The Year Ahead, and How We View It
None of us committed to advancing our missions has the luxury of ignoring public policy or of focusing on just one arena of policy activity. Don’t think Congress is likely to be productive this year? Fine, but don’t confuse gridlock there with less overall activity in the realm of public policy; rather, when congressional action slows, other places fill the gap. Policy challenges and opportunities come up regularly in state and local legislative bodies, as well as regulatory agencies and the courts, at all levels of governments. A decision in any of these bodies - adverse or positive - can alter the success of nonprofits for years to come. This reality is the theme Tim Delaney and David L. Thompson tackle in their fourth annual nonprofit public policy forecast, published today in the Chronicle of Philanthropy. They use the concept of a tic-tac-toe grid to help us all stay attentive to the multiple policy proposals that can affect our operations. The game board isn’t designed to tally wins and losses (read here about 2019 policy developments), but a reminder why nonprofits need to pull up a chair to sit at the many policymaking tables that can impact our missions. Read "In 2020, Expect Many Policy Actions That Affect Nonprofits and Foundations. Here’s What to Watch." and share with colleagues.
Congressional Leaders Seeking Expedited Tax Refunds for Nonprofits
The ink on the law retroactively repealing the tax on nonprofit transportation benefits was barely dry when nonprofits raised the question: How do we get back the money we diverted from missions to pay this unfair tax? Champions on the Hill didn’t rest on their laurels but stepped in quickly to get the question resolved as soon as possible. On January 8, House Ways and Means Committee Chair Richard Neal (D-MA) and Oversight Subcommittee Chairman John Lewis (D-GA) sent a letter to the IRS Commissioner asking the Service to create an expedited process so nonprofits can quickly secure refunds. The news release stated: “Congress did our part to right this wrong – now it is time for the IRS to provide tax-exempt organizations with the guidance they need to claim and receive the refunds they are due.” The IRS reportedly is taking the request seriously and may issue guidance this month.
- Tax-Exempt Status to Unqualified Groups: Last week the Taxpayer Advocate published its latest scathing review of the Form 1023-EZ, the radically shortened application adopted in 2014 that supposedly smaller charitable groups submit to the IRS to receive tax-exempt status. The Taxpayer Advocate found the IRS’s approval rate of unqualified applicants has continued to worsen – 46% currently, up from 42% since 2018. Unlike the normal Form 1023 application for exempt status, the EZ allows applicants to simply claim that their organizations have the required documents needed to comply with federal and state laws. The National Council of Nonprofits, state charity regulators, and others have repeatedly expressed concerns that the new form opens the door for the IRS to grant tax-exempt status to unqualified or nefarious operators.
- Standard Mileage Rate: The standard mileage rate for business expenses dropped from 58 cents to 57.5 cents per mile in 2020, while the deductible cost for charitable purposes remained the same at 14 cents, which is codified in statute, according to a new IRS Notice. The new rate took effect January 1 for the use of an automobile (include cars, vans, and pickup trucks) for business purposes (including government and nonprofit employees on work-related travel). Some nonprofits reimburse volunteer drivers at the business mileage rate to cover their expenses. Illogically, the IRS treats any reimbursement above the volunteer mileage charitable deduction amount of 14 cents as income to the driver. The Nonprofit Relief Act (H.R. 3323) would repeal this unfair taxing of volunteer drivers.
- Proposed Changes to Mail Rates: Prices for market-dominant mail, which nonprofits use, may increase under a proposed regulation by the Postal Regulatory Commission. Market-dominant products include first-class mail, marketing mail, periodicals, package services, and some extra services like certified mail. The Commission proposed to remove the cap limiting price hikes to the price of inflation and increase the price based on calculations of postal declines and retirement funding needs while also providing additional authority for the Postal Service. Public comments are due February 3.
.org Domain Ownership Remains in Doubt
Nonprofits continue to engage and oppose the twin actions that could adversely affect their reliance on the .org registry for their websites. Last summer, ICANN -- the “governing body” of the internet, ignored overwhelming opposition by the nonprofit community when it announced the removal of price caps on the amounts nonprofits could be charged when renewing their rights to .org domain addresses. Then, in November, nonprofits learned that a private equity firm, Ethos Capital, intended to buy the Public Interest Registry, the nonprofit that oversees the .org domain. Nonprofits worldwide expressed outrage that, if the sale goes through, they face the prospect of censorship and the fate of having an estimated $750 million more pulled from their charitable missions to generate even more profit for Ethos Capital.
The opposition and concern has grown over the past month, and lawmakers are stepping in seeking answers. U.S. Senators Wyden (D-OR), Blumenthal (D-CT), and Warren (D-MA), and Representative Eshoo (D-CA) sent a series of questions to the Internet Society and Ethos Capital, which responded with broad, nonbinding answers. Last week a new nonprofit was formed by several internet and nonprofit leaders to provide an alternative that would keep the .org registry managed by a nonprofit. ICANN had previously sent Internet Society and Ethos Capitol a series of questions regarding the sale, which re-started the 30-day clock for ICANN approval. If the sale is approved by ICANN, the purchaser must also go before state court to explain Ethos’ intended conversion of charitable assets currently dedicated to public good into assets designed to generate profits.
