This Early Edition
The National Council of Nonprofits is publishing this edition of Nonprofit Advocacy Matters ahead of the usual Monday schedule to provide early analysis of what Tuesday’s election results mean to the work of charitable nonprofits across the country.
The edition opens with a review of the effects of the federal, state, and local elections on nonprofits. Next, it turns to news about policy developments, including what to expect from Congress' lame-duck session and updates on proposed regulations on the deductibility of state tax credits, a notice of guidance on the new federal tax on transportation benefits, and state sales-tax developments.
Monday, November 12, is a federal holiday in honor of America's veterans. To commemorate the 100th anniversary of the end of hostilities in the First World War, we conclude this edition by offering tribute to a few of the many charitable nonprofits that mobilized to relieve suffering during and restore order after the “war to end all wars.”
2018 Elections and Nonprofits
After more than five billion dollars spent, millions of volunteer hours invested, and more than 113 million votes cast, the 2018 election results are mixed. When the new 116th Congress convenes on January 3, it will be the first time for split control of the House and Senate since 2010. At the state level, several governorships and legislative chambers changed party hands, in both directions, with a few more Democrats in charge than before the elections. Both political parties have things to celebrate and bemoan, but what does it mean to nonpartisan charitable nonprofits that are not beholden to the vicissitudes of voter party preferences? Here are some initial thoughts:
The U.S. Senate in 2019 will be more to the liking of President Trump as several incoming Senators closely aligned their campaigns with him. Early predictions are that the 21 Republican Senators running for re-election in 2020 will also feel compelled to stick more closely to the President’s positions. On the other side of the aisle, with no clear favorite to run for President, expect many Democratic Senators to be exploring, posturing, and positioning. As for governing, with the Republican’s margin of control in the Senate expanding, the views of a handful of moderate Senators may no longer significantly alter the direction of those priorities. Current expectations are that immigration, border
security, and perhaps spending cuts will be at the top of the majority's to-do list. But the Senate’s unique role in confirming judges and high-ranking members of the administration likely will receive the greatest attention for the next two years.
As has been widely reported, Democratic control of the U.S. House of Representatives in 2019 means that committees can investigate the Trump Administration, compel testimony and documents through subpoenas, and challenge the President on many fronts. The shift in party control also means that the work of the House will be directed by a different set of leaders. The new chair of the House Ways and Means Committee, Representative Richard Neal of Massachusetts, has been described as an “affable moderate” who is expected to lean more toward negotiated solutions rather than the party-line votes of recent years. This shift in approach should give hope to all in the nonprofit community seeking to preserve
the law on nonprofit nonpartisanship, relief from new unrelated business income taxes, promotion of charitable giving incentives, and other priorities that should bear no party label. The presumed new Chair of the House Appropriations Committee, Nita Lowey of New York, is already calling for the repeal or revision of caps on spending for domestic programs, many of which are performed under government grants and contracts by charitable nonprofits.
Taking a pessimistic view of the incoming Congress, Alan Greenblatt of Governing summarized the new political reality this way: “For the next two years, the House will hold hearings to investigate Trump, while the Senate will work to confirm his judicial picks. No doubt Trump will issue more executive orders, as President Barack Obama got in the habit of doing once he faced divided government.” This leaves a political vacuum that state and local governments will likely fill. Charitable nonprofits can be silent at their peril, or engage in targeted advocacy efforts at
federal, state, and local levels to ensure policies are adopted that help advance (and not hinder) nonprofit missions. The succeeding articles are intended to help frontline nonprofits prepare for the advocacy opportunities and challenges ahead.
2018 Election Impact on Federal Issues
Johnson Amendment: Several Representatives who led efforts to politicize charitable nonprofits, houses of worship, and foundations by eliminating protections of the longstanding Johnson Amendment lost re-election, including one who sponsored multiple riders to House appropriations bills that would make IRS enforcement virtually impossible. On the other side of Congress, at least one Senator-Elect campaigned in support of politicizing houses of worship, adding to the anti-Johnson Amendment advocates in the upper chamber. With the presidential campaign season in full swing from now until November 3, 2020, nonprofits can expect heightened efforts at the congressional, administrative, and public relations levels to
politicize charitable nonprofits for partisan ends. Read more in our blog article, The Johnson Amendment’s Fate After the 2018 Elections: The Fight Continues.
- Taxes: Divided Congress means that repeal or a major rewrite of the 2017 tax law is not likely, but smaller reforms, such as repeal of new taxes on tax exempt organizations and limited expansion of giving incentives, may be possible.
