Levying fees and taxes is hardly just thanks for nonprofits


August 22, 1994|By LESTER A. PICKER

Recent local and national reports have shown the critical rol that nonprofits play in our communities. But, just when nonprofits thought it was safe to come out, big brother is cruisin' to give 'em a bruisin'.

What we're talking about here is the issue of taxing nonprofits in one form or another, be it property taxes or a variety of use taxes. What prompted my latest look at the issue was a newsletter I recently received from Drew Hastings, Executive Director of the Delaware Association of Nonprofit Agencies (DANA), a sister group to the Maryland Association of Nonprofit Organizations.

DANA, along with other Delaware nonprofits, successfully fought attempt by the city of Wilmington to impose a property tax or a "public safety fee," on nonprofits, which could conceivably have cost those agencies some $7 million. With cities across the nation hard pressed for revenues, the bureaucrats are digging for creative ways to levy taxes, er, I mean "fees."

DANA, much like its Baltimore neighbor facing similar efforts by the City Council last year, defeated the measure using a two-part strategy.

First, they educated lawmakers, policy-makers and city officials on what the effect of the new taxes might be on nonprofits. They found that lawmakers did not have a solid understanding of the net contribution nonprofits make to the economy, despite their tax-exempt status.

The second prong of the strategy was to band nonprofits together to fight the issue. Too often policy-makers lump all nonprofits together. When faced with representatives from schools, churches, social service agencies, and others that make up the diverse fabric of nonprofits, lawmakers admitted they were unaware of the extensive role of nonprofits in our communities. I don't believe I know of a single lawmaker who would dare vote to tax churches.

So, for now, the wolf is at the door, which is temporarily closed. But, this experience is being repeated throughout the country.

In some cases local governments have been successful. In Philadelphia, for example, Mayor Edward Rendell has actually passed a "voluntary" tax on nonprofits, which is armed with sharp enforcement teeth, including the threat of legal action to remove tax-exempt status.

First, we need to dispel the myth that nonprofits pay no taxes. Like the rest of us, they do pay wage taxes and a variety of use taxes, ranging from gasoline to sewer.

Second, I'm fed up with the misleading argument put out in sound bites to the media that somewhere between 40 percent and 60 percent of city properties are off the tax rolls. That may be true, but nonprofits, including churches, account for perhaps 7 percent to 12 percent of the exempt properties, if a recent study in New York City can be used as a guide.

What the bureaucrats conveniently leave out is that the majority of the exempt properties are owned by government and other public agencies. The fear by many nonprofit leaders is that the Philadelphia precedent might be the proverbial foot in the door. This begs the larger question: Why should nonprofits not be taxed at all, in any form?

To answer that question, I again turned to Hastings, who with his colleagues has put together an excellent position paper on taxation of nonprofits.

* Most importantly, nonprofits exist because citizen volunteers recognize the government is not providing a needed service for society. In this way, nonprofits ease the government's burden, use private property for public good, and most often more effectively address community needs than can government. This benefit is a net economic gain for government.

* Next, most states and municipalities provide for a specific statutory exemption for nonprofits from paying taxes or assessments. This is a uniquely American tradition that is being emulated throughout the world, particularly in Eastern Europe where fragile democracies are evolving. Any challenge to this exemption would most likely result in enormous litigation costs, yet another income boost for your friendly corporate law firms.

In next week's column, we'll examine other reasons for %o maintaining the traditional tax exemption of nonprofits.

Les Picker is a philanthropy consultant. Write to him at The Brokerage, 34 Market Place, Suite 331, Baltimore, Md. 21202; (410) 783-5100

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