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Most people who get into ministry as a profession don’t have deep knowledge of tax codes and other financial regulatory matters. Some seminaries and Bible colleges offer classes or other resources that can help pastors and ministry leaders navigate these kinds of logistics, but many don’t.
However, ignorance is no excuse, especially in the eyes of the law! Even if financial matters like tax codes don’t come naturally to a pastor, it is imperative for ministry leaders to understand the significance of these regulations for ministries. It is helpful to have one or more people on a church staff who can handle the burden of taxes and other such matters, but in a worst-case scenario, pastors and church staff should have outside professionals they can contact for help.
Plenty of ministry leaders recognize that churches are “tax exempt” institutions, but does that tax exemption carry over to sales tax? Are churches sales tax exempt? Well, it’s complicated. So let’s start with churches’ tax exempt status and go from there.
Disclaimer: This blog is for informational purposes only. For help with tax-related issues, please consult a tax professional.
Before we dive into the more complicated matter of sales tax, let’s briefly review why churches are tax exempt to begin with.
Churches and other religious organizations are tax exempt because they are non-profit organizations that, by merit of their work, are considered beneficial to the public interest. They provide essential services like shelters, food banks, counseling services, and other such resources for the community. Many have been calling for churches to lose their tax exempt status for years now, and while that’s unlikely to happen in the United States anytime soon, it’s important that churches ensure they are operating in compliance with tax laws in order to avoid the consequences that come with not doing so.
Likewise, because churches rely on donations to sustain their operations and fund community programs, they are tax exempt and have 501c3 status. This tax exemption encourages generosity among members of the community, and, frankly, this status is what makes it possible for churches to operate. It is not outrageous to say that most churches probably couldn’t exist without tax exempt status—it would simply make it too difficult to collect enough money to fund the operations of most local churches.
So, now what about the matter of sales tax?
Do churches pay sales tax? To put it as simply as possible: churches are exempt from sales tax on some kinds of purchases but not all purchases.
Churches are most often exempt from paying sales tax on items they purchase for religious, charitable, or educational purposes. Some of these items may include, but not be limited to the following:
Essentially, churches can most often avoid sales tax on the supplies they purchase to do their various forms of ministry.
As stated above, churches are not exempt on all purchases, despite being a tax exempt organization. Churches may be subject to sales tax when selling goods or services to the public. For example, when a church hosts events like concerts, dinners, or camps that charge a fee, the church would likely be accountable for sales tax on those items. When churches turn into merchants, they have to collect sales tax on the sales they make.
Beyond what is listed above, churches must collect sales tax when they sell items of any kind. If a church sells tangible goods such as merchandise, crafts, refreshments, books, or anything of the kind, they are subject to sales tax. Likewise, if the church provides services for a fee, like facility rentals or educational workshops, they are subject to sales tax on those items as well.
If you polled a hundred pastors and other church staff members, most of them would probably tell you that keeping up with tax rules and other regulations is one of their least favorite parts of ministry. But these things matter! Pastors and other church staff must be aware of tax codes and other regulations that affect churches so that they can be sure to keep themselves in compliance.
Churches play a vital role in society and rely on tax exemptions to support their ministry and local communities. While churches are exempt from sales tax on purchases, they may need to collect sales tax on certain revenue-generating activities.
Look, if you’re finding yourself a bit confused and overwhelmed, you’re likely not alone. If you enjoyed tax codes and financial laws, you probably would have gone into a different occupation than ministry! It’s important for church leaders to remember that they shouldn’t feel the need to navigate the complications of taxes alone. If you’re unsure about how to handle all of this, seek out professional advice! There may even be some tax professionals in your church who could help you or at least point you in the right direction.
Understanding the ways in which religious organizations are tax exempt empowers churches to fulfill their missions while remaining compliant with tax laws. Don’t let this sort of thing slow your church down!
