Tuesday, June 5, 2012

Additional Thoughts on Defining a Religious Organization

Last Wednesday Lloyd Mayer posted a provocative question: what is a religious organization? Lloyd's main point in this post, at least as I interpreted it, is that the phrase "religious organization" as used in tax exemption law would not necessarily have to be interpreted the same way in other contexts, such as "conscience" exemptions from certain regulatory laws, such as the contraception mandate (or the employment non-discrimination laws at issue in the Hosanna-Tabor case).

In thinking about Lloyd's post during the past week, when the Illinois Legislature was busy responding to the Provena Covenant tax exemption case (see my post from yesterday), I recalled that the Illinois Supreme Court in the Provena case dealt with this very issue. Provena had argued in that case that if it was not exempt as a "charity" under Illinois law, it should nevertheless be exempt as a "religious organization." In analyzing this question, the Illinois court noted that "religious identity" was not sufficient to meet the property tax exemption test (which is admittedly a high bar: property must be used "exclusively" for an exempt purpose - in this case, religious purposes - although "exclusively" really means "primarily" in this context). Instead, consistent with the "exclusive use" requirement, Provena would have had to show that the property in question was used primarily to advance its religious mission. But the court noted that this was fairly clearly not Provena's primary purpose; rather, it's primary purpose was providing health care services for a fee. Here's the relevant language:

In this case, the record clearly established that the primary purpose for which the PCMC property was used was providing medical care to patients for a fee. Although the provisions of such medical services may have provided an opportunity for various individuals affiliated with the hospital to express and to share their Catholic principles and beliefs, medical care, while potentially miraculous, is not intrinsically, necessarily or even normally religious in nature. We note, moreover, that no claim has been made that the operation of a fee-based medical center is in any way essential to the practice or observance of the Catholic faith.

In reaching this conclusion, the court used a sort of "reductio ad absurdum" argument that we use all the time in law school - noting that if religious affiliation were the only test, then a church could open a restaurant and claim tax exemption because of the underlying affiliation.

Initially, I thought that this notion of "primary purpose" would serve us well in most circumstances in identifying a "religious organization" - not just for tax exemption, but for other exemptions from public policy mandates. For example, if the Catholic church did, in fact, open a chain of restaurants (not so far-fetched; churches have opened Starbucks franchises; see Elizabeth Bernstein, Holy Frappucino, Wall Street Journal, Aug. 31, 2001 at W1), I don't think many of us would expect those restaurants to be tax-exempt, free of the employment discrimination laws, or exempted from the contraception mandate. Similarly, it seems to me that the Illinois Supreme Court got it exactly right when it said that providing health services for a fee is not primarily aimed at advancing religion, any more than selling food for a fee would be so (usually - I could think of examples, such as a specialized kosher restaurant, that might alter my conclusion).

While this "primary purpose" test is, I think, fairly easy to apply to nonprofit hospitals (as most of you know, I view nonprofit hospitals as health care businesses rather than charities anyway), and many other services provided by religiously-affiliated organizations, the one area that is a difficult call for me is religious educational institutions. For example, one source on the internet indicates that 80% of the students at Notre Dame University self-identify as Catholic. My ad-hoc observations from interactions with other Catholic parents is that at the grade school and perhaps even high-school level, selecting a Catholic school is very heavily influenced by the fact that the students receive a religious education as well as a secular one. And yet this "ethos" is not entirely captured by a "primary purpose" test that focuses solely on outputs - one could easily conclude that the majority of education going on at Notre Dame, Georgetown, and Catholic grade schools and high schools across the country is secular education, not religious education (in fact, that's essentially what the 9th Circuit observed in the Sklar v. Commissioner litigation in the Section 170 context).

That leaves me with something of a quandry - but my preliminary thought is that perhaps that quandry is resolvable by including in the "primary purpose" mix the question of why consumers choose a particular service provider. For example, it seems to me that very few (if any) hospital patients consciously select a Catholic hospital because it is Catholic. I suspect that religious identity is simply not a consideration for the vast majority of people seeking health care services. They want the "best" hospital, or the more convenient hospital, but they don't really care whether it's Catholic, Jewish, Protestant or secular. I suspect that is also true of many other services provided by religiously-affiliated groups - for example, do homeless people really care if the soup kitchen is run by the Catholic Church? Of course not. What about adoption services? Again, likely not - if you want to adopt, religious affiliation is likely not high on your list of "things to look for in an adoption agency" (at least, as long as that affiliation does not forbid the organization from providing the requested services; gay couples obviously would steer clear of Catholic adoption agencies, since such agencies will not serve gay couples).

But when it comes to education, I'm convinced the opposite is true - I suspect that for a majority of people, religious identity is a very strong selection factor, particularly for primary and secondary education - and maybe even for Notre Dame.

I'm not sure where this ends up getting me, but I do believe the question of "what is a religious organization" ought to include some analysis of why individuals choose a particular service provider. If the majority of people select a particular service provider because of the provider's religious affiliation, that ought to tell us something, I think. Something to ponder, in any event.

JDC

http://lawprofessors.typepad.com/nonprofit/2012/06/what-is-a-religious-organization-again.html

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