Nonprofit Taxes Due Soon Unless Congress Acts
The push is on to repeal the new federal 21-percent tax on nonprofit transportation benefits before nonprofits must make estimated quarterly payments in the coming weeks. Late last month, Senators Lankford (R-OK) and Coons (D-DE) introduced S. 632, the LIFT for Charities Act, a bipartisan bill that would repeal the unrelated business income tax on nonprofits for the expenses they incur providing transportation benefits
(parking and transit passes) to their employees. In recent days, leaders of 12 denominations and faith-based organizations sent a letter to the Chair and Ranking Member of the House Ways and Means Committee calling for repeal of the tax on nonprofit transportation benefits. Specifically, the signers “urge Congress to swiftly pass a bipartisan, full repeal of Section 512(a)(7) before taxes are due this year.”
However, at the Economic Club of Washington, DC last week, Speaker Pelosi dampened hopes that immediate relief is coming, stating that Democrats in the House “really just have to look at the whole tax bill and see what the decisions will be made as we go forward.” In other words, nothing will happen anytime soon unless Representatives and Senators hear from their constituents that it is utterly unacceptable for them to take no action or slow action. Otherwise, Congress will take its time and get around to the transportation tax issue long after scarce dollars will have been diverted from
missions to pay for a tax that not a single member of Congress supports!
NONPROFIT ACTION NEEDED
With payments coming due for this unfair tax in only a few weeks, it is imperative that every Representative and Senator know the pain the tax is causing and take immediate action to repeal it. Everyone concerned about nonprofit missions – including staff, board members, donors, volunteers, and clients – needs to Take Action now to prevent the unnecessary diversion of charitable assets away from mission to pay this tax. Please take five minutes now to make a difference!
U.S. Department of Labor Proposes New Overtime Rule
The U.S. Department of Labor released its proposed rule updating the overtime salary threshold under the federal Fair Labor Standards Act, reopening rulemaking on an issue that has drawn significant attention and controversy over the past four years. The salary threshold for the white-collar exemption from overtime pay would rise to more than $35,000 per year under the draft rules.
By the Numbers
Proposed $35,308/year ($679 per week)
Up from current $23,660/year ($455/week)
Highly Compensated Employees Threshold
Proposed $147,414 per year
Up from current $100,000
Public Comment Deadline
5/13/2019 approx. due date
This rate would be nearly 50 percent higher than the current level that was last updated in 2004, but only half as much as the increase approved by the Obama administration in 2016 (to $47,476/year) that was blocked by a federal court. The newly proposed regulations would also raise the salary threshold for highly compensated employees who are exempt from overtime pay requirements from $100,000 per year to $147,414 per year (which is higher than the proposed increase in 2016).
At issue is the provision of the federal Fair Labor Standards Act that exempts certain employees from the requirement that they receive time and a half overtime pay for work beyond 40 hours in a week. The salary threshold is one of three tests that must be met before an employee can be deemed “exempt”; each exempt employee must (1) be paid on a salary basis; (2) be paid at least the salary threshold set forth by DOL; and (3) satisfy a duties test as being an executive, administrative, or professional worker. The newly released draft regulations do not change the salary basis or duties tests; only the salary threshold is at issue.
Impact on Nonprofits: The Labor Department estimates that about seven percent of nonprofit employees nationally will be affected by the higher salary threshold (compared to five percent of for-profit employees). The higher threshold could affect an even larger portion of the nonprofit workforce in the South and other parts of the country where average wages and cost of living are below the national average. See the initial analysis from the National Council of Nonprofits. Nonprofits are encouraged to review the proposed regulations and make a mission-based analysis of whether and how the
draft rules will affect their ability to attract and retain workers and advance their missions. The Labor Department is inviting public comments (RIN 1235-AA20) through approximately May 13, 2019.
Budget Season Begins
President Releases FY 2020 Budget Requests to Congress
The President is asking Congress to cut domestic spending by five percent and increase defense spending, according to his budget requests for fiscal year 2020 released this morning. The proposed reduction in domestic spending, which fund multiple programs that hire charitable nonprofits to perform, go farther than the automatic cuts, known as “sequestration,” set in place in the 2011 Budget Control Act. The budget blueprint once again calls for funding for the southern border wall, something Democratic leaders were quick to reject. The budget request projects economic growth of about three-percent for the next several years and claims to balance the federal budge in 15 years.
