This was a landmark case in the case of Church Taxation. The plaintiff, a Christian property owner named Frederic Walz, sued the tax commission of New York City, arguing that the tax exemption for religious property forced him to make a contribution to religious bodies, thus violating his own freedom of religion. By exempting religious institutions from property taxes while they still enjoyed state services such as fire departments, Walz asserted that his tax burden needed to be increased proportionately to support these churches.
Walz also argued that the exemption amounted to a subsidy of religion, conferring an unfair advantage to religious organizations and violating the establishment clause of the 1st amendment.
The Tax Commission argued that singling religious institutions out from the class of exempt organizations just because they were religious would be a more egregious violation of the 1st amendment:
"...if you're going to say that religious institutions, who have the same legal standing, an economic standing, are nonprofit, engaged in charitable or education activities are thereby to be singled out and told that they can not enjoy the same exemption by reason those activities as other people, I do not see how you can face up to say that that does not inhibit religion in this country."-Mr. Rankin, Walz V Tax Commission
The court ruled in favor of the Tax Commission in a 8-1 vote, with Justice Douglas dissenting. The ruling hinged on two principles:
1. Churches receive the exemption as part of a class that includes hospitals, libraries, playgrounds, and other secular organizations. Thus the purpose of the law was deemed to not be establishing religion.
2. There is a difference between direct subsidy and tax exemption. By exempting religious institutions, there is "minimal and remote involvement between church and state and far less than taxation of churches." The court deemed exemptions to be a "benevolent neutrality" towards religion. Also, an exemption does not result in a direct transfer of funds from the government to the church. So even though the net result is the same, exempting churches is fundamentally different than paying them the exact amount they are taxed each year.
Justice Brennan summed up the difference quite nicely:
In the case of direct subsidy, the state forcibly diverts the income of both believers and nonbelievers to churches while in the case of an exemption, the state merely refrains from diverting to its own uses income independently generated by the churches through voluntary contributions.Justice Douglas couldn't disagree more. Here is a bit of his dissent:
One of the best ways to 'establish' one or more religions is to subsidize them, which a tax exemption does...if believers are entitled to public financial support, so are nonbelievers. A believer and nonbeliever under the present law are treated differently because of the articles of their faith… I conclude that this tax exemption is unconstitutional.
I'm inclined agree with Douglas and see the distinction between subsidy and exemption as spacious; the results are identical. But I also agree with the majority opinion of the court that singling out religion to be removed from the class of exempt organizations would probably be unconstitutional. What I would much rather see is that churches be made to qualify for that exemption under the same criteria that hospitals and non-profits have to meet. Currently, religious organizations are automatically exempt by virtue of being religious. But more on that later.
To close out, I love this little gem from the arguments for Walz. It raises a interesting questions about special treatment of religion even within the 1st amendment itself.
It is one thing to tax a preacher's property and another thing to tax his teaching.
For example, Mr. Justice Frankfurter said in very plain words, “it is alien to our constitutional system to suggest that it exempts church held lands from state taxation.”
In other words, the Court itself has very plainly made the distinction from the direct exercise of religion not subject to a license task, and indeed, I hardly have to go further and state that if [the opposing] argument were true, would it mean that the great real estate holdings of our press and our T.V. organization should not be subject to tax because they are engaged in the exercise of the freedom of the press?
It's hardly distinguishable.
The land used by the New York Times to print its paper is just as much involved in the freedom of the press as the church building used in expressing religion.
-Mr. Ennis, Walz V Tax Commission (emphasis mine)
Amen Mr. Ennis. Amen