Trick or Treat or Taxes

With Halloween fast approaching, here’s a scary topic for nonprofits: Taxes. 

Lawmakers are proposing an overhaul of North Carolina’s tax system next year, relying less on income taxes and more on consumption taxes.  Here are five horror stories for nonprofits.

1.  You answer “No” the next time a funder asks if you’re fully tax-exempt.

      Nonprofits are exempt from state income tax, so we won’t save money if the state eliminates corporate income taxes.  But nonprofits pay sales tax when we buy things.  Many (but not all) nonprofits currently get refunds of these sales taxes from state government.

      As lawmakers simplify the tax code, this complex nonprofit sales tax refund process could be a thing of the past.  North Carolina nonprofits could be truly exempt from sales taxes, saving nonprofits time and money by eliminating the burdensome refund process.  Or, nonprofits could see a huge tax increase if refunds go away altogether.

2.   You charge sales tax on your program services.

      With a broader sales tax base, nonprofits may need to collect and pay sales tax on more services they offer.  This could include everything from admission fees and health expenses to memberships,  meeting registration fees, and tuition.

3.  More donors may say “thanks, but no thanks.”

      Individuals and businesses get tax credits and deductions when they give generously to nonprofits.  If income taxes are reduced or go away, these incentives for charitable giving also disappear.  And, the non-itemizer tax credit – which encourages generosity among low and moderate income North Carolinians – could be on the chopping block in a simplified tax code.

4.   A PILOT steers your nonprofit into a dangerous storm.

      To keep overall tax rates low, lawmakers could reduce the share of sales taxes that goes to municipalities.  This would cut local government’s revenue.  They might look to nonprofits to make up for this lost revenue.  Elsewhere, cash-strapped cities and towns have demanded that nonprofits make payments in lieu of taxes (PILOTs).  We could see these PILOTs start to crop up in North Carolina.

5.   You lose your best paying customer.

      Nonprofits have seen steep cuts in state grants and contracts the last four years.  If tax reform leads to even less state revenue, more nonprofits that provide essential services for North Carolinians may see even further – and permanent – loss of public investment in their work.

. . . But none of these horror stories has to come true!

You can help give nonprofits a bright future in a restructured tax system.  The Center will advocate for legislators to protect and expand nonprofit tax exemptions, charitable giving incentives, and state investment in nonprofits.  Join us in making nonprofits’ voices heard!

 

David Heinen is director of public policy and advocacy at the N.C. Center forNonprofits.

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