The release commences the months-long process by Congress of evaluating every spending line item, balancing competing policy and revenue demands. Unlike in many states, where a Governor’s budget proposal becomes a firm template for final appropriations legislation, the President’s budget is treated as an important set of priorities, but only one of many. In the famous words of Senate Budget Committee Chairman Enzi (R-WY), expressed several years ago, “I hope that people don’t panic over the president’s — any president’s — budget. They’re just
suggestions.” He was stating the constitutional and practical reality that Congress makes the spending decisions.
What’s at Stake in the Citizenship Question Litigation?
The decision of the U.S. Supreme Court to hear the appeal of the case challenging the inclusion of a citizenship question on the 2020 census means that the issue will be resolved in time for the Census Bureau to start printing the millions of questionnaires by mid-summer. In March 2018, Commerce Secretary Ross announced his decision to add a question about U.S. citizenship to the questionnaire that every person in America is expected to complete as part of the constitutionally mandated decennial census. That announcement was met with immediate opposition by many who are concerned that asking the question will foster fear in immigrant communities and depress participation, resulting in an unfair, incomplete, and inaccurate 2020
census. Two federal district courts held trials and ruled that Secretary Ross violated the law by inserting the citizenship question into the census. The Supreme Court has agreed to hear the case, taking the unusual action of skipping consideration by the court of appeals.
The impact of the citizenship question on noncitizens and their families has been fairly well articulated in the court filings and commentary, but what does it mean to the work of charitable nonprofits? From the perspective of the nonprofit community, we’ve identified three major areas of concern:
- Dollars to the states, and to the work of nonprofits, will decrease in the dozens of federally funded programs that base funding decisions in whole or in part on census counts;
- Data from the census are used by nonprofit, for-profit, and governmental entities to make investment and planning decisions, all of which will be flawed if the data are incorrect; and
- Democracy and voting rely on properly drawn electoral districts that are based on every resident in the state, not just citizens.
ACTION ITEM: We ask readers to share with us data or materials you have developed on the effects of the census and citizenship question on nonprofits in your state.
State Legislative Updates
Forty-six legislatures are currently in session. Here is a sampling of the action from around the country in recent weeks:
- Non-Itemizer Deductions: The fight goes on in the Arizona Senate to establish a non-itemizer charitable deduction to help redress an expected decline in giving due to the 2017 federal tax law. According to a new study, “Arizona nonprofits could lose approximately $273 million in charitable giving” because of the federal tax law. The bill passed the House last month by a wide margin, but prospects in the Senate may be tougher. More
than 250 nonprofits signed onto a letter calling for passage of the giving incentive. Learn more from this op-ed that explains the need and impact of the legislation.
- Caps on Sales Tax Exemptions: Efforts in Kentucky to correct mistakes in the 2018 sales tax law that imposed new taxes on charitable nonprofits (HB 354) initially included a $10,000 cap on nonprofit sales tax exemptions per year. The Senate-passed version of the correction bill deleted the cap, sending the bill to a conference committee for further negotiations. The Kentucky Nonprofit Network has developed a one-pager to assist advocacy efforts. In
Washington State, nonprofits are working to pass legislation (HB 1808) to prevent the expiration of their sales tax exemption for items valued under $12,000 won or purchased during a nonprofit fundraiser or event.
- “Open Government” Laws: Lawmakers in at least two states are attempting to treat charitable nonprofits as government organizations subject to public records or open meetings laws. A measure in Arkansas would change the definition of "public record" under the state Freedom of Information Act to include the public records of private entities, including nonprofits, that perform a governmental function or support a governmental agency or public activity. In Oregon, legislation would require both for-profits and nonprofits that have gross annual revenues of more than $100,000, receive public funds or public benefits from a tax credit or tax deduction, or perform a government function under a contract to comply with open meetings and public records laws, post their budgets publicly, and submit to and cooperate with audits.
