by Andrew Walden
SB1, the gay marriage bill to be considered in a special legislative session beginning October 28, contains within it an implied finding that marriage-related church functions, until now regarded as non-profit, will be considered a ‘for-profit’ activity. As a result, state and possibly federal taxes will be imposed on previously tax-exempt revenues generated on or after the bill’s effective date of November 18, 2013. This will apply to all churches generating marriage-related revenue -- whether or not they accept gay marriage.
The impact stems from the fact that revenue-generating activities which are, in the words of the IRS, “substantially related to the charitable, educational, or other purpose that is the basis of the organization's exemption” are deemed to be non-profit tax-exempt revenues. Weddings performed by churches have consistently been deemed to be in furtherance of the legally recognized charitable purpose of churches organized as 501c3 non-profit corporations. SB1 would change that by legally identifying these as for-profit revenues which are therefore subject to taxation.
The text at issue reads:
5572-F Religious organizations and facilities; liability exemption under certain circumstances.
Notwithstanding any other law to the contrary, no religious organization shall be subject to any fine, penalty, injunction, administrative proceeding, or civil liability for refusing to make its facilities or grounds available for solemnization of any marriage celebration under this chapter; provided that the religious organization does not make its facilities or grounds available to the general public for solemnization of any marriage celebration for a profit.
For purposes of this section, a religious organization accepting donations from the public, providing religious services to the public, or otherwise permitting the public to enter the religious organization's premises shall not constitute “for a profit.”
A legal finding that such activities are no longer a non-profit function in means that all churches generating more than $1000 in marriage-related revenue will be required to file Form 990-T. Churches anticipating a tax liability in excess of $500 will be required to pay estimated “Unrelated Business Income Tax” (UBIT) payments on a quarterly basis with form 990-W. The first state and federal estimated tax payment for 2014 will be due April 15, 2014 along with a check for federal UBIT taxes for revenues generated after November 18, 2013. State corporate income taxes for 2013 would be due April 20, 2014.
SB1 is also incorrect in form because it does not mention taxation in the bill title or description. The word “tax” appears nowhere in the text of the bill. The Hawaii Legislators’ Handbook points out: “A (bill) title must include a distinct reference to the subject matter to which it relates and also cover but one subject.”