Federal Tax Law, Nonprofits, and the Action in the States, so far
In January, the National Council of Nonprofits’ Tim Delaney and David L. Thompson predicted in a Chronicle of Philanthropy article that the federal tax law enacted in December would unleash a tsunami pounding nonprofits and foundations with operational issues and policy activities at the federal, state, and local levels. How'd we do in predicting the impact of the major change in federal tax policy on nonprofits, state and local laws, and legislative actions? "Federal Tax Law, Nonprofits, and the
Action in the States, so far" reviews developments over the past half year.
House Votes to Curb Johnson Amendment Enforcement
The U.S. House of Representatives narrowly approved an appropriations bill last week that includes a provision that would effectively undermine the Johnson Amendment, the longstanding provision of federal tax law that protects charitable nonprofits, houses of worship, and foundations from demands from politicians and others for endorsements and other support. As explained in a Politico article
immediately after the vote, “the provision, buried in a budget measure setting IRS funding for the upcoming year, amounts to a backdoor way around the so-called Johnson amendment, a half-century-old prohibition on nonprofits getting involved in political campaign activities.” A letter from 145 national organizations expressing strong opposition to the anti-Johnson Amendment rider in the appropriations bill provides additional background on the law and the flaws in the “poison pill” rider.
The Senate is expected this week to take up the House-passed appropriations bill and replace it with its own version that – so far – does not include the anti-Johnson Amendment or other controversial provisions that do not have bipartisan support. “The chair and vice chair of appropriations have kept to a commitment to have no policy riders that are poison pills on any of our subcommittees in the Senate,” Senator Chris Coons (D-DE), ranking member of the relevant Senate appropriations subcommittee stated last week. Lawmakers and congressional observers warn, however, that the ultimate outcome of the extraneous provisions will be determined in House-Senate conference committee negotiations. In March, due
to lobbying by powerful politicians and monied special interests, the same anti-Johnson Amendment rider was one of the last issues to be resolved before agreement was reached on the omnibus spending bill that is funding the federal government through September.
Whether the Senate prevents the inclusion of poison pill riders all the way through the House-Senate conference negotiations depends in large part on the engagement of the nonprofit community in demonstrating the adverse effects of the House language or any impingement on the law protecting nonprofit nonpartisanship. It is essential that Senators fully understand that the
broad nonprofit community considers any changes to the law protecting nonprofit nonpartisanship to be extremely controversial.
Go to the Take Action page to learn what you can do to protect and preserve nonprofit nonpartisanship. For more information, read a joint statement from four national organizations, a National Council of Nonprofits statement, and this Nonprofit Quarterly article.
Concerns Growing Over New Taxes on Tax-Exempt Organizations
The U.S. Department of Treasury and the Internal Revenue Service have yet to delay implementation of new taxes on tax-exempt entities or provide any guidance to help organizations interpret their liabilities, but opposition is growing in many quarters. At issue are new taxes on charitable nonprofits, houses of worship, and others on each “separate” “trade or business,” and transportation benefits for employees, such as transit passes and parking. Scores of organizations have submitted substantive comments to the government expressing confusion and raising questions about how the new taxes on
nonprofit business operations and transportation benefits should be interpreted. Many more have submitted short statements to the IRS urging delay in implementation of the taxes until one year after the government promulgates Final Rules that provide needed clarity.
Congress is also taking notice, as three bills have been or will be introduced to repeal the liabilities that many consider inscrutable. In early July, Representative Michael Conaway introduced the Nonprofits Support Act, H.R. 6037, that repeals the two new taxes. Last week, Representative Mark Walker (R-NC) introduced the Lessen Impediments From Taxes (LIFT) for Charities Act, H.R. 6460, that repeals the tax on transportation benefits. This week, Representative Jim Clyburn (D-SC) is expected to introduce the
“Places of Worship and Charitable Organizations Tax Fix Act,” a bill that would also repeal the transportation benefits tax. Collectively, the bills demonstrate bipartisan agreement that the taxes on nonprofits are bad public policy. None, however, is expected to be enacted this year, making more urgent the need to write to Treasury and the IRS demanding delay of the taxes. See Take Action, below.
Tax “Parity” Between Nonprofit and For-Profit Businesses?
