Nonprofit Tax Day Is Upon Us
Until now, “nonprofit tax day” was not a thing. By definition, tax-exempt organizations don’t pay taxes. That’s why May 15, 2019 marks the beginning of a very dark chapter in U.S. tax policy history.
Many tax-exempts will be paying taxes for the very first time this year because of provisions in the 2017 federal tax law. That law imposes tax liabilities on charities, houses of worship, and other nonprofits to generate new revenue and offset tax cuts for for-profit corporations and individuals. There’s a new income tax on expenses for nonprofit transportation benefits – both employer paid and employee withheld – adding 21 percent in taxes on top of expenses for things like transit passes and parking. Tax-exempt organizations must also break down unrelated business
income into separate silos for each “trade or business,” and, unlike their for-profit counterparts, nonprofits can no longer aggregate profits and losses in one bucket – resulting in tax liabilities that didn’t exist before. The tax on nonprofit compensation ostensibly applies to million-dollar salaries, but the impact reaches many more organizations with much lower pay scales. Finally, an excise tax on university endowments may hit only a few dozen institutions this May 15, but is an horrendous policy concept that could lead to politicians overstepping into the board rooms of independent nonprofits to dictate how informed fiduciary trustees must spend funds from reserves.
Read the full article.
DOL Proposed Overtime Regulations
Nonprofits have until May 21 to offer their comments to the U.S. Department of Labor on whether the proposed new white-collar salary level will work for their mission and operations, or whether significant changes are needed. In March, the Labor Department proposed, among other things, adjusts the minimum salary level that exempts executive, administrative, and professional employees from overtime pay by raising it to $679 per week ($35,308 per year) from the current level of $455 per week ($23,660 per year) set 15 years ago. Is that level high enough to have a meaningful impact on the people your
organization serves? Is it so high that your organization will have to cut back on needed services? The Labor Department needs to know, and silence means that decisions will be made based on the views of for-profit businesses and governmental entities that have already submitted comments. Learn more about what’s being proposed by reading this brief abridged version of the draft regulations and the Council of Nonprofits’ updated analysis. Again, the deadline for commenting on the overtime rule is May 21, 2019.
- Arguing the Citizenship Question Before the Supreme Court: The U.S. Supreme Court heard oral argument April 23 on whether to permit the addition of a citizenship question on the 2020 census. The justices asked questions about administrative law, comparisons and computations of statistics relating to census data, legal “standing” (right to sue), why certain questions are asked on the census at all, the purpose of the census, and the role of Congress vs. the Court. A final decision is expected in June. Read the insider’s perspective in Citizenship Question Packs Supreme Court for Oral
Arguments by Tiffany Gourley Carter.
- Reporting Pay Data for Minorities and Women: Private employers, including nonprofits, with 100 or more employees must provide pay data for employees broken down by sex and race/ethnicity to the Equal Employment Opportunity Commission by September 30, according to a federal judge’s order last month. The longstanding EEO-1 Report requires large employers to submit workforce data only by sex and race/ethnicity. Collection of the additional data is an effort to close the wage gap under an Obama
Administration policy. Data are aggregated by the EEOC to maintain individual confidentiality requirements under the law and released by geographic area and industry.
- Hiking Prices on Nonprofit Domains: More than 3,300 organizations responded with strong opposition to a Internet Corporation for Assigned Names and Numbers (ICANN) proposal to remove caps and permit unlimited price hikes on .org domain name registrations and renewals. The .org domain is used by more than 10 million individuals and organizations to designate the public-service orientation of their websites. Comments from the National Council of Nonprofits, the American Society of Association Executives, a group of large charitable organizations, and many others objected to the proposed price hikes on multiple grounds, including the unique nature of nonprofits and the .org domain, and the inability of nonprofits to pass increased costs on to consumers. A final decision is expected this fall.
By Tim Delaney, President and CEO of the National Council of Nonprofits
“This is the story about the one thing that all charitable nonprofits share — connection to nonprofit tax policy — and how it comes about. … The process for developing nonprofit tax policy is … a bit like playing three-dimensional chess, in that tax policy proposals can spread horizontally (from state to state or from one local government to another) and vertically (from federal to state to local
and back again) and diagonally (from one branch of government to another). …
"Unfavorable tax policies — whether intentional or not — can limit, severely restrict, or even eliminate the ability of nonprofits to advance their missions. Yet no single nonprofit has the capacity to monitor or respond to tax proposals throughout the country that might harm the work of the sector. That is why staying on top of nonprofit tax policy requires a networked approach.”
Read the full article in the Spring 2019 edition of the Nonprofit Quarterly.
