tax Pol’y 9, 31–32 (1987).
32 See infra notes 53–79, 144–58 and accompanying text.
33 Yale Univ. v. Town of New Haven, 42 A. 87, 91 (1899).
34 Evelyn Brody, Of Sovereignty and Subsidy: Conceptualizing the Charity Tax Exemption, 23 Iowa J. Corp. L. 585, 586 (1998) [hereinafter Sovereignty and Subsidy]; see also Evelyn Brody, Legal Theories of Tax Exemption: Sovereignty Quasi and Real, in Property-Tax Exemption for Charities: Mapping the Battlefield (Evelyn Brody ed., forthcoming 2001).
35 Sovereignty and Subsidy, supra note 34, at 586.
36 Harry V. Jaffa, A New Birth of Freedom 140 (2000).
37 See infra Part II.
38 319 U.S. 105 (1943).
39 321 U.S. 573 (1944).
40 The license fee in Murdock was $1.50 for one day, $7.00 for one week, $12.00 for two weeks, and $20.00 for three weeks. See 319 U.S. at 106. The license fee in Follett was $1.00 per day or $15.00 per year. See 321 U.S. at 574. The fees were thus unrelated to the amount of sales made by the licensed canvasser. See Follett, 321 U.S. at 574; Murdock, 319 U.S. at 106. The flat nature of the fees assessed in Murdock and Follett became particularly critical in subsequent consideration of these cases. See infra notes 102–108 and accompanying text.
41 See Murdock, 319 U.S. at 118 (Reed, J., dissenting) (“No evidence is offered to show the amount is oppressive. . . . There is no contention in any of these cases that such discrimination is practiced in the application of the ordinances.”).
42 Id. at 105, 111–12. The Court did not come to this conclusion easily. The Court initially upheld these kinds of fees as applied to Jehovah’s Witnesses and then reversed itself. Compare Follett, 321 U.S. at 573, and Murdock, 319 U.S. at 105, with Jones v. Opelika, 316 U.S. 584, 597 (1942) (“When proponents of religious or social theories use the ordinary commercial methods of sales of articles to raise propaganda funds, it is a natural and proper exercise of the power of the State to charge reasonable fees for the privilege of canvassing.”). Opelika was authored by Justice Reed who dissented in Murdock and concurred in Follett only because, at that point, he viewed Murdock as controlling precedent. See Follett, 321 U.S. at 578.
43 Murdock, 319 U.S. at 111.
44 Id. at 112.
45 Id. at 121 (Reed, J., dissenting).
46 Id. at 130 (Reed, J., dissenting).
47 Follett, 321 U.S. at 577–78.
48 Id. at 578–79 (Murphy, J., concurring).
49 Id. at 579 (Murphy, J., concurring).
50 Id. at 579–80 (Murphy, J., concurring).
51 Id. at 581 (Murphy, J., concurring).
52 Walz v. Tax Comm’n, 397 U.S. 664, 669–70 (1970).
53 See infra notes 91–159 and accompanying text.
54 397 U.S. at 669–70.
55 Id.
56 Id. at 672.
57 Id.
58 Id. at 673.
59 Walz, 397 U.S. at 674.
60 Id. at 675.
61 Id. at 676.
62 Id. at 673.
63 Id.
64 Walz, 397 U.S. at 673.
65 Id.
66 See id. at 707.
67 See 116 U.S. 404, 406 (1886).
68 See id. at 428.
69 Walz, 397 U.S. at 679–80 (quoting Gibbons, 116 U.S. at 408). The parenthetical was added to the language of Gibbons by the Chief Justice.
70 See id. at 680.
71 See id.
72 See, e.g., Bittker, supra note 25, at 244; Edward A. Zelinsky, For Realization: Income Taxation, Sectoral Accretionism, and the Virtue of Attainable Virtues, 19 Cardozo L. Rev. 861, 889–93 (1997).
73 Justice Brennan does mention entanglement concerns. See Walz, 397 U.S. at 691–92 (“the termination of exemptions would give rise” to entanglement problems.). However, Justice Brennan makes these comments almost in passing; they are not central to his analysis. See id.
74 See Texas Monthly v. Bullock, 489 U.S. 1, 5–25 (1989).
75 See Walz, 397 U.S. at 690. Much of Justice Brennan’s concurrence is historical in nature, designed to demonstrate that, as a matter of past practice, property tax exemptions for churches were considered acceptable under the First Amendment. See id. at 681–88. As I suggest, infra, this historical data ultimately suggests that the founding generation conceived of tax exemption as a form of separation, not subsidy.
