State Charitable Giving Incentives
The tax laws in many states encourage individuals to give to charitable organizations whose missions they support by providing an itemized deduction or tax credit. Tax reform efforts in recent years in some states have sought to cap or eliminate charitable giving incentives. Reduction or removal of charitable giving incentives threaten the ability of nonprofit organizations to serve people in need and to continue to strengthen work in communities.
Why it Matters
Limitations on state charitable deductions and other giving incentives effectively remove motivations for donations to churches and synagogues, domestic violence shelters, early childhood programs, food banks, school alumni groups, and all other charitable nonprofits, and would further reduce the ability of charitable organizations to meet the increasing need for services in their communities.
Nonprofit organizations in every state are dedicated to the public good; their work improves lives, strengthens communities and the economy, and lightens the burdens of government, taxpayers, and society as a whole. Maintaining the value of the charitable giving tax incentive is essential to the ongoing work of nonprofit organizations in delivering essential services, enhancing quality of life, and uplifting the spirit of faith, innovation, and inspiration in local communities across America.
If lawmakers truly want effective tax policies and more efficient government, then we also need a thriving charitable nonprofit sector that provides essential services for the people who need them the most.
- Mayor Walter Weeks, Coats, NC, writing in “Senate bill harms nonprofits, communities,” Fayetteville (NC) Observer, April 19, 2015.
Where We Stand
The National Council of Nonprofits is committed to supporting existing, enhanced, and new tax and other incentives at the federal level that encourage individuals to volunteer their time and contribute money to the missions of nonprofits and opposing caps or limits on charitable giving incentives.
Status
States typically find that capping or eliminating charitable giving incentives significantly undermines financial support for the work of nonprofits. Many have rejected changing current incentives and others have actually repealed the limits that have been shown to hurt communities in their states. Still others have expanded giving incentives in recent years. Consider the following:
Colorado: In 2014, the state created an income tax credit for taxpayers who make food contributions to hunger-relief charitable organizations.
Hawai’i: In 2011, policymakers capped the state’s charitable giving incentive and all other itemized deductions to limit the benefit for upper-income taxpayers. However, the adverse impact on communities prompted Governor Neil Abercrombie himself to champion a bill to carve out and restore the full giving incentive. “After having taken a close look at the impact this particular section of the law is having on charitable donations made to Hawaii's nonprofit organizations, we support carving out this portion of the law,” the Governor said. Governor Abercrombie signed the bill into law on July 2, 2013. A bill was proposed in 2015 and is pending that would phase out the deductibility of itemized deductions starting at adjusted gross income of $100,000 and allowing no itemized deduction for a taxpayer with federal AGI of $500,000. The Hawai`i Alliance of Nonprofit Organizations (see p. 19) testified that the legislation must be revised to ensure that deductions for charitable donations remain uncapped, which is in keeping with the intent of a law enacted in 2013. The law protecting charitable deductions, however, expires at the end of 2015, along with the current cap on itemized deductions.
Kansas: In 2013, the Kansas Governor signed into law a compromise tax package that preserves the charitable deduction while capping all other itemized deductions and reducing tax rates. Specifically, the law lowers income tax rates and reduces other itemized deductions by 30 percent in 2014, 35 percent in 2015, 40 percent in 2016, 45 percent in tax year 2017, and 50 percent in 2018 and thereafter. The carve out for the charitable giving incentive, originally included in the Senate version of the legislation, was in part the result of intense advocacy by charitable nonprofits.
Maine: Maine capped total itemized deduction allowance for individual taxpayers capped at $27,500 in the 2014-2015 biennial budget adopted in 2013. In 2014, the state revised that law by permiting donors for tax year 2016 to deduct an additional $18,000 above the $27,500 cap on itemized deductions, and removes charitable giving from the cap all together for 2017 and beyond. The Governor’s 2016 budget proposal calls for repealing all itemized deductions, including the deduction for charitable donations.
Maryland: In 2014, the state created a tax credit equal to the lesser of either 25% of the eligible donation or $50,000 for donations made to a qualified permanent endowment fund at an eligible community foundation, up to a maximum of $250,000 in credits in each tax year.
Michigan: The State has yet to restore a series of charitable tax credits repealed in 2011. Among them, the charitable tax credit offered a credit of 50 percent to tax filers that donated at least $400 to food banks, homeless shelters, community foundations, public foundations, and other nonprofits. Legislation would have created a $100 tax credit for donations to qualified Michigan charitable nonprofits.
Minnesota: The Minnesota Governor signed into law a bill that creates a new, upper-income tax bracket, increases corporate taxes, and reduces the sales tax rate while broadening the base. However, the Legislature considered but ultimately rejected a provision of the original proposal that would have eliminated the state’s charitable deductions for itemizers and for non-itemizers. More specifically, the provision would have replaced the charitable deduction with an eight-percent nonrefundable individual income tax credit available to taxpayers that give more than $400 ($800 for married joint filers) or two percent of the taxpayer’s adjusted gross income.
Missouri: In response to concerns from communities, State leaders in 2013 restored a series of charitable tax credits for food pantries, pregnancy resource centers, and the Children in Crisis program that had been allowed to expire in recent years. The law also repeals certain requirements under the Rebuilding Communities tax credit program.
