Sales Tax and Religious Organizations

The Ohio Supreme Court recently ruled on this issue.

Church Law and Tax 1991-03-01 Recent Developments

Taxation – Sales

The Ohio Supreme Court ruled that a religious organization was not liable for sales taxes on its purchases within the state. Ohio law exempts from sales tax any sale of property “to churches.” State law further provides that no exemption applies to sales made in the course of any “trade or business.” The state assessed taxes on most purchases made by a religious organization known as “The Way.” It disputed the organization’s claim that it was a “church,” and also concluded that the organization’s sales of books and tapes constituted a “trade or business” that precluded any tax exemption. The state supreme court ruled in favor of the organization. First, it concluded that the organization was a church: “It has adherents. It adopts the Bible as the main source of its dogma, it propagates a comprehensive set of religious objectives and beliefs which attempt to answer its adherents’ religious concerns, and it conducts services …. It employs ministers who preside at sacramental ceremonies, operates schools to train ministers, and sends forth missionaries to spread its beliefs.” Second, the court ruled that the organization’s sale of tapes and records did not constitute a “trade or business.” It concluded that the organization “advances religion by selling these materials. Despite receiving more for these items than it paid for them, The Way did not distribute any profit to its trustees, officers, or employees, but, instead, paid them modest salaries. The Way accumulated these profits and expanded its operations, including building a new church facility. Moreover, The Way’s prime source of funding came from voluntary contributions. The Way’s motive is to advance its religion, and it employs books and tapes in a functionally related way to accomplish this. Selling books and tapes to its followers is not a business but a means to its religious ends.” The Way International v. Limbach, 552 N.E.2d 908 (Ohio 1990).

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