“Use Taxes” and Churches

Use taxes are designed to prevent the avoidance of sales tax.

Church Law and Tax 1992-03-01 Recent Developments

Taxation – Sales

The Iowa Supreme Court upheld the application of a state “use tax” to the purchase of religious products by a local church. A state tax agent audited a Lutheran church, and claimed that it owed “use taxes” on several items that were purchased from out-of-state church-affiliated suppliers. Most states have enacted “use taxes” as a means of taxing property that is purchased out-of-state. Use taxes are designed to prevent persons from avoiding state sales taxes by purchasing items out-of-state. The church purchased several items from out-of-state church-affiliated suppliers (including Augsburg Publishing House and Concordia Publishing House). Items purchased included church supplies, certificates, religious literature, envelopes, crosses, hymnals, and bulletins. The church objected to the tax, claiming that taxing a church’s purchase of religious supplies violated the first amendment guaranty of religious freedom. The state supreme court disagreed. It observed:

There is no evidence in this case that the payment of the consumer tax violates [the church’s] sincere religious beliefs. Iowa’s nondiscriminatory sales and use tax law requires only that the taxpayer remit to the state the use tax due on consumer items it purchases from its out-of-state, church-affiliated suppliers for its in-state use. The only burdens on [the church] in this case are a slight reduction of funds available to it for the purchase of consumer items and the costs associated with administering this generally-applicable tax. The [United States Supreme Court] has made it clear that to the extent that imposition of a generally-applicable tax merely decreases the amount of money a taxpayer has to spend on its religious activities, any such burden is not constitutionally significant. Though we do not doubt the economic cost to [the church] of complying with a generally-applicable sales and use tax, compliance with such a tax is no different from compliance with other generally-applicable laws and regulations, such as health and safety regulations, to which the taxpayer must adhere.

The court relied heavily on the United States Supreme Court’s 1990 ruling in the Jimmy Swaggart Ministries case upholding the application of the California state sales tax to sales by Swaggart in California (discussed in the March-April 1990 issue of Church Law & Tax Report). The Supreme Court noted in the Swaggart Ministries case that “the fact that [Swaggart Ministries] must bear the cost of collecting and remitting a generally applicable sales and use tax … does not enmesh government in religious affairs.” Hope Evangelical Lutheran Church v. Iowa Department of Revenue, 463 N.W.2d 76 (Iowa 1990).

See Also: State Sales Taxes

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