Repeal of Nonprofit Transportation Tax Is Possible -- But Members of Congress Need to Hear from Nonprofits – Now!
Leaders and lobbyists in Washington, DC representing charitable, religious, and philanthropic organizations have convinced most lawmakers that the new 21-percent unrelated business income tax (UBIT) that nonprofits must pay for the expenses for transportation benefits, like transit passes and parking, makes no sense and should be repealed. Indeed, even the chairman of the House tax-writing committee who put this new tax into the 2017 law is now saying it ought to be eliminated. BUT, that’s not enough. Your Representatives and Senators need to hear from you and other nonprofits – immediately – if we hope to turn the general agreement that the law is wrong into urgent
action that gets it repealed. Congress must take action to repeal the transportation tax on nonprofits, and there’re only two weeks (10 working days) to do it before a new Congress takes over and advocacy efforts will have to start all over again.
Take five minutes today to do any (preferably all) of the following:
- Call your Representative and Senators at 202-225-3121 and tell them the new transportation tax on nonprofits is unfair and burdensome, and must be repealed as part of any bill passing in Congress this year. Tell them that nonprofits – charitable organizations, houses of worship, and foundations – are all united in opposition to this tax and urge them to let their leadership know that repealing the nonsensible income tax on expenses paid by tax-exempt
nonprofits is essential before Congress wraps up work for the year.
- Email your Representative and Senators using their contact forms (found on their home pages) and deliver the same message – the nonsensible income tax on nonprofit expenses by tax-exempt nonprofits for providing transportation benefits must be repealed before the end of the year.
- Tweet your Representative and Senators to deliver this simple message:
“.[Representative/Senator’s Twitter Handle] Don’t leave DC this year without repealing the #nonprofit transportation tax (Code Sec 512a7). Every dollar spent on this tax is a dollar diverted from our mission of serving constituents in our state.”
Learn more in the below article on Taxing Tax Exempts and on our webpage on the Nonprofit Transportation Tax.
Lame Duck Session
Still No Resolution of the Big Issues
Congress gave itself an additional two weeks to pass a wrap-up spending bill by passing another short-term continuing resolution (until December 21) to replace the stopgap measure that expired last Friday. Lawmakers face the same long list of must-pass bills, but have only 10 legislative days to resolve their disagreements on several spending bills or face a partial government shutdown. As reported here previously, major unresolved topics include whether to spend $5 billion on the President’s desired southern border wall, what to do with numerous controversial policy riders attached to spending bills, like the anti-Johnson
Amendment language that would politicize charitable organizations, and whether to provide disaster relief in the form of spending and tax breaks to areas of the country devastated by hurricanes, wildfires, and other natural disasters. The House appears less likely than just two weeks ago to consider a 300-page tax bill designed to make changes to the 2017 tax law. If agreement cannot be reached on these and other major policy issues, a government shutdown could occur after December 21, causing the closure of some or all of the following federal departments: Agriculture, Commerce, Homeland Security, Housing & Urban Development,
Interior, Justice, State, Transportation, Treasury, as well as numerous agencies.
Taxing Tax Exempts
New Unrelated Business Income Taxes Under Attack, and That’s a Good Thing
As is evident by the Take Action article at the top of this newsletter, nonprofits are making progress in demonstrating the significant, adverse consequences of new taxes on tax-exempt organizations enacted as part of the 2017 tax law. One of the new taxes requires nonprofits with business income unrelated to their core mission to pay a 21-percent tax on income earned from each “separate” “trade or business” and prohibits the blending of profits and losses across lines of business. The other provision imposes a new, counter-intuitive income tax
on expenses nonprofits incur for employee transportation benefits, such as transit passes and parking. The Treasury Department and IRS have initiated rulemaking on the “trade or business” tax (see National Council of Nonprofits comments) and are expected soon to issue partial guidance on the transportation tax that reportedly will not be helpful in resolving the many questions posed by nonprofits, houses of worship, and foundations.
