Time to Comment on DOL Overtime Proposed Rule
May 21 is the deadline for nonprofits, employees, for-profit businesses, and interest groups to provide real-world context to the Department of Labor (DOL) about proposed changes to the overtime rules. In March, the Labor Department proposed, among other things, adjusting the minimum salary level that exempts white-collar employees from overtime pay by raising the threshold to $679 per week ($35,308 per year) from the current level of $455 per week ($23,660 per year) set 15 years ago. The salary level is one step of a three-part test for determining whether a person is properly treated as an executive, administrative, or professional worker, and thus exempt from overtime pay. Learn more about what’s being proposed by reading this brief abridged version of the draft regulations and the Council of Nonprofits’ updated analysis.
Nonprofit employers and employees have a particular interest in the outcome of this rulemaking because more organizations will be immediately affected (7 percent of employees), the potential impact on nonprofits that provide services to the public pursuant to government grants (see below article), and the potential impact on the people nonprofits serve. Is that salary 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 National Council of Nonprofits submitted comments last week expressing views on a number of questions. We encourage all charitable nonprofits to submit their own comments to the proposed overtime rule. (See our tips for submitting public comments.)
Rising Overtime Costs and Fixed Government Grants
Many nonprofit executives express operational anxiety about covering mandated labor-cost increases when the terms of their written agreements with governments for services do not allow for adjustments to reimbursement rates. The common question is: How can I cope with rising costs working under fixed government grants? The reality under current federal policy is that nonprofits are essentially expected to eat the costs, whether by reduced services or private fundraising. The same is not true for for-profit enterprises doing business with government; the terms for government contracts typically allow businesses to seek changes to their contractual reimbursement rates. Nonprofits working under government grants do not have this right.
That is, not yet. Several national nonprofits are using the opportunity of the overtime rulemaking to raise the urgent need to fix federal grants policy to allow nonprofits to reopen agreements when the government mandates labor-cost increases. The Nonprofit Joint Comments were submitted May 15 by Easterseals, National Council of Nonprofits, National Human Services Assembly, YMCA, and YWCA. Learn how your organization can join in the effort to fix this longstanding unfairness by reading the article, The Operations Side of Proposed Overtime Rules. And taking action by submitting comments by May 21.
- Redefining Poverty: The Trump Administration is proposing to redefine the poverty line by adjusting the metrics used to set the Official Poverty Measure that determines eligibility for numerous federal benefits programs, including the Supplemental Nutrition Assistance Program (SNAP), also known as food stamps, Head Start, and Medicaid. The federal Office of Management and Budget is seeking input on which of various consumer price indexes should be used to make annual inflation adjustments to the poverty line. A lower official inflation adjustment would mean that the poverty line would rise more slowly, likely reducing the number of people who would qualify for the various programs. Lee Sherman, President and CEO of the National Human Services Assembly, expressed concern that the Administration’s solution for reducing poverty in America appears to be “to change the rules for how we measure poverty, not doing anything that will have a positive effect on the financial condition of those who struggle in a challenging economy.” The government is seeking public comments by June 21.
- Expediting Tax Policy Debates: Anxious to renew 42 expired business tax breaks, the leaders of the Senate Finance Committee announced the creation of six task forces to promptly review and make recommendations on changes to the underlying policies. The goal is to conduct analyses in an open process that reaches consensus without the need for time-consuming Committee hearings. The taskforces will be charged with examining tax policies within the following issue areas: workforce and community development, health, energy, business cost recovery, and a combined group focusing on individual, excise and other temporary tax policies. A separate group is tasked with determining “whether there is a core package of tax relief provisions that should be available when natural disasters strike.” The work of the task forces is scheduled to be completed by the end of June.
- Shrinking Combined Federal Campaign Donations: The federal workplace giving campaign dropped $11 million dollars last year to a total of $90 million in donations from federal employees. The decline is an ongoing trend with a plunge of more than two-thirds over the past 10 years. At its peak in 2009, the Combined Federal Campaign raised $289 million. Administration fees of 25 percent further reduce the funds actually going to charitable nonprofits serving communities.
- Publishing School Nondiscrimination Policies: Private schools may publish racial nondiscrimination policies on their websites rather than via newspapers or broadcast media, according to new guidance from the Internal Revenue Service. The schools must provide these policies to qualify for tax-exempt status prescribed under previous guidance. The purpose of the requirement is to make the racially nondiscriminatory policy for students “known to all segments of the general community served by the school.” The update to the requirement is “to reflect technological advances” and becomes effective May 28.