(The following is an excerpt from National Council of Nonprofits’ endorsement letter of H.R. 6037, the Nonprofits Support Act, sponsored by Representative Michael Conaway (R-TX))
Reportedly, the new tax on nonprofit expenses was imposed to ensure “parity” between for-profits and nonprofits in regard to qualified transportation benefits. This rationale is flawed at its core. Under prior law, for-profit employers paid taxes on profits at a higher tax rate and could deduct their expenses for providing transportation benefits to their employees. Of course, if they had no profits, they paid no taxes. The tax deduction was an inducement for those employers to provide the employee benefit. The Tax Cuts and Jobs Act dramatically lowered the taxes that for-profit businesses will now pay, and, as a minor reduction in the cost of the overall tax legislation, repealed the deductibility of the costs
of the transportation benefits. Nonprofit employers, on the other hand, never had a deduction for these expenses and, importantly, never provided transportation benefits to gain a tax deduction. Rather, nonprofits have always provided transportation benefits to attract and retain workers, while helping to reduce traffic and air pollution. Nonprofits received little, if any, gains under the Tax Cuts and Jobs Act and yet are now subject to a new tax on transportation benefits in the name of “parity.” Now nonprofits will be forced to pay taxes even when we lose money. We and many in the community consider the “parity” argument a “false equivalency,” and believe that repeal is appropriate.
Delay Taxes on Tax Exempts
Your nonprofit organization likely is already liable for new unrelated business income taxes (UBIT) as the result of the major federal tax law enacted in December. But relief is a possibility with collective action. Join nonprofits, foundations, lawyers, accountants, associations, and many others in calling on Treasury and the IRS to delay new tax liabilities until the government provides clear guidance. Learn more at Taxing Tax Exempts and Other Oxymorons in the New Tax Law.
Go to the IRS public comment form and insist that Treasury and the IRS delay implementing the two new UBIT subsections until one year after Final Rules are promulgated. (Fill in "Form 990-T" in the line: Form/Instruction/Publication Number.)
- Revoking Non-Charitable Donor Disclosures: The Treasury Department and IRS issued a news release and Revenue Procedure 2018-38 announcing the revocation of the requirement that non-charitable 501(c) organizations file the Form 990 Schedule B identifying donors who contribute more than $5,000. The tax statute mandates that charitable nonprofits and foundations (501(c)(3) organizations) disclose their donors to the IRS, but several decades ago Treasury regulations extended the requirement to social
welfare nonprofits, unions, and chambers of commerce – many of which have become more active in partisan politicking since the Citizens United decision. In recent letters, Senator Ron Johnson (R-WI) and conservative advocacy groups had requested the change so that donors would not be disclosed to the IRS and some state attorneys general. See National Council of
Nonprofits statement for how the revocation could impact charitable organizations.
- Reforming Taxes 2.0: House Ways and Means Committee Chairman Kevin Brady (R-TX) is expected this week to release an outline of what he’d like to see in the next round of tax cuts and reforms, which he hopes to take to the House floor for votes before the November election. The proposed changes, nicknamed “Phase 2” or “Tax Cuts 2.0,” are expected to include language to make individual tax cuts permanent, i.e., repeal the 2025 sunset in the tax law enacted in December. The Congressional Budget Office recently issued a warning about the federal budget deficit, pointing to the
return of higher individual tax rates as one factor preventing even worse deficits in the future.
- Judging the Census Citizenship Question: A federal district judge is letting the lawsuit by 18 states and several smaller jurisdictions go forward, saying there was an appearance of “bad faith” behind the Trump Administration’s disputed decision to add a question about citizenship. At issue is the decision announced in March to add a citizenship question to the 2020 census. Many in the nonprofit community believe that a question on citizenship would stifle participation by people
in many communities and lead to an unfair, inaccurate, and incomplete count of every person in America. The Washington Post published a pointed editorial, writing: “Adding a citizenship question on a form sent by an administration explicitly hostile to migrants is highly likely to depress response rates among immigrants, even those who have naturalized.”
- Concerning Census Data Security: The privacy and protection of public data obtained under the 2020 Census is at risk from cyberattack, according to a letter from 11 former federal cybersecurity experts. They are making a plea for the U.S. Census Bureau to adopt technical protocols and processes and to inform the public about the status of these protections. The signers raise questions about “the most basic cybersecurity practices” to be used, such as how much authentication will be
required to access the data and whether the information will be encrypted. They also propose that an outside cybersecurity audit to be conducted. The Census Bureau has previously listed its own ability to safeguard data and the threat of a cybersecurity attack as “major” risk areas.
- Defunding Nonprofit Insurance Counselors: The U.S. Department of Health and Human Services announced cuts to grants to nonprofit organizations acting as counselors to help individuals through the process for enrolling for health insurance under the Affordable Care Act (“Obamacare”). Claiming the organizations, called navigators, did not enroll enough people, the Administration also changed the mission of the program, among other ways, to provide information to people about alternative coverage options, including association health plans, short-term, limited-duration insurance, and health
reimbursement arrangements (HRAs). This fall, funding for the program will be reduced to $10 million, down from $36 million last year, and an overall cut of 80 percent from 2016.
