In the July/August 2011 edition of Church Law & Tax Report, we provided an update on a lawsuit brought by the Freedom from Religion Foundation ("FFRF") and several other plaintiffs in a federal district court in California challenging the constitutionality of the parsonage exclusion and housing allowance. We opined that this challenge may have been dealt a fatal blow as a result of a recent United States Supreme Court case. The high court ruled (5-4) that a group of Arizona taxpayers lacked "standing" to challenge the constitutionality of a state law that gave tax credits for contributions to "school tuition organizations" (STOs) that provided scholarships to students attending private schools, including religious schools. It noted that the courts have consistently ruled that standing cannot be based on a plaintiff's status as a federal taxpayer because the "injury" is too remote or speculative.
The Court acknowledged a limited exception to taxpayer standing in cases challenging legislation on the basis of the First Amendment's nonestablishment of religion clause. Taxpayers have standing in such cases to challenge direct transfers of tax revenue to religious organizations since "the taxpayer's allegation in such cases would be that his tax money is being extracted and spent in violation of specifi c constitutional protections against such abuses of legislative power." But the Court concluded that there is a difference between direct transfers of tax revenues to religious organizations, and credits and deductions, and it limited taxpayer standing to the former context. This ruling left no doubt that the plaintiffs challenging the housing allowance lacked standing since a tax exclusion, rather than a direct transfer of tax revenue to religion, was involved. As a result, the plaintiffs voluntarily dismissed their challenge on June 17, 2011.