Fact Checking on the Johnson Amendment
As regular readers of Nonprofit Advocacy Matters know, the longstanding Johnson Amendment remains firmly in place, protecting charitable nonprofits, houses of worship, and foundations from being hit up by politicians and political operatives seeking endorsements, demanding donations of charitable assets, and trying to funnel partisan campaign contributions to generate tax deductions. At a Rose Garden speech on the National Day of Prayer on May 2, however, President Trump stated, yet again, “We got rid of the Johnson Amendment.” The latest declaration of the “got rid of” misstatement was too much for the Washington Post’s Fact Checker, who investigated and then assessed the highest penalty of Four Pinocchios for not telling the truth. In President Trump’s shifting claim that ‘we got rid’ of the Johnson Amendment, Salvador Rizzo summarizes the case against the misstatement: “Trump says he got rid of the Johnson Amendment. It’s still on the books. The president sometimes implies that he got rid of the amendment with an executive order. Nope. He claims that religious leaders were being silenced before his executive order. Not quite. They were prohibited from supporting or endorsing political candidates in their official capacities, and continue to be barred from doing so as a condition of their tax-exempt status.” For all of the above, the Fact Checker calls it “a false claim worth Four Pinocchios.” [Pinocchio image: © The Washington Post, 2019]
States Adopting More Tax Policy Changes in 2019
Policymakers in 44 states considered or are considering more than 275 bills this year directly affecting nonprofit tax policy, largely in response to the 2017 federal tax law and landmark U.S Supreme Court case South Dakota v. Wayfair. The bills have ranged from complete overhauls of the state tax code, including creating or removing a flat tax, to imposing local and state sales tax rates on remote sellers. Lawmakers in Arkansas made short order of passing tax reform to cut the top income tax rate by a full percent earlier in the year. Lawmakers in Idaho conformed certain portions of the state tax code to the federal tax code, retroactive to January 1, 2019. Legislation is still pending in Illinois, Louisiana, Maine, Minnesota, Rhode Island, and Wisconsin that would make adjustments to state tax rates and brackets as well as personal exemptions and state standard deductions, all of which may affect future charitable giving incentives. A bill in Colorado awaiting the Governor’s signature would modernize the exemption for nonprofits’ occasional sales. Under the bill, nonprofits with annual net revenues of up to $45,000, increased from $25,000, would be exempt, and sales would no longer be limited 12 days per year.
States Continue to Ramp Up Census Funding
More states are moving legislation to ensure funding for a fair, accurate, and complete count. Colorado Governor Polis has a bill on his desk to create a 2020 Census outreach program to provide grants to government agencies and departments, school districts, and nonprofits for outreach, promotion, and education to focus on hard-to-count communities. The bill appropriates $6 million for the efforts. The Washington State budget bill includes $15 million for the Office of Financial Management to prepare for the 2020 Census by completing community outreach and communication, nonprofit outreach, preparing documents in multiple languages, and providing technical assistance. Five million dollars will be held in reserve until January 1 for “contracting with community-based organizations with historical access to and credibility with hard-to-count people to support outreach to the hardest to count and last-mile efforts.” The bill is awaiting the Governor’s signature.
Lawmakers in North Dakota appropriated $1 million for census programming in the state after an undercount in 2010, specifically among new oil workers. Legislators in Georgia agreed to provide $1.5 million to the state Complete Count Committee for a targeted statewide marketing, educational, and messaging campaign targeting hard-to-count areas. These states join eleven others that have enacted laws to spend nearly $132 million, including more than $100 million from California alone. All are acting out of concern for inadequate federal funding and the adverse effects of undercounting in their states.
New Jersey Donor Disclosure Bucks Federal Requirements
The New Jersey Division of Consumer Affairs adopted regulations that reiterate a longstanding requirement that organizations submit donor names and addresses to the Division as part of their annual reporting requirements under the state charitable registration law. The regulations come in the wake of the Internal Revenue Service’s announcement in July 2018 that it would no longer require noncharitable nonprofits – such as social welfare organizations, unions, and trade associations – to submit donor names and addresses as part of Form 990 Schedule B. Under New Jersey's new regulations, any organization required to register and file annual reports to the state under the Charitable Registration and Investigation Act will be required to submit the same information that is normally required on the Schedule B. In response to a concern expressed by the New Jersey Center for Non-Profits, the Division amended its earlier proposal so that organizations that file the Form 990-N e-postcard will not be required to report their donor information under the new regulations. Prior to the announcement of the rule, the Garden State joined New York in filing a lawsuit to compel the federal government to comply with requests under the Freedom of Information Act for information regarding the decision-making process taken by the IRS for the abrupt policy change.