Four States Challenge Federal Cap on SALT Deductions
Four states (Connecticut, Maryland, New Jersey, and New York) filed a federal lawsuit (New York et al. v. Mnuchin) claiming the recently-imposed $10,000 cap on the state and local tax (SALT) deduction under the federal tax law is unconstitutional, specifically violating states’ rights under the Tenth Amendment. The lawsuit also claims the SALT cap exceeds federal taxing powers under the Sixteenth Amendment and Article 1, Section 8 of the U.S. Constitution. New York Attorney General Underwood stated that the tax law and subsequent cap disproportionately harms taxpayers in those four states and others similarly situated, citing an estimated $14.3 billion in increased federal taxes for New York residents in 2018. Connecticut Governor Malloy estimates a $10 billion loss for residents this year. The lawsuit alleges partisan motives for imposing the cap and asks the court to ”invalidate this unconstitutional assault on the States’ sovereign choices.”
An analysis of the lawsuit by Governing suggests that the constitutional challenge based on an argument of disproportionate impact may not be sufficient because laws often impact states differently. Historic precedence also shows that the federal government has previously limited the SALT deduction since its inception when the federal income tax was created. The suit comes after three of the four states have passed workaround legislation to allow state taxpayers to pay their state and/or local taxes through contributions to
government-run charities and claim charitable deductions on their federal taxes. The Internal Revenue Service is expected to issue proposed regulations to address the legality of this approach.
Texas Attorney General At Odds With Localities Over Sick Leave
The Texas Attorney General is warning cities and localities in the state to think twice before mandating that employers provide paid sick leave to employees. The Attorney General sent a letter to the San Antonio mayor this month stating that state law preempts municipal law and the City is in violation of the Texas Minimum Wage Act. The letter comes after a ballot question was approved by voters to require all businesses with more than five employees, including nonprofits, to provide sick leave benefits. The City Council is considering the letter, stating, “This is a tough spot for the council to be
in, but we can make the right decision with sound legal analysis and total public transparency.” Separately, the State is currently in litigation with the City of Austin for a similar ordinance slated to go into effect October 1.
Connecticut Localities Increasingly Deny Property Tax Exemption
Connecticut municipalities have arbitrarily denied property tax exemptions to community nonprofits in 41 towns across the state, according to a member survey conducted by the CT Community Nonprofit Alliance. Approximately two-thirds of nonprofits responding to the survey reported they recently had been denied tax exemptions on their properties despite having a history of receiving tax exemptions and making no changes in use. Municipal tax assessors reportedly have increasingly targeted nonprofit
property for taxation to fill budget gaps caused by decreased state funding. One locality counters that half of the denials (18 out of 36) resulted from nonprofits failing to submit the proper forms. Regardless, no notice or clarifications of the denials were given to the nonprofits when the denials were ordered. The General Assembly had to pass last minute legislation during the waning hours of its session to protect organizations that had been denied. The CT Nonprofit Alliance is looking for better definitions and protections in the next session.
Additional Taxes, Fees, and PILOTs
- Taxes: The editors of the Bowling Green Daily News recently expressed a strong position in opposition to a new law in Kentucky that imposes sales taxes on tickets to nonprofit fundraising events and many other items. In We take exception to state's new sales tax, July 8, 2018, the editors wrote: “This newspaper takes strong exception to House Bill 487, which became effective July 1 and imposed sales tax on a number of service providers, including nonprofits, in order to shore up Kentucky’s underfunded pension systems.” They object to a lack of transparency
in crafting the tax law late in the legislative session, as well as the targeting of charitable nonprofits for revenue. Echoing the sentiments of many charitable organizations, the editorial states, “Nonprofits will have to deal with the increased cost of compliance as they scramble quickly to get up to speed administratively to comply.” The editors call for repeal of the new taxes on nonprofits.
- PILOTs: County officials in Portland, Maine are looking to fund local expenses by imposing a payment in lieu of taxation (PILOTs) program that singles out charitable nonprofit properties valued at more than $2 million. The proposal calls for “voluntary” payments of 25 percent of the property tax rate, but would allow for property owners to deduct 50 percent of the payment for services provided in the community, including jobs, training, and health care. The proposal reportedly targets properties of 53 tax-exempt entities.
Kentucky Lawmakers Look to Modernize Laws for Nonprofits
A new law is modernizing the Kentucky nonprofit corporations code to provide more flexibility and greater guidance to nonprofits in the Commonwealth. The statute, passed unanimously in both chambers, clarifies board of directors’ size and conflicts of interest, addresses structure and authority of boards and advisory committees, allows use of technology, provides statutory authority to remove board members, gives nonprofits control over membership access and inspection rights, and provides for distribution of assets. The clarification and guidance is being hailed by nonprofits for “ultimately
allow[ing] these vital organizations to spend more time doing what they do best – helping to create strong, vibrant communities,” said Danielle Clore, Executive Director and CEO of the Kentucky Nonprofit Network, which also published updates and next steps to aid nonprofits. Several states have enacted updates to their nonprofit corporation laws in recent years, and the trend is likely to continue in 2019.