- Spending: About $200 billion in spending cuts to both military and domestic programs are scheduled to kick in for fiscal year 2020 due to the 2011 law known as "sequestration." Last month, the President announced he was ordering his cabinet secretaries to cut their budget requests by five percent. Since the Administration and some in Congress regularly call for greater cuts on the domestic side, nonprofits can expect proposals to shift unfunded burdens onto them and the people they serve. Whether proposed cuts become a reality will depend on the effectiveness of nonprofit advocacy.
- 2020 Census: The first of three federal lawsuits challenging the constitutionality of a citizenship question added to the 2020 Census began this week. On the first day of trial and citing the Census Bureau’s own research, a statistical expert stated that the inclusion of the controversial question would discourage participation of noncitizens, suppressing the fairness, accuracy, and completeness of the count. House Democrats will undoubtedly initiate investigations into the addition of the citizenship question and could seek to alter the census questionnaire via substantive or
appropriations legislation. Learn more about concerns about the citizenship question.
Impact of 2018 State Elections
The news is that Democrats picked up some statewide offices and flipped a few hundred state legislative seats, but the wave was not as dramatic as some had predicted. While the political leadership changes were not on par with historic shifts, the workload for state policymakers, and for nonprofits, will be enormous in 2019 due to two major changes at the federal level. The federal tax law enacted in late 2017 reduced federal tax receipts, but at the same time is generating additional revenues in many states because of the way their tax codes are structured. States that haven’t done so already will
need to conform their laws to the revised Internal Revenue Code if they want to avoid tax hikes on their citizens. Many states will also have opportunities to decide whether to cancel automatic tax hikes on individuals and nonprofits by, among other things, promoting greater charitable giving and “decoupling” the state’s tax on unrelated business income. It is anticipated that the new $10,000 federal cap on deducting state and local taxes (SALT) will generate a large outcry, with people seeking relief wherever they can find it. Separately, the U.S. Supreme Court decision in South Dakota v.
Wayfair allows states to tax internet sales beyond their borders, incentivizing the states to revise their sales tax laws to access their share of the estimated $23 billion in new revenue. See the related article, below, about efforts already underway in some states seeking to tap into the Wayfair windfall. Also, learn more about how the elections affect the 2019 legislative agenda in your state by checking with your state association of nonprofits.
2018 Ballot Measures Wrap-Up
In addition to deciding who will hold thousands of federal, state, and local offices over the next couple of years, voters across the country weighed in on more than 150 ballot measures on a wide range topics such as taxes, healthcare coverage, and affordable housing. The results, like the decisions on public offices, were mixed across the states.
- Taxes: Voters in Colorado rejected ballot provisions that would have permitted increases to income tax and sales and use tax rates. Arizona voters decided that sales taxes cannot be expanded to apply to services; Missouri is the only other state that prohibits sales taxes on services. Florida voters approved a constitutional amendment requiring a supermajority of the Legislature to approve any new tax or tax increase,
while a measure in Oregon to extend its current supermajority requirement to other tax matters failed. North Carolina voters amended the state constitution to lower the cap on income tax rates from 10 percent to seven percent, a decision that caused many charitable nonprofits to express concern before the election that the amendment could impose restricted government funding for grants and contracts to deliver services to the public.
- Medicaid: Voters in three states (Idaho, Nebraska, and Utah) voted to expand Medicaid, increasing the number of expansion states to 36. This number could grow next year due to changing party control of Governors in some states. The Utah Legislature previously had passed a bill to expand Medicaid that included a mandatory volunteerism provision and sent the request to the federal government for approval. The ballot measure approved by voters, however, did not include the mandate that restricts eligibility.
- Housing: Several statewide and local ballot measures proposed ways to ease affordable housing. Oregon voters approved a measure amending the state constitution to allow cities and counties to borrow money for affordable housing projects. California voters rejected a property tax break that would have allowed homeowners older than 55 or with disabilities to keep their tax rate when moving to a different home. Separately, Californians also defeated a
high-profile measure that would have expanded rent control in the state. Voters statewide did, however, approve bond financing for housing. Also, according to Stateline, voters in eight states weighed state or local housing measures that would clear the way for the construction of affordable housing or expand protections for renters.