First (and Hopefully Last) Nonprofit Tax Day
Getting politicians to agree to agree is hard enough, but how do nonprofit advocates get those same politicians to act on their agreement rather than remaining entrenched, and immobile, because of their many other disagreements? By hosting a day of action, of course. Which is what many in the nonprofit community did this past May 15 by taking to social media (#NonprofitTaxDay) and placing calls and sending emails to the Hill.
At issue are new taxes imposed on nonprofits through the 2017 tax law. The one with no support in Congress or elsewhere requires nonprofits to pay an income tax on their expenses for employee transportation benefits such as transit passes and parking. The other tax imposes a unique burden on nonprofits by preventing them from combining profits from one business activity with losses from others to reduce taxes. Unlike for-profit businesses, nonprofits must now pay unrelated business income taxes on each separate “trade or business.”
May 15 was the date that nonprofits operating on a calendar-year basis are required to file their Form 990s and pay taxes, if any. This year, tens of thousands of tax-exempt organizations, and perhaps many more, had to pay taxes to the U.S. Treasury for the first time due to these new taxes. Hence the moniker: Nonprofit Tax Day (#NonprofitTaxDay).
The day of action saw fulsome participation by nonprofits across the country. Here is a sampling:
@CalNonprofits: TODAY nonprofits & houses of worship will be paying 21% INCOME taxes on money they PAY for staff transportation benefits. @SenKamalaHarris it’s time to REPEAL this provision! #NonprofitTaxDay [CalNonprofits article]
@NJ_NonProfits: #NJ #nonprofits - The 2017 federal tax law forces #nonprofits to divert hundreds of millions of $ from missions to unfair taxes. Tell Congress: REPEAL these taxes. #UBIT #NonprofitTaxDay NO WAY
@NatlCouncilNPs: Two new taxes on tax-exempt #nonprofits divert more than $600 million every year from missions in every community in America. It is time to repeal these nonsensical taxes and keep charitable dollars in our communities, where they belong #NonprofitTaxDay http://bit.ly/2Y9h3C7
@PANOnonprofits: Today is #NonprofitTaxDay due to new taxes enacted on nonprofits in 2017. Please consider cosponsoring bills to repeal IRC Sec 512a7 to prevent millions more dollars being diverted from missions to pay taxes on tax-exempt orgs.
@DawnMancuso: For first time, ASCO had to use some of our members' typically nonprofit membership dues to pay federal Unrelated Business Income Taxes (UBIT) for our employee's parking, which means we couldn't use it for our important mission. #nonprofittaxday
@cccuorg: We want to thank @RepTomSuozzi @RepMarkWalker @SenatorLankford @ChrisCoons @ConawayTX11 @tedcruz @SenatorShaheen @WhipClyburn & @SenSherrodBrown for introducing bills to repeal the “parking lot” tax on nonprofits and churches. #nonprofittaxday
Message Received and Resent
The messages from nonprofits didn’t go unnoticed. Senators James Lankford (R-OK) and Chris Coons (D-DE), sponsors of the LIFT for Charities Act, S. 632, responded with tweets of their own.
@SenatorLankford: Today is #NonprofitTaxDay--The first time many nonprofits will have to start paying taxes due to unintended provision in 2017’s tax reform law. This is the start of a devastating time for non-profits as they start to feel the weight of unnecessary federal burdens placed on them.
@ChrisCoons: I’ve been working with my friend @SenatorLankford to help ensure that our tax laws don’t impose unintended burdens on non-profits. Read more about our LIFT for Charities Act here: [Dover, DE Post article].
Actions Needed Going Forward
Nonprofits can continue the momentum from Nonprofit Tax Day by letting your Representatives and Senators, your state association of nonprofits, and others know about the harmful effects of these taxes on missions in communities. And, of course we’re curious as well, so please go to Costs of #NonprofitTaxDay and let us know: How much did you have to pay in taxes? On what services and mission-focused activities could that money be better spent?
By spreading the word, you can help make sure there won’t be a second annual Nonprofit Tax Day.
Read more examples of Advocacy in Action,
a regular feature of Nonprofit Advocacy Matters.