Court Addressed Religious Organization’s Eligibility for Exemption from State Sales Taxes

The Arkansas Supreme Court addressed the issue of a religious organization's eligibility for exemption from

The Arkansas Supreme Court addressed the issue of a religious organization's eligibility for exemption from state sales taxes. A religious organization operated a variety of retail businesses, including a restaurant, grocery store, two service stations, a clothing store, and an auto repair shop. Members of the organization performed services for these businesses without compensation other than the receipt of food, shelter, and clothing at no cost.

A state agency determined that the organization's provision of food and clothing to its members, in exchange for their services, constituted "sales" subject to the state sales tax. A trial court upheld the assessment of the sales tax, and the organization appealed.

The state supreme court agreed that the transfers of food and clothing were sales subject to tax, since they were "transfers for valuable consideration." The court rejected the organization's argument that its constitutional right of religious freedom was being abridged, since "religious organizations entering the commercial and secular world necessarily do so with the understanding that they no longer enjoy the constitutional protections afforded religious organizations.

There are no shields once they cross the line that separates church and state. They are no longer considered a church or religious organization, because they are not acting like one …. The [organization] elected to operate retail businesses for profit and, having made that choice, it must abide by the same rules under which all secular businesses operate, including taxation." This reasoning is clearly flawed, since churches and religious organizations are perfectly free to engage in commercial endeavors without "loss of the constitutional protections afforded religious organizations"—so long as those endeavors are insubstantial.

The Internal Revenue Code recognizes this principle by preserving the exempt status of churches that are engaged in insubstantial commercial activities, while at the same time subjecting some of those activities to the tax on unrelated business income. To say that such churches have ceased to be churches, or that they have lost the constitutional protections afforded religious organizations, is incorrect. Tony & Susan Alamo Foundation v. Ragland, 746 S.W.2d 45 (Ark. 1988)

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

ajax-loader-largecaret-downcloseHamburger Menuicon_amazonApple PodcastsBio Iconicon_cards_grid_caretChild Abuse Reporting Laws by State IconChurchSalary Iconicon_facebookGoogle Podcastsicon_instagramLegal Library IconLegal Library Iconicon_linkedinLock IconMegaphone IconOnline Learning IconPodcast IconRecent Legal Developments IconRecommended Reading IconRSS IconSubmiticon_select-arrowSpotify IconAlaska State MapAlabama State MapArkansas State MapArizona State MapCalifornia State MapColorado State MapConnecticut State MapWashington DC State MapDelaware State MapFederal MapFlorida State MapGeorgia State MapHawaii State MapIowa State MapIdaho State MapIllinois State MapIndiana State MapKansas State MapKentucky State MapLouisiana State MapMassachusetts State MapMaryland State MapMaine State MapMichigan State MapMinnesota State MapMissouri State MapMississippi State MapMontana State MapMulti State MapNorth Carolina State MapNorth Dakota State MapNebraska State MapNew Hampshire State MapNew Jersey State MapNew Mexico IconNevada State MapNew York State MapOhio State MapOklahoma State MapOregon State MapPennsylvania State MapRhode Island State MapSouth Carolina State MapSouth Dakota State MapTennessee State MapTexas State MapUtah State MapVirginia State MapVermont State MapWashington State MapWisconsin State MapWest Virginia State MapWyoming State IconShopping Cart IconTax Calendar Iconicon_twitteryoutubepauseplay