- Government-Nonprofit Grants Reforms: Legislation in Connecticut would create a pilot program to allow health and human services providers to retain revenue at the end of a contract and invest in innovation. A measure before the District of Columbia Council would require the local government to reimburse nonprofits for their indirect costs for grants and contracts made with District funds. The DC proposal is modeled after the Maryland law on payment of nonprofit indirect costs passed last year.
More States Seek to Impose Mandatory Volunteerism and Work Requirements for Medicaid
Tennessee has become the latest state to propose work requirements to the federal government in an application to qualify for Medicaid expansion. A recent report, however, found that the proposal to require most “able-bodied” adult participants in the health insurance program to get a job, take classes, or volunteer 20 hours each week would cost taxpayers in the state an estimated $19 million and force ten percent of current recipients off of the program. The Trump Administration has previously approved work requirements for Kentucky and
Arkansas, which have seen tens of thousands of Medicaid recipients lose insurance because of the mandate. Wyoming lawmakers considered but adjourned without passing a bill this year to include work and volunteer requirements. The Wyoming Nonprofit Network opposed the measure, stating, “While it may appear to be providing free help to nonprofits, legislation like Senate File 144 is in reality an
unfunded mandate with a heavy financial and administrative burden. … Wyoming nonprofits need to stand up to ensure mandatory volunteerism doesn’t interfere with mission advancement.”
Engagement On and Off “The Hill”
Nonprofits are finding more, and more innovative, ways to engage with state-level lawmakers to build relationships and advance mission-based policy concerns. One popular and effective method is to participate in the “Nonprofit Day at the Capitol,” typically sponsored by the state association of nonprofits (and always listed in the Nonprofit Events section of the sidebar of this newsletter). A recent event, cohosted by Common Good Vermont, demonstrates the effectiveness: welcomed by the House Speaker and Senate President Pro Tem, nonprofit leaders met with lawmakers and discussed tax policy, the state budget process, and the role nonprofits can have advocating for bills impacting their missions.
The CT Community Nonprofit Alliance has become famous throughout the country for hosting two “Nonprofit Weeks” at the State House. At these events, individual nonprofits set up booths in the corridor
between the Connecticut Legislators’ offices and the House and Senate floors. Lawmakers traditionally make a point of stopping and chatting with the presenting organizations. Now in it’s 13th year, the event provides 100 organizations with the opportunity of exhibiting, while also collectively highlighting the diversity and impact of work that community nonprofits do to enhance the quality of life for all citizens of the state. The state association of nonprofits explains: “It is a time to educate policymakers and the public, regarding the exceptional work of each organization, and their contributions to the collective impact of all.”
Making things even more personal, Washington Nonprofits recently hosted its sixth annual Nonprofit Legislative Reception at the Governor’s Mansion in Olympia. During this event, nonprofit leaders mingle with elected officials, connect with peers from
across the state, and celebrate the contributions that nonprofit organizations make to local communities. The reception features representatives from the public and nonprofit sectors as well as refreshments prepared by the Governor's Mansion's staff. This year, Washington Nonprofits added a special advocacy-oriented workshop to ensure participants were fully aware of the benefits of advocating for their missions.
Finally, there’s nothing like taking advocacy and relationship-building opportunities on the road. That is the strategy of the North Carolina Center for Nonprofits, which is convening eight Town Hall Meetings across the Tar Heel State over the course of the legislative session. Conducted in state lawmakers’ districts when they are not in session in Raleigh, each Town Hall gives nonprofit board members and staff the chance to meet and talk with elected officials and other nonprofit leaders
about some of the major policy issues facing North Carolina nonprofits in 2019. Participants end up strategizing ways all can work together on policy issues affecting communities.
The key to all of these events are the words “opportunity” and “together.” Nonprofits are problem solvers in their communities. When policymakers are exposed to the talents and optimism of nonprofit people, as these events provide, they can’t help but be inspired. And perhaps be better equipped to make policy decisions that advance, or at least don’t hinder, the missions of nonprofits throughout their states.
Read more examples of Advocacy in Action,
a regular feature of Nonprofit Advocacy Matters.