The income tax exclusion of the housing allowance for ministers of the gospel per I.R.C. section 107: First Amendment establishment of religion or free exercise thereof - where should the Warren court have gone?

South Dakota Law Review, Summer, 2009 by John R. Dorocak

Judging by the respective exchanges between Judges Reinhardt and Tallman and between Professors Rakowski and Zelinsky, passions run high on the question of exclusion of the housing allowance for ministers of the gospel, particularly on the part of those who might declare the exclusion unconstitutional. (66) As this author has observed in the context of another constitutional question touching upon tax law, it is important in a free society for these questions to be faced and decided in an informed manner. (67) The question is whether the constitutional issue is best resolved judicially, legislatively, or by election. It remains to be seen how the constitutionality of section 107 will be tested. The next sections of this article examine two leading Supreme Court cases on the constitutionality of tax statutes, Texas Monthly, Inc. and Walz v. Tax Commissioner of New York City, from the humble perspective of the practical, compliance-oriented tax professor and then from commentary by more expert colleagues, Professors Rakowski and Zelinsky.

VI. FIRST AMENDMENT RELIGION CLAUSES TAX CASES: TEXAS MONTHLY, INC. AND WALZ--EVOLUTION AND DEVOLUTION IN CONSTITUTIONAL LAW DEVELOPMENT

What first interested this tax professor-author in the constitutionality of section 107, besides the fact that the statute seemed to beg for someone to question its constitutionality, was Justice Scalia's dissent in Texas Monthly, Inc., the Supreme Court case cited by the Ninth Circuit's first order in Warren. (68) At least some First Amendment scholars have pointed to the "pseudocomplexity" in the "'tension' between the Free Speech and the Establishment Clauses." (69) To simply state the Supreme Court's positions, the fractured Court in Texas Monthly, Inc. held that a Texas law exempting religious literature from sales tax was unconstitutional, and in Walz, the Court held that a New York City statute exempting religious and other organizations from property taxes was constitutional. (70) Again, from the rather detached perspective of the tax professor, (71) the question is whether Texas Monthly, Inc. and Walz are reconcilable. Depending on one's view, the constitutionality of section 107 stands or falls. In fact, Justice Scalia's dissent in Texas Monthly, Inc. specifically called attention to section 107, stating that it would be among the statutes that would be struck down under the reasoning of the plurality opinion in Texas Monthly, Inc. (72)

Justice Scalia clearly believes that the holdings in Texas Monthly, Inc. and Walz are not reconcilable. "Nineteen years ago, in Walz v. Tax Comm'n of New York City, 397 U.S. 664 (1970), we reconsidered and rejected an Establishment Clause challenge that was in all relevant respects identical." (73) Justice Scalia explained as follows:

   [T]he Court topples an exemption for religious publications of the
   sort that expressly appears in the laws of at least 15 of the 45
   States that have sales and use taxes.... In practice, a similar
   exemption may well exist in even more States than that, since until
   today our case law has suggested that it is not only permissible
   but perhaps required.... When one expands the inquiry to sales
   taxes on items other than publications and to other types of taxes
   such as property, income, amusement, and motor vehicle taxes ...
   [the] religious tax exemptions of the type the Court invalidates
   today permeate the state and federal codes, and have done so for
   many years. (74)