Americans Elect More Diverse Leaders
Call it a “diversity shift,” a “rainbow wave,” or simply progress toward looking like America; regardless of descriptors, the 2018 elections changed the face of public life. Women of color, Muslim women, Latinas, and Native American women, at least one of whom openly identifies as lesbian, all became firsts to represent their constituencies in the U.S. House of Representatives. Tennessee elected its first woman to the U.S. Senate, and Iowa, Maine, and South Dakota elected their first female chief executives (to
bring the 2019 tally to nine female Governors – a tie for the record). Voters in Colorado elected an openly gay man to be their Governor, a first in the nation. Pennsylvania moved from an all-male congressional delegation to include a quartet of women. Female military veterans in Florida, Michigan, New Jersey, and Virginia also picked up seats to help round out the 112 women – including the youngest ever elected – in the 116th Congress. As of this writing, some races, such
as the potential first African American female governor (Georgia), female U.S. Senator from Arizona, and Korean American Congresswoman, were still too close to call but may lead to even more change.
Women and minorities also won big in state and local legislative races and, depending on final election results, are on pace to break records of female representation in state legislatures, with the potential of being 38 percent of state legislators. Nevada became the first state to have women majorities in the Legislature and state Supreme Court. A more diverse slate of legislators that is slowly beginning to look more like the country as a whole will also change
leadership and committee seats – as demonstrated by the first woman ever to chair the U.S. House Appropriations Committee.
The Post-Election (Lame Duck) Session of Congress
Congress returns next week for mostly pro-forma organizational activities, saving the final throes of action until after Thanksgiving. By December 7, the House and Senate must come to agreement on spending priorities in seven appropriations bills or risk a government shutdown. They previously agreed to spend about $300 billion, but where those dollars go and what conditions are put on how they are spent are the subjects of high speculation and drama. The President has demanded $5 billion in funding to build a wall on the border with Mexico or said he will veto bills sent to him. Other hot issues on the table
are whether to allow dozens of highly-controversial proposals to be attached as policy riders on the must-pass spending bills, such as one effectively blocking the IRS from enforcing the longstanding Johnson Amendment. Numerous other bills are on Congress’ must-pass list, including a new five-year farm bill. The lame-duck wish list includes expanding retirement savings options, fixing technical mistakes in the 2017 tax law, and renewing various expired business tax breaks.
IRS Gets an Earful on SALT and State Tax Credit Proposed Regulations
Most of the witnesses at a public hearing this week on the IRS’ proposed regulations limiting the value of some charitable deductions delivered a simple message: trash this draft and go back to the drawing board. In August, Treasury and the IRS published draft regulations that, if implemented as written, would require taxpayers to deduct the value of any state tax credit from the amount they claim as federal charitable deductions. The proposal reportedly targets new tax laws in Connecticut, New Jersey, and New York that seek to convert some state and local tax (SALT) payments that are capped at $10,000 under the 2017 federal tax law into uncapped charitable deductions. As written, however, the draft regulations would also to apply to many programs in the 32 states and the District of Columbia that provide a state or local tax credit when a taxpayer
makes a donation to certain nonprofits, such as school choice scholarship funds. Twenty-four speakers addressed the IRS at the hearing, echoing the views in the more than 7,700 written comments, most of which expressed outright opposition or requested changes to the draft regulations. Andrew J. Bowman of the Land Trust Alliance warned that the proposed regulations will result in fewer donations of lands due to the breadth of the tax credits affected, adding that the proposals are “already having a chilling effect on conservation.” Supporters of the proposed rules at the hearing were the School
Superintendents Association and the Institute on Taxation and Economic Policy. It is not clear when Treasury and the IRS will move to finalize the proposal or whether changes will be made that reflect the public comments.
Guidance Coming on Transportation Benefits Tax
After nearly 11 months and the passage of three tax-filing deadlines, the federal government is only now announcing that it will indeed develop guidance to enable nonprofits to interpret and calculate the new 21 percent tax on nonprofits for transportation benefits (parking and transit passes) they provide to their employees. On November 8, the Treasury Department and the IRS published a revised 2018-2019 Priority Guidance Plan stating that guidance on this topic is on the regulatory workplan for the IRS. (See Item 61 on page 8.) The notice states that staff will first craft their interpretations of the
new section of the tax law that applies to for-profit employers (Section 274) and then attach language laying out how the for-profit rules will apply to nonprofit employers too. Since early this year, nonprofits, houses of worship, and foundations have been crying foul about the law and calling on regulators to delay implementation of the tax on nonprofit transportation benefits (Section 512(a)(7)) and spare nonprofits from the tax burden and penalties until one year after any final guidance is promulgated. Bipartisan bills are pending in the current Congress to repeal this and another tax on nonprofits, but formal resolution may have to wait until 2019. Learn more.