Last week, Senators James Lankford (R-OK) and Chris Coons (D-DE) sent a letter to Treasury Secretary Mnuchin calling for a delay in implementing both new taxes on nonprofits, noting in particular about the transportation benefits tax: “Requiring these organizations to pay a federal tax on these employee benefits, something they have never been required to do before, will cause them to not only face an increased operating cost, but also an administrative burden by filing 990-T forms with the IRS for the first time.” Also last week, Representative Kevin Brady, Chairman of the House Ways and Means Committee, introduced
an amendment to his larger tax legislation that would add a provision repealing the 21-percent tax on nonprofit transportation benefits, explaining, "We are proactively eliminating any potential uncertainty for our churches and community organizations so nothing distracts them from their core mission." Brady’s bill is not likely to be enacted this year, but his proposed repeal of the tax on nonprofit transportation benefits indicates that there is no substantive opposition to repeal of the tax, perhaps allowing the repeal
language to be added to other must-pass legislation this year. See Take Action above.
- Public Charge Proposed Regulations: Today, December 10, is the deadline for submitting comments on the Department of Homeland Security's proposed regulations seeking to change the factors it uses to determine if an immigration applicant "who is applying for a visa, admission, or adjustment of status is likely at any time to become a public charge." The Department proposes disqualifying individuals based on their use of certain public benefits, low income, and medical history. Nonprofit opposition to the proposed regulations is widespread. Beth Werlin, executive director of the American Immigration Council, states succinctly, “Many people now would be forced to choose between accessing the assistance they and their children need now or securing permanent legal immigration status to be with their families in the future.” The National Human Services Assembly warns of “a chilling effect among parents who do not want to compromise their child’s prospects of becoming a U.S. Citizen in the future, potentially creating food insecurity for their children, leaving them uninsured, and perpetuating
unstable housing situations." The Assembly finds that "Overall, the proposed rule would threaten the health and well-being of roughly 9.2 million children in all, including immigrant children and citizen children with immigrant parents.” The National Council of Nonprofits will be submitting comments in opposition to the proposed rule later today and encourages nonprofits and all concerned about the impact of the draft rules to weigh in today. Go here to submit comments.
- Food Stamps and Farm Bill: Negotiators in Congress appear to have reached agreement on extending the Farm Bill, legislation that authorizes farm subsidies, food aid, and conservation funding. Negotiations had been tense this year when House Republicans and the White House looked to use the Farm Bill as a vehicle for imposing work requirements on applicants to the Supplemental Nutritional Assistance Program (SNAP), commonly referred to as food stamps, which is funded under the Farm Bill. The proposed work requirements would have mandated that certain adults between ages 18 to 59 must work or get training for at
least 20 hours per week. The final language has removed the provision, leaving the measure more closely aligned to a previous Senate version.
- Census 2020: Over half a million children under the age of five living in hard-to-count areas in Texas are at risk for not being counted in the 2020 Census, according to a new report conducted by the Austin-based Center for Public Policy Priorities. Any miscalculations affect federal funding for public programs, including the Children’s Health Insurance Program (CHIP) and Supplemental Nutrition Assistance Program (SNAP), and other vital government programs. Another report found that a one-percent undercount in the state would result in $291 million in lost funds from the federal
government. These reports reinforce the need for a fair, accurate, and complete census count so communities, nonprofits, businesses, and governments can properly allocate funds and make business decisions for the next decade.
Cuomo Signs Bill Killing State Nonprofit Transportation Tax
Earlier this year, legislators in New York passed a bill essentially declaring on a bipartisan basis that taxing nonprofit transportation benefits like the federal government has done (see above) is unjustifiable and bad tax policy. Over the weekend, New York Governor Cuomo agreed, signing that legislation into law, which decouples New York from federal tax law to prevent an automatic tax hike on nonprofits. New York imposes a nine-percent unrelated business income tax on nonprofits for all income taxable under federal tax law. The bill signed by the Governor makes clear that a state tax does not apply to
nonprofit transportation benefits, and the clarification is retroactive to the beginning of this year. New York becomes the second state, after North Carolina, to decouple certain state taxes on nonprofits from federal taxes.