Government-Nonprofit Contracting Reform
New York City Comptroller Calls for Prompt Contracting Reforms
The New York City Comptroller is urging the City to fix broken contracting systems, including calling for the creation of a public tracking system, clear metrics, and strict timeframes throughout the procurement process to bring a basic level of transparency and accountability into the government-nonprofit contracting system. Earlier this summer a report from the New York City Comptroller found that 90 percent of the City’s human services contracts with nonprofit providers were submitted for
registration after the start date had passed, something prohibited under City law. Because payments cannot be made to nonprofits for providing services until a contract is registered, at least 90 percent of nonprofits are also having to deal with extremely late payments. New York City maintains a bridge loan fund that nonprofits can borrow against in these situations. Last year, nonprofits had to take out 751 loans worth $149.9 million dollars to bridge the gap between when they provided services on behalf of the City and when the City finally paid them for doing so.
Save the Date: September 25 – National Voter Registration Day
Did you know there is already a countdown to National Voter Registration Day (NVRD) on September 25th? While September may seem far away, our partners at Nonprofit VOTE are encouraging nonprofits to join this national day of
action celebrating our democracy.
The National Council of Nonprofits, an official partner of NVRD, along with many state associations of nonprofits, encourage you to join us by 1) signing up as an official partner and 2) planning a voter registration drive on September 25th. NVRD partners receive free field organizing toolkits, promotion materials, an exclusive training by Nonprofit VOTE, and access to an online store to purchase additional promotional swag.
Help us register everyone who is eligible to vote! Watch an NVRD video and sign up for the August 16 webinar.
Advocacy Has No Age Limit
Everyone can affect change and use her or his voice and skills to make a positive mark in communities. Girls Scouts of the USA is breaking barriers and claiming that “everyone” truly means everyone with its new initiative for all girls, regardless of age, to make a difference and advocate for
what they believe in. Ultimately, the Girls Scouts are using advocacy as a tool to develop leadership.
The G.I.R.L. Agenda challenges all girls to “Step Up, Stand Up, and Get Involved.” Each girl scout is called to be a “Go-getter, Innovator, Risk-taker, Leader” (hence “G.I.R.L.”) and make her voice heard to boldly advocate for positive changes, like “standing up against everyday injustices, mobilizing others to donate or volunteer for causes, meeting with public officials and community leaders to educate them about important issues.” Things that apply to all of us, every day.
“Many people, including girls, want to become active in public policy and learn how to advocate for positive change, but they don’t know where to start,” said Girl Scouts of the USA CEO Sylvia Acevedo when announcing the initiative. “Through the G.I.R.L. Agenda and our proven civic-engagement programming, Girl Scouts serves as a nonpartisan resource for girls—and those who care about them―to learn concrete steps they can take to stand up for what they believe in.”
The G.I.R.L. Agenda is a “nonpartisan initiative to inspire, prepare, and mobilize girls and those who care about them to lead positive change through action” right now because everyone can act and advocate every day. The Agenda provides tools and resources for K-5, middle school, and high school, but with the same mission: “Be a catalyst for change in your community — and the world.
Champion your views, influence leadership, and advance the G.I.R.L. Agenda to make the world a better place.”
At an Agenda event in May, the Girls Scouts of the USA premiered a new public service announcement, “Lifetime of Leadership,” celebrating Girl Scout alumnae for their leadership, success, and adventure while role-modeling how important it is for this generation to cultivate leadership experiences to change the
world. The video labels each alumna as “Girl Scout and [profession]”, highlighting that these women were Girls Scouts long (or not so long) before reaching their current level of success. Narrated by Queen Latifah, the PSA also features Dolores Huerta, Barbara Walters, Katie Couric, Senator Tammy Duckworth, Jackie Joyner-Kersee, Ellen Kuras, Dr. N. Jan Davis, Tyra Banks, Sheryl Crow, Céline Dion, Dakota Fanning, Susan Wojcicki, Senator Susan Collins, and Cassandra Levesque, a 19-year-old Girl Scout alum who worked to ban child marriage in New Hampshire.
The lessons learned from advocating for their communities while a Girl Scout prepares them for advocating, innovating, discovering, and adventuring, which in turn changes the world.
The initiative declares: “Every girl has a voice. Every girl’s voice is important.” Indeed.
Read more examples of Advocacy in Action,
a regular feature of Nonprofit Advocacy Matters.