Hernandez v. Commissioner doesn't deal with taxing Churches themselves, it deals with the question of whether payments made to churches are tax deductible as charitable donations, and ruled they weren't.

You are right that churches can be taxed and that there is a narrow window. That window usually relates to their participation is activities not directly related to or supporting worship or charitable works.

But the reason we don't tax churches is because of the establishment clause of the 1st amendment.