Taxing Nonprofits

As we begin the budget debate here in Maine Governor LePage has put out a plan to gradually reduce the income tax by, among other things, allowing communities to levy the  property tax on    large nonprofits and eliminating revenue sharing to communities.  What is probably ideological is his desire to reduce income tax in favor of an increased sales, renamed consumption tax, and a return to more taxing at the local level.  What is probably not an ideological, but pragmatic, is the search for new goods, services, and now properties to tax. 

For both nonprofits and local communities this raises all sorts of implications.  As it is now, some nonprofits pay sales taxes when they purchase goods, others do not.  Maine exempts large swaths of nonprofits form paying sales tax, primarily in the heath area, hospitals and clinics, but not educational health organizations;  churches; schools; and nonprofit fire departments, for example.  Nonprofits also pay property taxes and income taxes on businesses in which they make a profit.  Usually these businesses are established to feed back funds into the nonprofit and are common in healthcare.   The medical lab of Eastern Maine Healthcare is for profit to support the hospital as a whole.

Nonprofits will want to defend themselves, by citing aggregate services they provide to the economy, jobs they provide and services they provide that government does not have to provide.  This will not be enough.  This argument could be made by for profits as well, and libertarians would go so far as to say that businesses should not be taxed at all because they are the job creators.  Most of us, however, are more pragmatic and see it as necessary to levy taxes on businesses and some nonprofits.

The difference has to be in how nonprofits convey what they do with greater transparency.  As a member of my community's warrant committee, each year we ask nonprofits who are requesting a donation from the town to provide basic financial figures and the number of persons served and any subsidies to community members.

This should not be hard to find in the days of the internet, yet it often is.  In fact, many nonprofits don't even identify themselves as nonprofit on their websites.  In a study I conducted of Indiana nonprofit websites (excluding hospitals, but not clinics), a little over half,  53%, identified  themselves as a nonprofit by using such words as nonprofit, non-profit, not-for-profit, nonprofit, charity, 501c3 (an IRS identification of a nonprofit), 990 (the form that nonprofits must send to the IRS), or tax-exempt. 

Hospitals have one more obligation: they must provide a community benefit form, to the public and IRS, in order to retain their nonprofit status.  Community benefits include subsidized health care, unreimbursed costs, and patient and community health education.  These reports may not be enough if we can't easily distinguish whether a hospital is for profit or nonprofit.  Educational institutions are under no such similar obligation and we often call these large institutions, private, think of Bates, Bowdoin, and Colby, to distinguish them from our state educational institutions.  They, too, will need to be more transparent in what community benefits they provide in lieu of property taxes. 

I will discuss nonprofit transparency further in a coming blog.

Taxing Nonprofits

As we begin the budget debate here in Maine Governor LePage has put out a plan to gradually reduce the income tax by, among other things, allowing communities to levy the  property tax on    large nonprofits and eliminating revenue sharing to communities.  What is probably ideological is his desire to reduce income tax in favor of an increased sales, renamed consumption tax, and a return to more taxing at the local level.  What is probably not an ideological, but pragmatic, is the search for new goods, services, and now properties to tax. 

For both nonprofits and local communities this raises all sorts of implications.  As it is now, some nonprofits pay sales taxes when they purchase goods, others do not.  Maine exempts large swaths of nonprofits form paying sales tax, primarily in the heath area, hospitals and clinics, but not educational health organizations;  churches; schools; and nonprofit fire departments, for example.  Nonprofits also pay property taxes and income taxes on businesses in which they make a profit.  Usually these businesses are established to feed back funds into the nonprofit and are common in healthcare.   The medical lab of Eastern Maine Healthcare is for profit to support the hospital as a whole.

Nonprofits will want to defend themselves, by citing aggregate services they provide to the economy, jobs they provide and services they provide that government does not have to provide.  This will not be enough.  This argument could be made by for profits as well, and libertarians would go so far as to say that businesses should not be taxed at all because they are the job creators.  Most of us, however, are more pragmatic and see it as necessary to levy taxes on businesses and some nonprofits.

The difference has to be in how nonprofits convey what they do with greater transparency.  As a member of my community's warrant committee, each year we ask nonprofits who are requesting a donation from the town to provide basic financial figures and the number of persons served and any subsidies to community members.

This should not be hard to find in the days of the internet, yet it often is.  In fact, many nonprofits don't even identify themselves as nonprofit on their websites.  In a study I conducted of Indiana nonprofit websites (excluding hospitals, but not clinics), a little over half,  53%, identified  themselves as a nonprofit by using such words as nonprofit, non-profit, not-for-profit, nonprofit, charity, 501c3 (an IRS identification of a nonprofit), 990 (the form that nonprofits must send to the IRS), or tax-exempt. 

Hospitals have one more obligation: they must provide a community benefit form, to the public and IRS, in order to retain their nonprofit status.  Community benefits include subsidized health care, unreimbursed costs, and patient and community health education.  These reports may not be enough if we can't easily distinguish whether a hospital is for profit or nonprofit.  Educational institutions are under no such similar obligation and we often call these large institutions, private, think of Bates, Bowdoin, and Colby, to distinguish them from our state educational institutions.  They, too, will need to be more transparent in what community benefits they provide in lieu of property taxes. 

I will discuss nonprofit transparency further in a coming blog.