Arizona Bills Seek to Expand Tax Exemptions for Churches

The Arizona Legislature is considering two bills that would expand tax exemptions for churches and religious organizations. The measures, being backed by a Christian group, have passed the state House, and are now under consideration by the state Senate.

House Bill 2645 exempts preschools and day care centers operated by churches and other religious nonprofits from having to pay state unemployment insurance taxes, and HB 2446 expands the ability for churches and religious groups to invoke nonprofit and tax-exempt status on properties, according to Phoenix Business Journal.

Churches and entities controlled entirely by churches that are operated for primarily religious purposes were exempt from state unemployment tax under Arizona law. But the Department of Economic Security changed the interpretation of the law in 2012 and began seeking to tax church-run preschools and schools, says the Center for Arizona Policy on its website.

HB 2645 was sponsored by Rep. Steve Montenegro, a Republican from Litchfield Park. It restores the status quo by clarifying that the exemption for church-controlled entities includes educational and child care services that provide religious instruction.

It's "an important bill for religious freedom that returns Arizona to the status quo of not taxing church-run schools and preschools," the Christian group says, adding that the bill does not create a new exemption from unemployment tax. "The bill simply returns Arizona to the status quo of how this exemption has always been applied."

Tax exemptions for churches are important and necessary to protect religious freedom, argues the Center. "By minimizing government interference in the business of the Church, religious freedom is upheld and respected as the Constitution requires."

The second bill, HB 2446, was sponsored by Rep. Justin Olson, also a Republican. It clarifies the requirements for churches, amends Arizona statute to more closely mirror the Arizona Constitution, and codifies the current practice of the majority of the county assessors with regard to religious property.

While churches are exempt from property tax in the state, the law currently allows a subjective determination by government officials that can place onerous and unnecessary requirements on churches in order for them to obtain tax-exempt status, the group says.

"Churches have always been and should continue to be exempt from property tax. A church should not have to go through a situation like the one in La Paz County, subjected to needless requirements and possibly ending up in court," the Center argues. "HB 2446 clarifies Arizona statute and creates a uniform practice for all counties regarding church property tax exemptions. These changes will protect churches in the future from this type of wrongful government assessment."