Upcoming Training Events
- Jan. 14, Census 2020 Workshop (Norwalk), CT Community Nonprofit Alliance
- Jan. 16, Census 2020 Workshop (Waterbury), CT Community Nonprofit Alliance
- Jan. 17, Mini-Grants Kick Off webinar, Montana Nonprofit Association
- Jan. 22, Census 2020 Workshop (New Haven), CT Community Nonprofit Alliance
- Feb. 3, Census 2020 (Bismarck), North Dakota Association of Nonprofit Organizations
- Feb. 19, Census Data for Community Assessment, Pennsylvania Association of Nonprofit Organizations
State Legislatures Coming Back Into Session
Nonprofits across the country are gearing up to engage on a wide range of issues affecting their missions and operations in all but four state legislatures set to convene this year. (See box on legislative statistics and resources.) Three key trends currently rise to the top, based on extensive tracking and engagement at the state level. First, nonprofits are continuing to promote creation or expansion of non-itemizer or universal tax incentives to promote greater giving to support charitable works in communities. Advocacy work in New Jersey is the most active on this issue early in January. Nonprofits are also tracking state tax reform proposals because they often present challenges and opportunities for losing or expanding tax exemptions. Illinois nonprofits are anxiously awaiting the recommendations of a tax reform legislative task force to see how changes to property and sales taxes would affect their operations. Finally, multiple states are expected to raise wage protections (minimum wage and overtime), and establish paid leave and retirement programs that affect all private-sector employers and employees – including nonprofits, foundations, and for-profits alike. For example, later this month, a Pennsylvania agency is scheduled to decide whether to hike the state’s overtime salary threshold to about $10,000 per year higher than the new federal Overtime Final Rule that went into effect January 1.
Tax Reforms on State Legislative Agendas
Nonprofits face numerous opportunities and challenges as lawmakers seek to revise their state tax systems in advance of the November elections. Legislators in Utah passed a tax reform package in special session last month that cut income tax rates and increased family exemptions, but raised sales taxes on groceries and added new fuel taxes. Legislators and the Governor are facing public opposition and a potential ballot measure to repeal the legislation. In Nebraska, the Governor is seeking tax reforms based on his belief that “cutting and reforming taxes is key to growing Nebraska.” The issue may go to the ballot should legislators not finalize property tax reform during this year’s short session. Connecticut Governor Lamont expressed interest in tax reform during a public address last Fall, specifically mentioning expanding charitable giving in the state, which is leading nonprofits in the state to ramp up advocacy efforts.
Taxes, Fees, PILOTs
A recurring series on efforts to restrict or protect nonprofit tax exemptions, presented as a warning and guide for nonprofits throughout the country:
- PILOTs: The Mayor of New Haven, Connecticut is asking Yale University to increase its annual payments in lieu of taxes (PILOT) contributions from $11.5 million to $50 million. The Mayor said the city finances are in a “crisis” and is blaming the untaxed university properties for contributing to the budget gap despite untaxed local, state, and federal government properties also not contributing to city coffers.
- PILOTs: City officials in Baltimore, Maryland are considering re-writing a memorandum of understanding with medical and educational nonprofits in the city for PILOTs to cover local school system reforms costing $330 million per year. The existing agreement provides $6 million in PILOT payments per year through 2026 from the nonprofits without any new tax assessments or fees by the City. The City Council considered a resolution regarding reopening the MOU, but any final deal would have to be brokered by the Mayor.
- PILOTs: In her first speech as the newly-elected Boston City Council President, Councilperson Janey complained that nonprofits don’t pay property taxes (a right guaranteed in the Massachusetts constitution) and announced her intention to seek increased PILOTs from charitable organizations that own property in the city. Boston requested about $110 million in “voluntary” payments from nonprofits in 2019 and received $34.2 million in cash from targeted colleges/universities, cultural institutions, and hospitals. Council President Janey said she wants to reevaluate the 10-year-old Boston PILOT scheme, ominously stating, “We’ve got to figure out if it’s the carrot or the stick.”
- Property Tax: Nonprofits may be excluded from a tax on properties in San Jose, California under a proposal by the Mayor. The City Council is considering a measure to impose a real property transfer tax on properties valued at $2 million or more. Committee members unanimously approved the Mayor’s proposal to exempt 501(c)(3) nonprofit organizations when they transfer properties used for “philanthropic” purposes, especially affordable housing programs and initiatives. The full Council is expected to make a final decision in the coming weeks.
Chicago Lobbying Restrictions Temporarily Delayed
Nonprofits may continue to lobby without registering under new lobbying laws in Chicago, Illinois after Mayor Lightfoot delayed enforcement for three months. The new ordinance requires all paid nonprofit employees, directors, staff, and others who are “professionally engaged to lobby for a nonprofit, even on a pro bono basis,” to report lobbying activities quarterly if they advocate for “changes to city laws or policy that serve the interests of the organization or its membership.” The imposition of the registration burden on hundreds or thousands of nonprofits would be “pretty insane,” according to Bryan Zarou, Director of Public Policy and Advocacy at Forefront, the state association of nonprofits in Illinois. Nonprofits hope to work with the Mayor’s office to make recommendations on implementation of the law.