States Eye Sales Tax Under Wayfair
Now that holiday shopping is in full swing, states are looking at cashing in on billions of dollars of new revenues from out-of-state sellers thanks to taxing authority recognized by the U.S. Supreme Court in its decision in South Dakota v. Wayfair. The changes in state taxing authority matter to nonprofits because sales tax exemptions vary across the states, and charitable organizations may find themselves liable for taxes that were not applicable to them last year. Only five states have no sales tax and 23 out of the
remaining 45 states and the District of Columbia are applying the case to out-of-state sellers to collect additional revenues through previous legislation, crafting regulations, or simply claiming authority to do so. Eight states are set to begin collecting such taxes January 1. The remaining 15 states are expected to take up legislation in 2019 to tap into the new source of revenue.
Nonprofits are finding that when legislatures open up their tax codes, the revisions can go beyond the initial reason, with changes expanding in unexpected ways. During its recent lame-duck session, the Wisconsin Legislature passed a bill that not only expands the state’s taxing authority under the Wayfair decision, but also changes state income tax rates. Earlier this year, Kentucky lawmakers enacted a comprehensive sales tax reform package that expands sales taxes to apply to services and
labor, and imposes a six-percent sales tax on admissions to events that may include charitable nonprofits for the first time. The new law also requires nonprofit organizations to collect sales taxes on fundraising special events, silent auction items, and some types of memberships (including, for example, recreational memberships).
Michigan Bill Seeks to Obstruct Oversight of Fraudsters and Illegal Campaign Contributions
A last-minute bill in the waning days of the 2018 Michigan legislative session threatens to diminish the ability of state law enforcement officials who properly oversee tax-exempt entities from weeding out bad actors masquerading as charitable nonprofits. The measure (SB 1176) would prohibit public agencies from requesting or requiring tax-exempt organizations to disclose any “personal information,” which is defined as “data of any kind that directly or indirectly identifies a person as a
member, supporter, or volunteer of, or donor of financial or nonfinancial support.” Supporters of the bill claim it is intended to protect donors from potential political retaliation. Opponents are concerned that preventing law enforcement from seeing such information would effectively obstruct efforts to identify bad actors and prevent them from abusing legitimate charitable organizations. Moreover, the proposed law would allow individuals to evade campaign finance laws by funnelling secret campaign donations (“dark money”) into partisan political campaigns. The bill passed the Senate last week and is expected to be taken up by the full House soon.
Taxes, Fees, PILOTs
- Property Taxes: Eight nonprofits in Tisbury, Massachusetts have seen their property tax exemption revoked, allegedly for failing to meet the legal definition of “benevolent” use, missing the filing deadline, or other determinations by the town’s property tax assessors. Some of the organizations will be able to appeal the decision when they receive their tax bills. Representatives of the various organizations indicated disappointment that the assessors were unwilling to work with them on late filings or other remediation. “The amount isn’t that great but we feel
like it’s a principle. We’re providing a benefit to the town,” stated PJ Finn, manager for a nonprofit radio station, that previously was unaware it had been denied tax exemption after inconclusive exchanges with the Town
- Stormwater Fees: Nonprofits in Washington, DC may benefit from a $4 million relief package to curtail financial burdens imposed by water and sewage fees that fund water and conservation efforts. Cleanup of the Anacostia and Potomac rivers was mandated under a 2005 federal consent decree, and the fees were subsequently enacted by the District Council to help cover costs. Charitable nonprofits, including houses of worship, pay the fees based on land area with hard surfaces that do not absorb rainfall. Under the proposed plan, religious organizations and cemeteries would have their fees dismissed
if the fees amount to at least .75 percent of net revenue. Other nonprofits would have to meet a standard of five percent of net revenue to have fees dismissed. Opponents of the relief package object to special treatment for religious organizations, but the churches are responding that the package is a drop in the bucket of the total fees being raised.
