Uncle Sam, look elsewhere for revenue

NONPROFITS INC.

August 29, 1994|By LESTER A. PICKER

Last week I tried to address one of the more troubling issues to arise in recent years in the relationship between nonprofits and government. Historically, and quite naturally, there always exists some tension between these two sectors.

Part of that tension arises from nonprofits acting as a conscience mirror of government. By their very existence, nonprofits are a constant reminder to governments that they are unable to address all the social service, educational, environmental, arts and cultural needs of its citizens.

But another source of tension is at the root of present standoffs between the government and nonprofit sectors -- taxation. With governments strapped for revenues, they are increasingly turning to nonprofits, seeking to rescind their tax-exempt status or levy "usage" fees for existing city services.

Last week I examined some of the reasons why, in my opinion, nonprofit tax exemption should remain sacrosanct. My exploration was prompted by materials, including a position paper, I received from the Delaware Association of Nonprofit Agencies.

An obvious reason for excluding nonprofits from taxation is existing laws. Attempts to rescind tax exemptions would result in costly, drawn out legal battles, precious resources that could better be served by strengthening the infrastructure of nonprofits within our communities. Here are some other reasons:

* Nonprofits' inability to pass on costs to consumers or broaden markets as can a for-profit entity. Most nonprofits have highly targeted markets, which reflect their restricted missions.

Every dollar that must go into new taxes will result in a nearly dollar-for-dollar reduction in services, particularly for those charities that serve the underprivileged. All this comes at a time when there is an unfortunate increase in demand for nonprofit services.

Ironically, government itself has cut back its funding of nonprofit programs, thereby squeezing nonprofits still further.

So far the generosity of individual Americans has covered some of that revenue gap, but nonprofit officials wonder how long that can continue.

* Nonprofits' benefactors -- corporations, foundations and individual Americans -- for the most part are donating after-tax dollars. They expect their donations to support charitable services, not the government.

* Since nonprofits would likely have to reduce services to match the dollars that would be funneled into taxes, there will have to be a corresponding reduction in staff at some point. That means a reduction in city wage taxes, offsetting some, if not all, of the gain from any property or use taxes. That does not take into account the loss of additional spending of individual employees near their work sites, which additionally boosts city revenues through sales taxes.

There are other reasons to keep government hands out of the pockets of nonprofits.

But in this columnist's opinion, the idea of taxing nonprofits is without merit.

Governments may need additional revenue, and some nonprofits may be abusing their tax-exempt status. But these issues need to be dealt with in other ways.

In the case of nonprofits abusing their charitable status, enforcement of existing laws could help to address that issue, as will new regulations proposed by policy-makers and watchdog groups.

Will the fight to tax nonprofits continue? You can bet on it.

"We've won the battle," sighs Drew Hastings of the Delaware Association of Nonprofit Agencies, "but we've by no means won the war."

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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