Nonprofit Public Policy Progress in 2019

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Before 2019 completely slips away, let’s celebrate the positive achievements in the public policy arenas of legislatures, executive agencies, and courts at the federal, state, and local levels this past year.

Legislative Results

  • Eliminating a Tax on Tax Exempts: The big news at year’s end was repeal of the tax on nonprofit transportation benefits. The repeal was retroactive to enactment of the 2017 tax law, so it’s as if the tax never existed. Nonprofits should be able to file amended tax returns and seek refunds of the taxes they paid. Learn more about the tax and the successful advocacy campaign leading to its repeal.
  • Streamlining a Foundation Tax: The same spending bill also ended the two-tier excise tax on foundation investment returns, ending a 10-year advocacy effort by our friends in the organized philanthropic community. The streamlined tax rate – down from two rates to a flat 1.39% level – should reduce administrative costs. Congratulations to the Council on Foundations, United Philanthropy Forum, and many other philanthropy-serving organizations.
  • Improving Tax Laws at the State Level: Just as nonprofits across the country championed repeal of the tax on nonprofit transportation benefits, nonprofits took action at the state level, as well. For example, nonprofits in Kentucky rallied to repeal a mistaken sales tax law that had been imposed on nonprofits. And Arizona’s nonprofits secured a new charitable deduction that all taxpayers can claim, not just those who itemize.
  • Census Funding: States ramped up funding for census activities led by nonprofits, including education, promotion, and outreach, particularly for hard-to-count communities. Twenty-six states appropriated nearly $350 million to ensure a fair, accurate, and complete count within their communities. Data demonstrate that states and localities can suffer significant financial losses when undercounts occur, cutting funds disbursed through dozens of programs affecting nonprofit services and the people they serve. Check out these updated resources and articles on census activities.

Regulatory Results

While mixed, the results of regulatory actions clearly show heightened nonprofit engagement and influence.

  • Overtime Final Rule: Starting with the most positive influence, the U.S. Department of Labor 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 salary threshold set in the final rule was less than what many in the nonprofit community had wanted, but it’s easy to apply. Plus, by treating all employers the same, the overtime final rule ensures that nonprofits don’t become employers of last resort and doesn’t treat nonprofit employees as second-class citizens. The Labor Department consistently cited the comments of the network of the National Council of Nonprofits when explaining several key decisions. From what we can tell, outreach efforts to nonprofits across the country resulted in an increased number of public comments submitted during the rulemaking process. That is worth celebrating in and of itself. Now it’s time to operationalize the change in employment standards through trainings so that all nonprofits are in compliance with state and federal law and all employees are treated fairly. Learn more through this analysis and this recording of a nationwide webinar with Labor Department officials and employment law experts. NOTE: The federal law is only a minimum standard; many states set higher labor standards.
  • SALT and State Tax Credit Deductions: Geography and a person’s stance on the political spectrum may influence how one interprets the new final regulations to curb the federal tax benefits of state and local tax credit programs. Treasury and the IRS pushed back against laws passed by several states after the 2017 federal tax law that would allow taxpayers to donate to government-run nonprofits and claim the payments as charitable deductions, rather than tax payments. The federal response of limiting the amount individuals can deduct ended up affecting some longstanding state and local tax-credit programs that provide tax benefits for charitable donations to certain entities, including some community foundations. An uproar from nonprofits and donors in the affected states caused the federal government to create a safe harbor that enables most organizations and taxpayers to continue benefitting from the state and local giving incentives. Ignoring the intent of the regulations, state lawmakers continued to introduce and pass new programs to provide tax credits for charitable donations to various charitable organizations in their states.
  • Regulations Not All Rosy: We must acknowledge, however, that many of the people nonprofits serve suffered numerous setbacks due to regulatory actions by numerous federal departments in 2019. These include allowing states to mandate work and volunteering requirements before people can qualify for Medicaid (HHS), imposing stiffer limits on who can receive SNAP benefits (Agriculture), and indifference to correcting problems in the Public Service Loan Forgiveness Program (Education).

Litigation Results

Much of the reporting on the judicial branch of government focused this past year on the confirmation of new federal judges and the President’s legal complications. But there’s more news relating to nonprofits for reflection.

  • Citizenship Census Question Rejected: In late June, the U.S. Supreme Court ruled that the Commerce Department could not add a controversial question asking people to declare their citizenship on the decennial 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.
  • Courts Blocked Additional Executive Branch Actions: Every administration seeks to promulgate rules and regulations as swiftly and conclusively as possible; the Trump Administration is no different. We can’t judge whether courts have been more or less active in blocking executive actions this past year, but several are worth noting because of the number of lives impacted. Five district courts issued injunctions preventing the so-called “public charge” regulations from going into effect. Those changes would have blocked immigrants from securing temporary or permanent residency (green card) status if they utilize a wider array of public services and supports. The National Council of Nonprofits filed public comments in opposition to those rules because, among other things, the rules “would violate core American principles, operate as an unfunded mandate by imposing billions of dollars of costs onto charitable nonprofits, and negatively affect the operations of charitable nonprofits.” In a separate case, a federal judge ruled that certain non-charitable nonprofit groups must continue to disclose the identity of their large donors, effectively blocking a new Internal Revenue Service rule that failed to comply with the Administrative Procedure Act. The National Council of Nonprofits opposed the renewed proposed rules on the subject “because they invite bad actors to infiltrate and exploit the nonprofit community to perpetrate excess benefit transactions, engage in unlawful partisan activities, and open the way for disguised foreign interference in American elections and public discourse.”

Closing Thoughts

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 include 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.

Finally, charitable giving incentives were not capped in any state, despite previous attempts. Legislators in Oklahoma tried in 2018 to cap itemized deductions, including charitable deductions, but relentless nonprofits advocacy proved that was a bad idea. Lawmakers proved they learned their lesson; attempts to cap deductions in 2019 excluded any mention of charitable contributions.

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