Still no evidence that the word "free" in the Establishment Clause provides religious organizations a constitutional exemption from taxation?
If such was the case, why would there need to be a 501 (c) (3) designation?
"Tax exemptions of different types were common in the Colonial period. After the Revolution and the ratification of the Bill of Rights, most states retained these exemptions. State and local governments continue to exempt churches from local taxation. In 1913 the federal government embraced this trend by exempting churches and other religious organizations from federal taxation in the modern federal tax code.
Under the federal scheme, all nonprofits that abide by certain regulations are exempt from federal taxes. Donations made to such groups are likewise tax-deductible for the donor. Churches and religious organizations receive these and some other benefits. For example, churches are not required to file tax returns or apply for tax-exempt status. The Internal Revenue Service automatically considers churches exempt (though many churches file anyway in an effort to assuage concerns of donors.)
Courts hear lawsuits on issues spanning from the constitutional validity of tax exemption to complaints over the loss of tax-exempt status to what counts as a church for tax purposes.
The leading Supreme Court decision on this issue is Walz v. Tax Commission of City of New York (1970), in which Frederick Walz, a taxpayer, sued to prevent New York City from giving religious groups an exemption from taxes on property that was used exclusively for religious purposes. His argument was that the exemption provided a material financial benefit to religious organizations, and that such a provision was not permitted under the First Amendment's establishment clause.
The Court responded that, though the establishment clause prohibits government from sponsoring, funding or actively involving itself in religious activities, it is allowed to operate with “a benevolent neutrality which will permit religious exercise to exist without sponsorship and without interference.” The question that must be asked when the possibility of “establishment of religion” arises, the Court said, is “whether particular acts in question are intended to establish or interfere with religious beliefs and practices or to have the effect of doing so.”
The Walz Court determined that where religious organizations were not the only groups exempted from taxation — even non-religious organizations that pursued “charitable, benevolent, hospital, infirmary, educational, scientific, literary, library, patriotic, historical, or cemetery purposes” were also exempted — the mere fact that religious groups did benefit from such a scheme did not demonstrate any governmental preference for religion.
The Supreme Court has made clear that a tax exemption is neither prohibited nor required under the First Amendment’s free-exercise and establishment clauses. The Walz Court said that the long history of tax exemption for religious organizations in no way creates an entitlement to any such exemption. Furthermore, the Court noted that even if a legislature should decide to grant tax exemptions, the constitutionality of the system of exemptions at issue in Walz could not establish a presumption of constitutionality for any system that benefited religious organizations.
Indeed, when the Court was called upon in Texas Monthly, Inc. v. Bullock (1989) to consider a statute granting a tax exemption specifically to religious periodicals, it determined (in a 6-3 plurality decision) that, although governments may grant exemptions to religious organizations as part of a broader classification (such as “nonprofit organizations”), groups could not be singled out for benefit solely because of their religious nature..."
http://www.firstamendmentcenter.org/rel_liberty/establishment/topic.aspx?topic=tax_exemptions