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Lease-Back Loophole. Whatever their personal feelings, lawyers concede that Mrs. Murray's tax-exemption suit is not without merit. She argues that such exemption forces her to pay higher taxes and support churches—in direct conflict with the First Amendment's prohibition against laws "respecting an establishment of religion." All 50 states, including Maryland, repeat this prohibition in some form in their own constitutions. Yet 33 state constitutions also make church property taxfree. All other states accomplish the same end under other statutes.
No one is quite sure how much potential revenue is involved. One study shows that church groups own 14% of all taxable property in Pennsylvania, 17% in Maryland, 18% in New Jersey. In other areas, churches own relatively little of total tax-exempt property; in Baltimore, for example, where $528 million worth of property is taxexempt, only $80 million worth is owned by churches (schools and hospitals account for much of the rest). Even so, few dispute the fact that church property is widely undervalued.
As Mrs. Murray sees it, the most blatant constitutional violation is church-owned property that is not used for religious purposes. Many state laws are so broad that churches—and fraternal organizations—may buy such property with leaseback arrangements under which they rent it to the former owners; income from the rents and leases is taxfree. The Roman Catholic Knights of Columbus do not pay income taxes on their rental revenue, which comes from such sources as the land on which Yankee Stadium stands, a Detroit steel warehouse and a Connecticut steel mill. In New Orleans, Jesuit-run Loyola University pays no federal income tax on its revenues from its radio and tele vision stations, and thus is in a better position to compete for business than is its leading rival.
Determined to launch equity suits in eleven states, Mrs. Murray has begun at home. Maryland forbids church lease-backs, exempts only property used for church purposes. The state's lawyers will argue that limited tax exemptions are not grants that provably infringe on church-state separation. Moreover, they will claim that Mrs. Murray's financial loss is too small to make her case justifiable.
The Catholic and Episcopal dioceses of Baltimore have joined the case as co-defendants because they want a definitive constitutional decision. Church lawyers will argue that tax breaks spur vast church contributions to the public welfare through church schools, orphanages and hospitals. Another argument: tax breaks may actually be mandatory under the First Amendment's guarantee of "free exercise" of religion.
Some churches—notably the Methodists and United Presbyterians—concede that there is an inequity in the laws and either pay their full taxes or a sum equivalent to levies from which they are exempt. But a majority of the clergy probably agree with Mrs. Murray's Baltimore opponents, who are determined to battle her up to the Supreme Court over what one Roman Catholic lawyer sees as "the beginning of a hostile interpretation of the First Amendment." Says he: "As a person, Mrs. Murray is not important. But what she's trying to do is important."