More States Enforce Sales Tax Collections Under Wayfair
The U.S Supreme Court decision in South Dakota v. Wayfair is less than six months old, but more than a dozen states have already taken action to reap the financial gains that the Court’s decision makes available to them. The Wayfair decision held that states have the power to collect sales taxes for online purchases of goods and services from sellers that don't have a physical presence in the state. Since the decision was published in June, states have been looking to tap into the estimated windfall of $23 billion dollars per year from the Court’s ruling. It is important for 501(c)(3) organizations – charitable nonprofits, houses of worship, and foundations – to recognize that states are not consistent in whether or which organizations they exempt from sale taxes, so the question of whether an individual organization must collect taxes when it sells to buyers out-of-state or pay taxes on purchases it makes in other states is about to change significantly.
Currently, 32 states have adopted or proposed laws to tax out-of-state sellers, while an additional three have other statutes or rules that may apply to require sellers to collect and remit sales taxes to the foreign state. As of the beginning of November, 22 of those states have begun enforcing remote sales tax requirements on out-of-state sellers, either by statute or regulation. Additionally, some states attach notice and reporting requirements for retailers to collect and submit
purchasing records for the state to collect use taxes. Five states (Alaska, Alabama, Arizona, Colorado, and Louisiana) authorize municipalities to set and impose various taxes, further complicating the matter as those localities also look to grow their tax revenues. The Multistate Tax Commission, an intergovernmental state tax agency that works on state tax administration, met this week to discuss uniformity and
consistency among the states, particularly among marketplace providers like Amazon and eBay, which may affect 501(c)(3) organizations that sell or purchase supplies online from out of state.
Armistice Day Commemoration
Honoring Those Who Served
Sunday, November 11, 2018 marks the 100th anniversary of the cessation of hostilities in World War One, the date known as Armistice Day in the US and Remembrance Day in the UK. More than 65 million men and women served in their countries’ armed services and casualties among military personnel and civilians are estimated in the range of 37 million. Throughout the horrors of the “war to end all wars,” charitable organizations mobilized to relieve suffering and restore order. Here are a few examples:
- At the beginning of the war in 1914, the American Red Cross was a small organization still in the process of developing its identity and programs. Among the most prominent services the Red Cross provided to the military during the war were the Production Corps responsible for garments, surgical dressings and other medical supplies; the Nursing Service, including active duty with the war theaters; Hospital Service; and Motor Service that provided support to canteens, hospitals, and camps. By the
war’s end, nearly one-third of the U.S. population was either a donor to the Red Cross or serving as a volunteer.
- Throughout World War I, the YMCA provided morale and welfare services for the military. By war’s end, the YMCA, through the United War Work Council, had operated 1,500 canteens in the United States and France; set up 4,000 YMCA huts for recreation and religious services; and raised more than $235 million – equivalent to $4.3 billion today – for relief work. Nearly 26,000 YMCA staff and volunteers served under the YMCA during the war. (YMCA of the USA History – 1900 to 1950s)
- The Jewish Welfare Board was formed by a group of prominent Jewish Americans on April 9, 1917, as a response by the American Jewish community to the United States’ entry into the First World War on April 6th. Members of more than ten national Jewish organizations met and agreed that each of their groups would delegate power to a new agency, the Jewish Welfare Board. Among many other things, the Board provided spiritual support to 225,000 Jewish soldiers, while also serving the interests
of the American armed forces at large.
- During the First World War, The Salvation Army provided motor ambulances, refreshment huts in military camps, and parcels of food and clothing for combatants. Some Salvation Army officers also served as chaplains. In 1917 Evangeline Booth, National Commander of the Salvation Army in America, created a National War Board to meet the needs of the American Expeditionary Forces. Salvationists were sent to Europe from the US, including those colloquially known as ‘Doughnut Girls’ who
served food (principally doughnuts) to soldiers and often worked in field hospitals. The Naval and Military League also operated an inquiry service helping relatives and friends to find service members. After the war, they assisted with visits to war cemeteries. (Salvation Army World War One history)
Photo credits (from top)
- Courtesy of The American National Red Cross. All rights reserved in all countries.
- The Kautz Family YMCA Archives, University of Minnesota.
- Public domain - Jewish Welfare Board.
- Courtesy of The Salvation Army National Archives.