In the aftermath of the US Civil War, the Church faced a heavy tax settlement that led to a contemplated hiatus in requiring tithing. In a recent interview over at the Latter-day Saint history blog From the Desk, Samuel Brunson discussed how that situation came about, what the leaders of the Church tried in order to work through the situation, and the surprising resolution to the whole incident.
Federal income tax was something that first began to be used in the United States during the U.S. Civil War. As Brunson explained: “The Civil War was expensive. And it turned out that tariffs weren’t going to be enough to fund the war effort, so the North decided to engage in a 10-year experiment with income taxes.” In the midst of that, John P. Taggart, the Internal Revenue Assessor for Utah Territory, assessed that the tithing collected by the Church of Jesus Christ of Latter-day Saints was taxable income and, as such, the Church (more specifically, Brigham Young) needed to pay $59,338.51. His reasoning was that:
Taggart believed that tithing was obligatory, not just a free-will offering, both because the church occasionally kept a ledger of how much people owed and how much they had paid and because he claimed that nonpayment of tithing was punishable by death or expulsion which, in his mind, was basically the same thing for Mormons in Utah.
(It’s worth noting that the pioneer church was on the early side of using tithing to collect revenue; most churches at the time had other funding models.)
Secondarily, Taggart argued that the church used its tithing revenue for speculative endeavors, like funding trains.
To my modern tax attorney ears, the idea that something is income because it’s used to make speculative investments doesn’t make any sense at all. But it seems to have been at least moderately persuasive in the early days of income taxation in the United States.
Brigham Young didn’t think it was feasible to pay that amount, since, as Brunson put it: “The vast majority of tithing was paid in kind (that is, in eggs and butter and other goods). Cash was scarce in the West, but taxes had to be paid in cash.” So, they likely didn’t have liquid cash on hand to dish out nearly $60,000.
So, in response, the leaders of the Church began exploring different ways to push back against being taxed and ways to deal with it if it became an ongoing thing. Samuel Brunson described these efforts in the interview:
The Church tried a handful of things. They asked their Territorial Representative in Congress to lobby on their behalf, trying to win favor for their plight.
And, along those lines, they refused to put up collateral while they appealed. They believed that the spectacle of the government seizing church property by force—an organ or a building or whatever—would paint them in a sympathetic light.
But they also planned for the future. If tithing would be taxable income to the church (to be collected, I should point out, from Brigham Young personally), the church would stop collecting tithing.
In fact, church leaders instructed bishops to stop collecting tithing. From the records I’ve read, they hadn’t figured out what to replace it with, but they were ready to stop a practice that the Lord called a “standing law unto them forever.”
Stopping tithing altogether would have crippled the Church’s financial stability, but it was a step they contemplated taking.
In the end, though, things worked out without having to lock in on taking that step. As Brunson explained:
Ultimately, in spite of Young’s arguments, the Commissioner of Internal Revenue upheld the taxability of Latter-day Saint tithing and upheld about half of the assessment. (The other half was a nonfiling penalty; Hollister and the Commissioner both agreed that the penalty was not warranted.)
Before the Church had to pay, though, Congress approved a new Commissioner of Internal Revenue. The new Commissioner was somewhat of an income tax skeptic—in a letter to the Committee on Ways and Means shortly after his appointment, he recommended the immediate repeal of the income tax.
The new Commissioner looked at Brigham Young’s case and decided that, in fact, tithes were voluntary donations, exempt from tax.
Like that, the Church’s tax problem went away.
Although this was something of a deus ex machina ending to the story, it worked out well for the Church that way.
For more details on this incident with the Church reacting to the first Federal Income Tax, feel free to head over and read the interview over at the Latter-day Saint history blog From the Desk or the original article by Samuel Brunson in the BYU Religious Studies Center book Business and Religion: The Intersection of Faith and Finances.