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Updated Apr 10, 2013 - 6:03 pm

Arizona weighs unemployment tax break for churches

PHOENIX — Hundreds of private school teachers and day care workers
employed by religious organizations wouldn’t be eligible for unemployment
benefits under a proposed law backed by Republicans in the Arizona Legislature.

The measure marks the latest Republican-led effort to expand tax subsidies for
religious institutions and limit unemployment insurance at a time when the
state’s jobless benefits fund is millions of dollars in the hole because of the
struggling economy.

House Bill 2645 would allow religious organizations to avoid paying
unemployment taxes for educational and day care workers. The legislation
advanced by the Arizona Senate on Wednesday has the support of religious schools
and conservative groups. The Republican-led Arizona House passed the bill in a
partisan vote in March.

Arizona law already allows organizations operating primarily for religious
purpose to avoid paying unemployment taxes. Proponents argue that the proposed
law is necessary after some state tax officials recently started interpreting
the current religious exemption so that it only applies to church staff and not
private school teachers. They predict religious schools will go bankrupt if they
have to pay unemployment taxes.

“We just want it corrected and to go back to status quo,” said Josh Kredit, a
lawyer for the Center for Arizona Policy, a powerful conservative group. “These
are tiny little preschools that would go out of business.”

Democrats have rallied against the measure, arguing that churches should
provide unemployment benefits to teachers.

Religious organizations can willingly offer unemployment benefits to employees
and some do, said Nicole Moon, spokeswoman for the state’s Department of
Economic Security.

Federal law and court rulings have not clearly defined what constitutes
operating primarily for religious purposes, so DES determined last year that
schools and child care centers did not qualify under the exemption because their
mission statements were to provide general education or adult supervision, Moon
said.

Monica Stern, a Phoenix accountant who represents several religious schools,
said she alerted the Center for Arizona Policy about the new interpretation
because she was worried some of her clients would be put out of business. Stern
said one school faced a tax assessment of $25,000, while a larger school could
owe $100,000 under the revamped policy.

“Religious schools are not very profitable,” she said. “Most of them don’t
pay rent to the church. They are educating children on the church campus
typically, and they are all struggling.”

But Democrats argue that financial hardship claims shouldn’t allow
quasi-religious private schools to dismiss educational staff without providing
unemployment benefits.

“It’s ridiculous,” said Democratic Sen. Ed Ableser, of Tempe. “These
institutions are freeloaders.”

The Arizona Legislature has also advanced legislation this year that would
require workers to prove they were fired before collecting unemployment
benefits. The Senate is poised to vote on a measure Thursday that would expand
property tax benefits for religious organizations.

The state’s unemployment trust fund owes roughly $311 million to the federal
government, down from a peak of more than $420 million.

Arizona’s unemployment rate has dropped slightly, going from 8 percent in
January to 7.9 percent in February, according to the latest state Department of
Administration estimates.

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