Italy Considers Taxing Some Church Properties

By Eric J. Lyman

Strapped for cash as it seeks to avoid falling victim to the European debt crisis, Italy’s parliament is debating a controversial measure that will force church-owned properties to pay property taxes.

Prime Minister Mario Monti, head of an unelected government appointed last November to push through difficult reforms, is under pressure to increase tax revenue, reduce government spending, and jump start growth in order to assuage fears that Italy could be forced to default on its debt.

The current proposed measure would tax church-owned properties that are used for a profit-making venture, such as a hotel, restaurant or store. It would have an impact on all churches and even secular non-profit organizations — though it would most affect the Vatican, second only to the government of Italy as a landowner.

In Italy, the Catholic Church owns some 110,000 properties worth an estimated US$12 billion. According to estimates that have appeared in the Italian media, taxes could cost the church between $130 million to as much as $950 million a year.

Monti, a practicing Catholic who graduated from a Jesuit secondary school, was at first considered an unlikely candidate to fight the Vatican on the issue of taxation. But Italy’s financial problems and public protests have forced his hand, observers say.

Tax experts say existing law can be interpreted to require commercial enterprises to pay property taxes even if they are owned by a church, though in practice churches are never audited if they claim land is used exclusively for religious purposes and the law is seen as vague.

Under the proposed new rules, tax authorities would estimate what percentage of a parcel of church-owned land is used for religious purposes and tax it proportionately. That means a property that includes only a church would still be exempt, but a church that operates a hostel or a gift shop would pay taxes on that part of the property. A piece of land rented out exclusively for commercial use would be taxed as a commercial property.

The government’s austerity measures, which have raised taxes and reduced government services almost across the board, have shined a spotlight on the church tax issue. Starting in January, some 150,000 Italians have signed an online petition calling for churches’ tax-exempt status to be revoked, and dozens of newspaper editorials have opined on the contentious issue, with most supporting the change to some degree.

One editorial that was in favor said the law should be adjusted to exclude enterprises such as a church gift shop that might have sales of 100 euros a week.