Oxford University Press's
Academic Insights for the Thinking World

The Church of the Holy Sepulchre and Jerusalem’s property tax

When is a property tax dispute between a church and a municipality an international controversy? When the church is the Church of the Holy Sepulchre and the municipality is the city of Jerusalem.

The Church of the Holy Sepulchre is one of the holiest sites in Christianity. The Church takes its name from what is traditionally believed to be the tomb of Jesus located within the Church. For many Christian pilgrims coming to the Holy Land, the Church of the Holy Sepulchre is the highlight of their pilgrimages.

Israeli municipalities levy a property tax known as the arnona. Jerusalem exempts churches in general from this property tax and the religious buildings of the Church of the Holy Sepulchre in particular. Besides these holy sites, the Church also owns extensive commercial real estate. This real estate investment is the source of the current controversy.

The city of Jerusalem has recently asserted that this commercial real estate does not share the Church’s property tax exemption. The Church responded by closing down, blaming the municipality of Jerusalem if Easter pilgrims lacked access to the Church. In an interim procedural compromise, the Church of the Holy Sepulchre and the municipality agreed that the Church would reopen, that a committee will review the issue and that, while the committee meets, no further efforts will be made to tax the Church’s commercial properties under the arnona.

On these merits, the municipality of Jerusalem is correct: churches’ religious buildings should be property tax exempt, not churches’ commercial real estate. Exempting churches from taxation protects the autonomy of religious institutions and minimizes church-state entanglement. Taxing church-owned commercial property advances fairness and economic neutrality by taxing all commercial property alike.

Why should churches be property tax exempt? The best answer is that property tax exemption respects the autonomy of religious institutions and disentangles church and state from the often contentious relationship between the taxpayer and the tax collector. There is no more entangling legal relationship than the one between the property taxpayer and the tax collector.

Besides these holy sites, the Church also owns extensive commercial real estate. This real estate investment is the source of the current controversy.

Consider, for example, what happens if a property owner is property rich (and thus owes considerable tax) but is income poor (and thus lacks the liquidity to pay the tax). When taxpayers do not have the cash to pay the property tax they owe, the municipality enforces the tax by foreclosing on the property.

The prospect of church and state entangled in foreclosure proceedings over religious properties is deeply troubling to those who value the autonomy of religious institutions, and who seek to avoid church-state tensions.

On the other hand, when a church owns commercial real estate, as the Church of the Holy Sepulchre does, less church-state entanglement flows from taxing that real estate. Church-owned commercial real estate uses the same public services as does the privately-owned real estate with which it competes. The prospect of a government foreclosing on a church building is troubling. The prospect of foreclosure on a church-owned shopping center is considerably less so.

US property taxation generally follows this pattern and is a model which the committee pondering the Jerusalem controversy should consider. Protecting the autonomy of religious institutions and minimizing church-state enforcement entanglement are important values under the First Amendment of the US Constitution and the equivalent provisions of the constitutions of the states.

Reflecting these values, every state of the union, by statute or constitutionally, immunizes church buildings from local property taxation. Beyond this basic rule, there is considerable diversity in the states’ tax treatment of religious properties. Many states, for example, relieve clerical parsonage homes from taxation. Others do not.

There are also important interpretative issues in particular cases about what exempt religious property is and what taxable commercial property is. For example, some states subject religious summer camps to property taxation. Others do not. In some states, church-operated coffee houses may be tax-exempt on the ground that such coffee houses facilitate the church’s outreach to young people. In other states, such church-operated coffee houses may be viewed as too commercial to enjoy tax exemption as religious properties.

But when churches own investment properties, used to conduct clearly commercial rather than religious activities, those properties are taxed in the US. This arrangement preserves the autonomy of churches and reduces church-state entanglement by exempting church buildings from property taxation, while advancing economic neutrality and fairness by taxing all commercial properties alike.

The committee charged with resolving the tax dispute between the city of Jerusalem and the Church of the Holy Sepulchre should follow the US pattern. The Church itself should (as the city acknowledges) remain tax exempt. The Church’s properties on the borderline between religious and commercial activities should likely be exempted as well. But the Church’s unequivocally commercial properties should be properly taxed to support the municipal services which support these properties.

Featured image credit: basilica of the holy sepulchre by pompi. Public domain via Pixabay.

Recent Comments

  1. Michael Strelka, CPA

    As I understand it, Jerusalem wants to tax church owned hospital and schools, and that is the major dispute. Taxing those types of properties clearly does not follow the U.S. method of taxation.

Comments are closed.