Tuesday, August 4, 2015
A very interesting comment authored jointly by Rick, John Inazu, and Michael McConnell on the recently introduced First Amendment Defense Act [UPDATE: I see Tom got there first below, so I've stricken the excerpted bit in this post.]
One thought that has occurred to me on the issue of "tax exemption" of nonprofit institutions is that the entire discussion seems askew. It generally begins from the premise that the government can and should be able to tax anyone and anything that it pleases. The tax base is limitless. Amenability to taxation, however, ought not to be the default posture, as if the government simply gets to decide at its pleasure and election whom and what it wishes to tax. Income taxation only follows from the fact of income generation, and though nonprofits generate income they do not distribute it to individuals for private use but spend it in ways that promote public functions and purposes. Nonprofit actors are not appropriate objects of this kind of taxation at all. Consider, for example, the way in which the Connecticut Supreme Court in an 1899 decision discussed Yale University's tax exempt status (not an income tax decision, of course):
The non-taxation of public buildings is not the exception but the rule. The corporations, whether municipal or private, which own and are by law charged with the maintenance of such untaxed buildings, are not the recipients of special privileges, in any sense obnoxious to the law. The seats of government, State or municipal, highways, parks, churches, public school-houses, colleges, have never been within the range of taxation; they cannot be exceptions from a rule in which they were never included.
Yale University v. Town of New Haven, 42 A. 87, 91 (1899). These institutions are, as the authors of the piece put it, actors within "civil society" that should in general not be touched by the government's taxing power. Moreover, a government decision not to tax is emphatically not the same as a government decision to grant money or subsidize. We use the language of "exemption" when we speak of the taxable status of nonprofits, but it would be better instead to think of their nontaxable status as marking a boundary of the government's power to tax.
[Further update: I've amended some things in the post for clarity.]