What do local and state governments have to do with a nonprofit’s tax exempt status? Historically nonprofits are often exempt from property tax and sales tax.
As the economy has shrunk, so has revenue to local and state government. Those entities rely on sales tax and property tax for revenues. As property values go down, so do property taxes. Hence, local and state governments are feeling the pinch in their budgets.
Accordingly, three events are worthy of note:
- In Boston, a mayoral task committee is working on a plan to require nonprofits to pay up to 25% of what they would owe in property taxes;
- In Baltimore, a 230 page report has recommended, among other things, that nonprofits begin contributing their pro rata share property taxes to equate to the amount of city services they use.
- In Rhode Island, the General Assembly is considering a plan to strip tax exempt status from 6,600 nonprofit organizations with regard to their sales tax exemption.
Clearly, these events are the result of shrinking revenues on the part of these governments. If these measures go through, other states and local entities may follow suit.
Nonprofit leaders must be aware of these efforts. On the other hand, these states and local entities must beware of the unintended consequences. Nonprofits provide a great deal of social services to the community. They do so in part on the heels of their tax exempt status.
To begin taxing these nonprofits may doom some to closure. And accordingly, if these organizations go out of business no one will provide these social services. And these municipalities will be left to provide those services.
William F. High is the President/General Counsel at Servant Christian Community Foundation. He may be reached at firstname.lastname@example.org.