76 Id. at 692–93.
77 Id. at 687. Chief Justice Burger, for the Walz majority, specifically rejected any linkage between churches’ property tax exemptions and their secular good works. See id. at 674.
78 Id. at 689.
79 See Texas Monthly, 489 U.S. at 14.
80 See 397 U.S. at 697 (Harlan, J., concurring) (“As long as the breadth of exemption includes groups that pursue cultural, moral, or spiritual improvement in multifarious secular ways, including, I would suppose, groups whose avowed tenets may be antitheological, atheistic, or agnostic, I can see no lack of neutrality in extending the benefit of the exemption to organized religious groups.”).
81 Id. at 698–99 (Harlan, J., concurring).
82 Id. at 704 (Douglas, J., dissenting).
83 Id. at 701 (Douglas, J., dissenting).
84 Id. at 708–09 (Douglas, J., dissenting).
85 397 U.S. at 707 (Douglas, J., dissenting) (quoting Murdock, 319 U.S. at 112).
86 Id. at 704 (Douglas, J., dissenting).
87 Follett, 321 U.S. at 577–78.
88 Texas Monthly, 489 U.S. at 1.
89 John T. Noonan, Jr., The Lustre of Our Country 195 (1998).
90 See Texas Monthly, 489 U.S. at 5.
91 Id. at 12 (internal citation omitted).
92 See Walz, 397 U.S. at 690–704.
93 Id. at 672.
94 489 U.S. at 14.
95 Id. at 15.
96 Id. at 14.
97 See Bittker, supra note 25, at 260–61.
98 See Texas Monthly, 489 U.S. at 21–22.
99 Id. at 22.
100 319 U.S. at 111.
101 Texas Monthly, 489 U.S. at 21.
102 Indeed, it is not clear what it would mean for three justices to overrule prior precedent.
103 Texas Monthly, 489 U.S. at 24.
104 Id.
105 Id. at 23.
106 Id. at 24 (quoting Murdock, 319 U.S. at 114).
107 Indeed, in Swaggart Ministries v. Board of Equalization, Justice O’Connor distinguished Follett and Murdock on the other two grounds suggested by Justice Brennan in Texas Monthly but did not pursue his distinction between occupation and sales taxes. See generally Swaggart Ministries v. Bd. of Equalization, 493 U.S. 378 (1990).
108 Texas Monthly, 489 U.S. at 23.
109 Such liquidity concerns constitute a major justification for the income tax rule of realization which generally postpones taxation until the taxpayer has cash. See Zelinsky, supra note 72, at 889–93.
110 Texas Monthly, 489 U.S. at 20.
111 See id. at 33–41.
112 See id. at 25 (Blackmun, J., concurring).
113 Id. at 27 (Blackmun, J., concurring).
114 Id. (White, J., concurring).
115 Texas Monthly, 489 U.S. at 28 (Blackmun, J., concurring).
116 Id. at 29 (Blackmun, J., concurring).
117 Id. at 28 (Blackmun, J., concurring).
118 Id. at 29 (Blackmun, J., concurring).
119 Id. at 29. While disagreeing with Justice White, Justice Scalia was somewhat more understated in describing that disagreement. See id. at 44–45 (Scalia, J., dissenting).
120 Texas Monthly, 489 U.S. at 33 (Scalia, J., dissenting).
121 Id. at 39 (Scalia, J., dissenting).
122 Id. at 33 (Scalia, J., dissenting).
123 Id. at 36–37 (Scalia, J., dissenting).
124 Id. at 38–41 (Scalia, J., dissenting).
125 Texas Monthly, 489 U.S. at 38 (Scalia, J., dissenting).
126 Id. at 44 (Scalia, J., dissenting) (internal citations omitted).
127 Id. at 41–42 (Scalia, J., dissenting).
128 Id. at 41 (Scalia, J., dissenting).
129 Noonan, supra note 89, at 193.
130 See supra notes 111–128 and accompanying text.
131 Swaggart Ministries, 493 U.S. at 378.
132 Jimmy Swaggart Ministries also sold admittedly nonreligious items in California, but did not claim sales tax exemption for these.
133 While Justice O’Connor, like Justice Brennan, focused upon the flat and prepaid nature of the Murdock/Follett license fees, Justice O’Connor did not pursue Justice Brennan’s third distinction between occupational taxes and sales taxes. See Swaggart Ministries, 493 U.S. at 387–89.