States Continue Enacting Targeted Tax Credits
Despite looming federal restrictions, state policymakers continue to extend, expand, and create state tax credits to incentivize contributions to various nonprofit subsectors. Lawmakers in Georgia extended tax credits to 2024 for donations to rural health organizations, and the Montana Legislature approved continuing the state’s endowment tax credit for another six years, pending approval by the Governor. North Dakota expanded a tax credit for charitable contributions by individuals to nonprofit private schools; prior law had allowed credits only for donations via a partnership or other pass-through entities. Under a newly enacted law in Mississippi, contributions to nonprofits working with Child Protective Services would be eligible for a business tax credit equal to 50 percent with an aggregate cap of $5 million, while an annual aggregate cap for individual contributions would be raised from $1 million to $3 million.
The ultimate value of these state tax credits depends on federal decisions yet to be announced. The Treasury Department and IRS issued draft regulations last year proposing changes to how the federal government would treat donations to charitable organizations that generate state or local tax credits. The goal of the federal proposal is to block state “workaround” laws designed to avoid the new federal $10,000 cap on the amount individual taxpayers can deduct for state and local taxes they paid.
State Tax Revenues Finally Return to Pre-Recession Levels
It took 10 years, but most of the states have finally returned to the same level of tax revenues they had before the Great Recession. Forty states collected tax revenues exceeding what was collected during their pre-recession peak in 2008. The increased revenues result in greater purchasing power for the states, averaging 13.4 cents more for each dollar collected before the recession, after adjusting for inflation. The news is not all good, however. Ten states still have not recovered to pre-recession levels, ranging from 2 percent below pre-recession levels (Mississippi and New Jersey) to
84 percent below (Alaska, mostly due to low oil returns). Also, economists anticipate that several states may slip back due to other economic factors, such as Medicaid costs and accumulated debts.
Rolling Back Budget Restrictions
For more than 25 years, Colorado has operated under budgeting and spending restrictions that, depending on one’s perspective, are either a solution to overspending by politicians or an gimmick to avoid making tough decisions affecting the future. The taxpayer bill of rights (TABOR) amendment approved by voters in 1992 imposes a formula that determines the amount of revenue the State of Colorado can retain and spend. The challenge to lawmaking has been that the TABOR rules dictate that revenue exceeding the formula cannot be spent on new or emerging policy priorities, but must be returned to
taxpayers. That approach is now under serious reconsideration in the state, and the results could affect whether other states answer or reject calls for setting up their own TABOR rules.
During this legislative session, the Colorado Legislature passed and sent to the Governor two bills intended to get around the TABOR spending limitations and taxpayer refund mandate. The first would present voters with a ballot measure allowing use of TABOR refunds for public schools, higher education, roads, bridges, and transit. The other would implement the first provision, if approved, by allocating one-third of revenues over the TABOR limit for each of the three spending categories. Many nonprofits in the state, including
the Colorado Nonprofit Association, strongly support the bills “because nonprofits rely on the quality of our education system for a strong homegrown workforce. Without a sufficient transportation system, it’s very difficult for nonprofits to procure needed goods, travel within the state, and ensure daily commutes to work are not burdensome for employees.”
Nonprofit Fly-In & Lobby Days: Bringing Real-World Insights to Washington
When Members of Congress meet real people doing real things, the impact on policies and laws affecting real life can be profound. That’s why national nonprofits, associations, and networks often coordinate “fly-in days” or “lobby days” on Capitol Hill to talk about issues they are facing, explain adverse consequences of policy proposals, and bring a face and voice to actual people in the communities living with the decisions Members and their staffs make each day.
Last month Goodwill Industries International convened more than 100 representatives from local Goodwill organizations across the country to go to the Hill and tell their stories. The people who serve their communities every day – staff members, board members, program participants, and other advocates – talked to key policymakers and staff about the need for protecting federal funding for job-training and workforce development programs, the impact of tax reform on the nonprofit sector, and the need to provide back pay to federal contractors impacted by the federal government shutdown. Prior to the day of advocacy, 11
Members of Congress were named Goodwill Policymaker Leaders to recognize their dedication and support for the organization’s mission back home in their states and districts.
“The annual advocacy event provides a great opportunity for the Goodwill network to come together with one voice to educate lawmakers and staff about Goodwill, equipping them with the information they need to make informed decisions when drafting legislation, and influencing their votes on policies that affect Goodwill and the people and the communities they serve,” said Laura Walling, Senior Director of Government Affairs.
Similarly, the American Society of Association Executives (ASAE) took association professionals to the Hill on American Associations Day in March to create an opportunity to form connections and build relationships with lawmakers. Regardless of experience level, association members from across the country shared their messages about the impact federal law has on state, local, and regional associations across the county. Specifically, the leaders were able to engage in conversations about how the unrelated business income tax on nonprofit transportation benefits is a tax on tax exempts.
These conversations help shape how laws are made, what provisions are included, and which will be excluded given the lasting impacts on nonprofits, their communities, and those they serve. When elected officials and staff are able to hear about and see real-life examples of the decisions made in the halls of Congress, and when nonprofit leaders are able to experience firsthand how laws are created and influence what goes into those laws, everyone benefits.
Read more examples of Advocacy in Action,
a regular feature of Nonprofit Advocacy Matters.