Montana: Citing the importance of giving to nonprofits serving Montana communities, the Legislature this spring renewed the state’s charitable endowment tax credit through 2019.
North Carolina: The Governor signed in July 2013 a tax reform plan that carves out the charitable giving incentive from a $20,000 cap on itemized deductions. The law dramatically alters the State’s current tax code, however, and includes a few changes to some nonprofit exemptions and deductions, such as eliminating the credit for contributions from non-itemizers; imposing a $45 million cap on sales tax refunds and authorizing a Study Committee to examine lowering this cap or eliminating the refund in future years; replacing the three percent gross receipts tax on entertainment with a sales tax that will now be applied to arts nonprofits, as well as authorizing a study on expanding the sales tax to other services.
The North Carolina General Assembly amended the sales tax law in 2014 to clarify that most nonprofit fundraising activities are not subject to tax, but to impose tax on some nonprofit membership and registration fees, and ticket charges. It also repeals three nonprofit sales tax exemptions for state attractions, two-nonprofit-event rule, and youth athletic contests sponsored by nonprofits, but adds a narrow exemption for events sponsored by volunteer-only nonprofits and an exemption for any tax-deductible contributions. The law narrows the tax to live entertainment events (excluding educational, recreational sports, an fundraising events) and exempt nonprofits from local privilege taxes.
Oregon: In 2013, the House passed a tax reform proposal earlier that would have limited itemized deductions but expressly exempted charitable giving from the caps.
Vermont: In 2015, the House considered a plan to cap itemized deductions at 2.5 times the standard deduction ($15,500/individuals; $31,000/joint filers). A similar proposal was considered but rejected in 2013. In March, a hearing on the issue heard strong testimony from the nonprofit community in opposition to the plan. CommonGood Vermont is working to protect state charitable tax deductions in the state.
The Giving Incentive and Nonprofits
Nationwide: Arthur C. Brooks of the American Enterprise Institute estimates that a 28 percent limit on the federal charitable tax deduction would result in a loss of giving of about $9.4 billion in the first year.
Hawai'i
- Statewide: The Hawai'i nonprofit community is estimated to have lost between $60 and $70 million in donations as a result of the cap placed on the charitable deduction in 2011.
Michigan
- Statewide: According to a report from the Johnson Center for Philanthropy, Michigan residents significantly decreased donations of $200 and $400 between 2011 and 2012 due to the expiration of the Michigan Community Foundation Tax Credit. During that year, foundations saw a 27.2 percent drop in donations of $400 or less. In all, Michigan’s community foundations lost $1.1 million and more than 2,000 donors in 2012. The $200 and $400 giving levels are particularly important because they represent starting points for first-time donors who stand to increase their charitable giving over time.
- Statewide: The Food Bank Council of Michigan conducted a survey among its members to measure the effects of the state foundation tax credit expiring. The organization found that in FY 2012, $200 donations dropped by 29 percent and $400 donations fell by 47 percent.
- Detroit: The Coalition on Temporary Shelter (COTS) experienced a 10 percent decline in charitable contributions between 2011 and 2012. The resulting funding loss of $45,000 has forced the shelter to begin turning away even homeless children and families.
Missouri
- Cape Girardeau: The Beacon Health Center in saw a nearly $15,000 decline in donations after the Children in Crisis tax credit expired in 2012. The loss translated to fewer advocacy services for children who have suffered from abuse and neglect.
- Cape Girardeau: The Southeast Missouri Food Bank hopes to be able to feed 9,000 more people through increased contributions under the food pantry credit.
- Park Hills: The Parkland Pregnancy Resource Center in experienced a $20,000 decline in donations after the tax credit for pregnancy resource centers expired in 2012.
- St. Louis: The Voices for Children program raised only $94,000 in 2012 — nearly $10,000 less than the organization raised during the same time period in 2011 when the Children in Crisis program tax credit was available. As many as 93 children in the state court system due to abuse or neglect were denied services as a result.
- St. Louis: The Hunger Task Force of the Missouri Association for Social Welfare reported that a food pantry in St. Louis lost more than $30,000 in donations after the food pantry credit expired in 2011.
What Nonprofits Can Do
Changes to the charitable giving incentive proposed as part of comprehensive tax reform at the state and federal levels represent major threats to the work of nonprofits in communities. Help protect charitable giving now and in the future by sharing your story with your state association of nonprofits and contacting your legislators to tell them how the giving incentive allows nonprofits to make a positive impact in your community.
Additional Resources
- “The Lab Results Are in on Tax Reform,” by Tim Delaney in The Hill, July 23, 2013.
- “Tax Reform Lessons Learned From State Experiments,” by Lisa Maruyama and Tim Delaney in the Huffington Post, July 25, 2013.
- Hawai’i Governor Neil Abercrombie’s Testimony on the Charitable Giving Incentive
- Letter from Kansas Charitable Nonprofits on the Charitable Giving Incentive
- Nonprofit Association of Oregon’s Testimony on the Charitable Giving Incentive
- Impact on Giving After the Repeal of the Michigan Community Foundation Tax Credit
- National Council of Nonprofits' Charitable Giving Incentive One-pager