134 Id.
135 Id. at 387.
136 Id.
137 Swaggart Ministries, 493 U.S. at 389.
138 Id. at 386.
139 Id. at 393.
140 Id. at 396.
141 Id. at 393.
142 See Swaggart Ministries, 493 U.S. at 393.
143 See Texas Monthly, 489 U.S. at 29 (Scalia, J., dissenting).
144 Mueller v. Allen, 463 U.S. 388 (1983).
145 Id. at 391 n. 2, item 2.
146 Id. at 391 n. 2, item 3.
147 Id. at 390 n. 1 (reproducing Minn. Stat. § 290.09 (22) (2000)).
148 413 U.S. 756 (1973).
149 463 U.S. at 398.
150 Id. at 397.
151 Id. at 398–99.
152 Id. at 401.
153 Id. at 403.
154 See Walz, 489 U.S. at 680.
155 Mueller, 463 U.S. at 396 (quoting Regan v. Taxation With Representation of Wash., 461 U.S. 540, 547 (1983)).
156 Id. at 408–09 (Marshall, J., dissenting) (“The statute is little more than a subsidy of tuition masquerading as a subsidy of general educational expenses.”).
157 Id. at 405 (Marshall, J., dissenting).
158 Id. at 409 n.2 (Marshall, J., dissenting).
159 493 U.S. 378, 392 (1990).
160 397 U.S. 664, 672 (1970).
161 When asked “How long must a man’s legs be?” President Lincoln is said to have answered, “Long enough to reach the ground.”
162 See supra notes 13–24 and accompanying text.
163 See supra notes 26–27 and accompanying text.
164 See Follett v. Town of McCormick, 321 U.S. 573, 578–79 (1944) (Murphy, J., concurring).
165 See Bittker, supra note 25, at 260–61.
166 Implicit in the use of the article “a” is an important contention: Since tax base definition typically involves selection from a range of plausible alternatives, there is typically no single normative tax but, rather, a spectrum of normatively plausible tax bases. Hence, it makes sense to speak of “a” normative tax, rather than “the” normative tax. Of course, tax expenditure stalwarts reject this approach. See Edward A. Zelinsky, Qualified Plans and Identifying Tax Expenditures: A Rejoinder to Professor Stein, 9 Am. J. Tax Pol’y 257, 259–62 (1991).
167 See Bittker, supra note 25, at 260–61.
168 From this vantage, Swaggart Ministries was correctly decided even if Texas Monthly was not. Once constitutionally-compelled exemption a la Follett and Murdock is foreclosed, the two remaining approaches to entanglement concerns are the contrasting vantages of Justice Harlan (exemption limited to religious entities creates unacceptable entanglement) and Chief Justice Burger (exemption of religious institutions is a constitutionally permissive accommodation of religion).
From both perspectives, there is no infirmity to California’s sales tax statute since, per the Burger formulation, accommodation is permitted but not required while, per the Harlan approach, California’s statute properly avoids entanglement by taxing religious publications, thereby foregoing border-defining conflict over the contours of a narrow exemption for religious literature.
Indeed, from this vantage, there is logic to the participation (if not the silence) of the Texas Monthly dissenters in Swaggart Ministries: Texas can recognize the autonomy of religious actors but California is not required to.
169 In recent times, the best known boundary dispute has been the protracted conflict between the IRS and the Church of Scientology over the federal income tax charitable deduction. See Paul Streckfus, Scientology Case Redux, 87 Tax Notes 1414 (June 5, 2000). As to enforcement controversies, the most recent such controversy receiving national attention has been the IRS’s seizure of the Indianapolis Baptist Temple to enforce tax liens. See Government Seizes Indianapolis Church in Tax Dispute, 2001 Tax Notes Today, Feb. 14, 2001, at 36–108.
170 Texas Monthly, 489 U.S. at 39 (Scalia, J., dissenting).
171 See, e.g., Walz, 397 U.S. at 661–68 (Brennan, J., concurring), 704–07 (Douglas, J., concurring), 716–27 (appendix to Justice Douglas’ dissent).
172 See Diamond, supra note 15.
173 See Walz, 397 U.S. at 674; id. at 698–99 (Harlan, J., concurring).
174 The valuation of real estate is often difficult under real property and transfer tax systems. See Edward A. Zelinsky, For Realization: Income Taxation, Sectoral Accretionism, and the Virtue of Attainable Virtues, 19 Cardozo L. Rev. 861, 881–83 (1997). For much single purpose religious property, valuation problems are even greater, given the infrequency with which such property is sold and such property’s non-income producing nature.
175 As noted previously, tax benefits limited to religious institutions may raise policy considerations which suggest that such benefits should be offered more broadly. My conclusion is that tax deductions, exclusions, and exemptions restricted to religious institutions are constitutional, not that they are necessarily wise.