- Ticket Fees: The Columbus, Ohio City Council is considering two sets of proposed admissions fees to support arts in the city. One measure would impose a five-percent fee on performance and sports tickets costing more than $10 at certain local venues. Revenues would go toward a Creation, Innovation and Inclusion Fund for the arts and arts education. Another proposal would fund long-term capital improvements, building maintenance, and investments in cultural arts facilities, sports venues, public art, and
performance spaces. Local arts groups are supporting the measure, stating, “We believe that new funding from the ticket fee sends a powerful message about the value of the arts and encourages future support from current and potential givers.” Opponents of the measure claim the fee is “politically charged” and regressive.
Kansas Streamlines Contracting, Grantmaking with Nonprofit Service Providers
The Kansas Department of Children and Family Services is shifting its form of written agreements with nonprofit service providers, from contracts to grants, when obtaining foster care, family preservation, and adoption services. The change means the Department is now responsible for the entire grant process rather than the Department of Administration. Moving forward, grants will be awarded based on a blind scoring of applications, for up to four years. Kansas is not the first state to consider similar changes since the Office of Management and Budget (OMB) released its Uniform Guidance at the end of 2014. The regulations more
clearly define the difference between grants and contracts, with grants being used to purchase goods and services for public benefit, while contracts are used to purchase goods and services for the governments’ direct use. The distinction matters because grants and contracts are each governed by different sets of rules and regulations.
A Virtual Day of Action
The modern-day equivalent of demonstrations, sit-ins, and rallies is the virtual day of action. Once the designated day is set, typically just before policymakers make a key decision, activists fan out across the country exhorting their supporters to take action on the day to show that they are watching and willing to take action in support of their position.
December 4, 2018 was just such a day of action in support of keeping nonprofits nonpartisan and in opposition to anti-Johnson Amendment language attached to a House spending bill that must get resolved to avoid a government shutdown. The key question for Members of Congress is whether to retain a controversial, House-passed rider or keep the language out of the final bill, as the Senate did in its version of the legislation. For those who respect and benefit from nonprofit nonpartisanship – meaning just about everyone – the correct answer is to stick with the Senate rider-free version.
In multiple ways, nonprofits and their supporters raised their virtual voices in unison on December 4. Here is a small sampling that demonstrates the power of the virtual day of action:
The Baptist Joint Committee for Religious Liberty tweeted this message and image: “Take action! Tell your Senators to keep #JohnsonAmendment intact in any funding bill. It keeps nonprofits & houses of worship independent, allowing them to speak out about political matters without being pressured to endorse/oppose political candidates.”
The Bright Lines Project shared: “The #JohnsonAmendment gives houses of worship & charities the ability to speak to political and social issues, but without the pressure to endorse or oppose political candidates. No sneaky budget-deal should block enforcement of this law!”
The Massachusetts Nonprofit Network urged its members to engage in the day of action, tweeting: “Take action TODAY and tell your federal elected officials to protect the #JohnsonAmendment! In the next few days, Congress will be wrapping up legislation that could include language that would make it difficult for the IRS to enforce the Johnson Amendment.”
The Pennsylvania Association of Nonprofit Organizations sent direct appeals to the Pennsylvania congressional delegation, including this one: “.@SenBobCasey Partisanship has NO place in charitable organizations - whether churches, charities, or foundations. Oppose all efforts to include a controversial #JohnsonAmendment rider in any legislation being voted on this month.“
Walter Weeks, former Mayor of Coats, NC wrote this to his Senators and Representative: “As a conservative heavily involved in nonprofits I ask you to protect them from partisan politics. Partisan groups must not be allowed to pose as charities. Oppose all efforts to include a #JohnsonAmendment rider in upcoming votes.
Read more examples of Advocacy in Action,
a regular feature of Nonprofit Advocacy Matters.