We’re pleased to present this guest post from Sam Brunson, Associate Professor of Law at Loyola University Chicago, regular blogger at By Common Consent, and tax and business law geek extraordinaire.

Both in and out of the church, people are fascinated by tithing. On the one hand, according to Pres. Kimball, ?it?s not difficult to be perfect in tithe paying, for if one pays one-tenth of his income annually, he is perfect in that respect.? On the other hand, while one-tenth is precise and easy to calculate, the church never defines what ?income? means, leading to internal debates over, among other things whether we should pay on our gross or net income and whether we tithe on barter or gifts we receive.

A lot of the uncertainty arises because the LDS scriptural basis of tithing isn?t specific about what underlies tithing. According to the revelation to Joseph Smith that has been canonized in D&C 119, the first step in tithing was for Saints to put their ?surplus property . . . into the hands of the bishop.? After their initial tithe, D&C 119:4 provided that ?those who have thus been tithed shall pay one-tenth of all their interest annually; and this shall be a standing law unto them forever, for my holy priesthood, saith the Lord.?

The basis of tithing, then, is ?interest.? But logic dictates that ?interest? can?t mean what I understand it to mean. Interest is money earned as a result of lending; it?s what I get on my savings account and retirees earn on their bond portfolio. And if that?s all we owe tithes on, then we don?t actually owe tithes, because we can entirely avoid interest by investing, instead, in equity, and keeping our money in non-interest-bearing accounts.

And, in fairness, nobody credible claims that titheable interest means financial interest. The Encyclopedia of Mormonism?s entry on tithing treats ?interest? as synonymous with ?increase?[1] (though that?s also not entirely helpful in figuring out what constitutes interest), while Pres. Kimball equated interest with income.[2]

It turns out, though, that, as a historical matter, we?ve all been wrong. The original understanding of ?interest? had nothing to do with income or increase; rather, the tithing originally envisioned in D&C 119 was based on property.[3]

A couple weeks ago, the church posted an essay on the history of tithing by Steven C. Harper in its ?Revelations in Context? series. Harper?s essay traces the beginnings of Mormon tithing, and is well worth your time to read. As it traces the history of tithing, it refers to an 1838 letter from Bishop Partridge (who was present when Joseph Smith received the revelation that became D&C 119) to Bishop Whitney in Ohio.

In the letter, Bishop Partridge writes, ?If a man is worth a $1000, the interest on that would be $60, and one/10. of the interest will be of course $6.? thus you see the plan.?

In Bishop Partridge?s original understanding?perhaps the closest we can come to the section?s original intent?interest was neither income nor increase; it was, instead, a type of imputed income.

I spend a little time on imputed income when I teach Federal Income Tax, and it?s not an intuitive concept. The idea underlying it is this: when you own property, you get an economic benefit from owning that property. I generally use a house as an example. If I have $100,000 and need a place to live, I have two broad choices. I can buy a house with it and live in that house, or I can invest that money, earn a 10% return, and pay $10,000 a year in rent. I?m roughly indifferent between the two.[4]

According to Bishop Partridge, it?s that imputed income (that is, the income we could earn by investing our property) that we owe tithing on; tithing has nothing to do with how much we actually earn (either from labor or from capital).

Another way to visualize what Bishop Partridge is saying, one that doesn?t require wrapping our heads around the concept of imputed income: tithing is a religious property tax, rather than a religious income tax. All you have to do is figure out what the appropriate investment return is. Bishop Partridge used 6 percent, which was apparently a common interest rate in the 19th century. At 6 percent, the amount one pays in tithing annually is 0.6 percent of the value of her assets (that is, 10 percent of 6 percent).

Note that Bishop Partridge?s formulation significantly complicates the calculation of tithing. Under our current incarnation of tithing, the only significant variable is what we pay tithing on (gross or net income, gifts, etc.). Under Bishop Partridge?s formulation, there are two variables: the appropriate rate of return and the value of a person?s assets.

Though the Saints? original understanding of tithing need not (and, in fact, does not) control how tithing functions today, it is fascinating to see the radically different understanding our religious forebears had of tithing.[5]

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[1] ?By revelation to the Prophet Joseph Smith, the Lord stated that members should pay ?one-tenth of all their interest [increase] annually; and this shall be a standing law unto them forever.??

[2] ?We have uniformly replied that the simplest statement we know of is the statement of the Lord himself, namely, that the members of the Church should pay ?one-tenth of all their interest annually? which is understood to mean income.?

[3] It?s important to point out that this historical understanding, while fascinating, doesn?t impact Mormons? current tithing obligations. It does, however, undercut essentially all current arguments about whether some type of income fits within the definition of ?interest.?

[4] That?s actually not true?because imputed income isn?t taxed while investment income is taxed, I prefer to live in a home that I own. I?m only indifferent on a pre-tax basis.

[5] It?s also fascinating to see it hewed closer to Islamic zakat (which is also based on net assets) than to Christian versions of tithing on income.