Would A Supreme Court Ruling In Favor of Same Sex Marriage Threaten Religious Organizations’ Tax Exemptions?

The United States Supreme Court has heard arguments in the Obergefell v. Hodges case which basically seeks to legalize same-sex marriage in the United States.  While the court has not yet announced its verdict, there is concern that, if it is legalized, the action could threaten the tax-exempt status of churches and other religious organizations.  Albert Mohler, President of Southern Baptist Theological Seminary has stated that this issue “may well be the greatest threat to religious liberty of our lifetime.

During discussions before the Court, three religious liberty issues were raised.  First, Justice Scalia asked counsel arguing for same-sex marriage if clergy would be required to perform same-sex marriages. The response was that a constitutional right for such unions would not require clergy of any faith to perform these ceremonies.

The second issue arose when Chief Justice Roberts inquired of Solicitor General Verrilli if a religious school having religious housing would be required to offer that housing to same sex couples. Verrilli responded that there is not, at present, a federal law banning discrimination in housing on matters of sexual orientation. He further indicated that the right to discriminate on this issue would survive as an accommodation on a state-by-state basis until such time as the federal government passed its own legislation. This legislation could or could not include an accommodation for religious organizations. Of course, a school could side-step the issue by not offering married student housing. Needless to say, this remains are area of critical concern to religious organizations.

The third issue related to religious freedom came about when Justice Alito asked Verrilli about the right of religious organizations to maintain their tax-exempt status, citing the Supreme Court’s decision to allow the IRS to strip the tax-exempt status of Bob Jones University due to their policy against interracial dating and marriage. In essence, Alito was inquiring if the prohibition of interracial marriage and of same-sex marriage are related issues. His response was “I don’t think that I can answer that question without knowing more specifics, but it’s certainly going to be an issue.” Many legal experts feel that it is a stretch to apply the Bob Jones case to the current issue. The Bob Jones dealt with racial discrimination and the Constitution limits comparison between the two cases. Additionally, provisions in the First Amendment and the Federal Religious Restoration Act cold tend to protect religious organizations on this issue.

Loss of tax-exempt status would have a significant negative impact on churches and religious organizations, as contributions to these organizations would not be a charitable contribution for the donors, potentially eroding support from donors. Additionally, it is presumed that they would also lose property tax exemptions they currently enjoy. It does not seem likely that they would be subject to income tax, as they are currently organized as non-profit organizations, but that could change. Even if it did, the impact of being subject to income tax would be minimal for many organizations as they tend to spend their income so would not have any taxable income of consequence.

At this point, the Court has not ruled, so it may be a moot point should the Court come down against the legalization of same-sex marriage. However, even if this occurs, it can be expected that there will be efforts to make these marriages legal. In any event, churches and religious organizations will have to deal with this issue now or for years to come.

Connect with John Stancil on TaxConnections to discuss this or other posts.

Dr. John Stancil (My Bald CPA) is Professor Emeritus of Accounting and Tax at Florida Southern College in Lakeland, FL. He is a CPA, CMA, and CFM and passed all exams on the first attempt. He holds a DBA from the University of Memphis and the MBA from the University of Georgia. He has maintained a CPA practice since 1979 with an emphasis in taxation. His areas of expertise include church and clergy tax issues and the foreign earned income credit. He prepares all types of returns, individual and business.

Dr. Stancil has written for the Polk County Business Journal and has presented a number of papers at academic conferences. He wrote the Instructor’s Manual for the 13th edition of Horngren’s Cost Accounting. He is published in the Global Sustainability as a Business Imperative, Green Issues and Debates, The Encyclopedia of Business in Today’s World, The Palmetto Business Review, The CPA Journal, and in the NATP TaxPro Journal. His paper, “Building Sustainability into the Tax Code” was recognized as the outstanding accounting paper at the annual meeting of the South East InfORMS. He wrote a book entitled “Tax Issues Faced by U. S. Missionary Personnel Abroad ” that will soon be published.

He has recently launched a new endeavor, Church Tax Solutions, which presents online, on demand seminars on various church and clergy tax issues.

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