The Legislatures Are Back in Session
By the end of this week, 34 state legislatures will have convened for the 2020 session and 46 legislatures will meet in regular session this year. More than 11,000 bills have already been introduced, with tens of thousands more likely to come. Here’s a collection of resources/reminders to help every nonprofit advance its mission through the Legislature:
- Advocacy vs. Lobbying, National Council of Nonprofits, reminding everyone that charitable nonprofits can advocate – including lobbying at the legislature.
- Five Tips for Talking with Your Legislators, Protecting Arizona’s Family Coalition, 2020, offering practical advice, including being authentic and clear, and getting to the ask!
- Participate in the Nonprofit Advocacy Day in your state. Take a look at the dates in the Nonprofit Events section of the sidebar and check your state association of nonprofits to learn when and where.
advocate, win, evaluate, improve
While not as recognizable as “wash, rinse, repeat,” a best practice for nonprofit policy work is “advocate, win, evaluate, improve.” Let’s follow that rule by reviewing the policy action in 2019 and what nonprofit advocates throughout the country can learn from the progress.
The most notable “win” of 2019 for most nonprofits was the late-December repeal of the tax on nonprofit transportation benefits. As explained in a recent National Council of Nonprofits blog article, the elimination of this unfair tax was the result of many people taking actions to convince Congress to actually repeal it. There certainly were some noteworthy actions – a conversation that convinced a reporter to expose the impact on houses of worship; decisions by lawmakers to introduce repeal bills; massive sign-on letters from nonprofits in all 50 states; challenges at the state level that drew greater interest and concern from Members of Congress; cleaver social media campaigns; and more.
But the truth is deeper. The repeal resulted from advocacy efforts by thousands of individuals and organizations united in common purpose. It’s fair to say that by the time repeal happened, there was not a single Member of Congress – Senator or Representative – who believed taxing the transportation benefits provided to nonprofit employees was a good idea. Indeed, all agreed repeal was the only answer. But getting to a unanimous view was only the result of aggressive, persistent advocacy by thousands of nonprofits across the country. Learn more about repeal of the transportation tax ….
Legislative, Regulatory, and Judicial Progress
The past year was full of many more victories than the repeal of the transportation tax. A separate blog article from the National Council of Nonprofits reviews the advocacy actions in the legislative, executive, and judicial branches of government at the federal, state, and local levels.
Legislative: The year-end federal tax bill also streamlined the foundation excise tax, a victory that was 10 years in the making. Nonprofits in several states were able to improve their tax laws as part of broader reform efforts. Notably, Arizona established a new non-itemizer deduction and nonprofits in Kentucky rallied to repeal a mistaken sales tax law that had been imposed on nonprofits. And over the course of 2019, more than half the states appropriated nearly $350 million to ensure a fair, accurate, and complete count within their communities.
Executive: The U.S. Labor Department’s Overtime Final Rule is high on the list of positive actions. That is, when recognizing that the Department heeded the call from the majority of nonprofits in adopting a single set of rules governing who is entitled to or exempt from overtime pay, a rule that applies to all employers: governments, for-profits, and nonprofits. The nonprofit community is somewhat split on new IRS regulations on whether taxpayers can deduct donations at the federal level that generated state tax credits. It must also be acknowledged, however, that many of the people nonprofits serve suffered numerous setbacks due to regulatory actions by several federal departments in 2019.
Judicial: The U.S. Supreme Court took decisive action to block insertion of a citizenship question in the 2020 census questionnaire. Read our Supreme Court amici brief to learn why nonprofits have a vested interest in making sure the count is fair, accurate, and complete – namely because of dollars, data, and democracy. Lower-level courts stepped in to block regulations and Executive Orders that would have affected how many nonprofits serve people in need in their communities. In many cases, nonprofits served as plaintiffs in these cases or submitted amicus curiae briefs to fully explain the impact of policies on missions and individuals.
Great celebration is appropriate in recognition of what didn’t happen in 2019. Thanks to nonprofit awareness and engagement, no state imposed new sales tax burdens on charitable nonprofits as they opened up their tax laws to take advantage of the Supreme Court Wayfair decision allowing states to tax remote internet sellers. That’s a victory for vigilance. There were also several efforts to impose property tax burdens on nonprofits – all defeated. These included a call for more stringent qualification requirements in Idaho, delayed effective dates for property tax exemption and revocation for nonprofits with highly paid executives in Montana, sunsetting of all property tax exemptions for all exempt organizations in Oregon, and increased tax rates in Washington State.
This retelling goes on and there are many more lessons to be learned. Read the full blog article about nonprofit policy progress in all branches and levels of government ….
Read more examples of Advocacy in Action,
a regular feature of Nonprofit Advocacy Matters.