An Oregon court ruled that a church was required to pay state unemployment taxes on its pastor since he was an employee.

Key point. Churches are exempt from paying unemployment taxes on their employees, except in Oregon.

An Oregon court ruled that a church was required to pay state unemployment taxes on its pastor since he was an employee.

Oregon is the only state that currently requires churches to pay unemployment taxes on their pastors. The church in this case argued that they were not required to pay unemployment taxes on their pastor since he was an independent contractor rather than an employee.

The court acknowledged that employers are not required to pay unemployment taxes on independent contractors, but it concluded that the pastor was not an independent contractor. In support of this conclusion, the court noted that the pastor was subject to dismissal by the church for failing to carry out his duties consistently with what the church regarded as biblical doctrine.

The court also rejected the church's argument that requiring it to pay unemployment taxes violated its constitutional right of religious freedom. The church had argued that requiring it to acknowledge that it was the pastor's "employer" conflicted with its religious belief that his employer was God, not the church.

The court concluded, "The state's unemployment taxation law applies to all employers, regardless of the religious beliefs of the employers or their employees, and is intended to protect the economic security of the state's residents, not to inhibit or promote any particular religious beliefs. Any effect on the religious beliefs of the church are purely incidental. Requiring the church to report to the department as an employer, therefore, is not prohibited by [the first amendment guaranty of religious freedom]." Church at 295 S. 18th Street v. Employment Department, 28 P.3d 1185 (Or. App. 2001).

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