Tax Policy

Worker Misclassification and Nonprofits

The N.C. General Assembly is considering a bill (H.B. 482) that would create new penalties for nonprofits and businesses that improperly classify their workers as independent contractors rather than employees. Nonprofits that misclassify their employees and fail to provide benefits such as workers’ compensation or unemployment insurance benefits could face fines ($1,000 per misclassified worker) and could be barred from state contracts for five years.

Suggestions for Employment Status to State Legislators

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Comments of David Heinen of the North Carolina Center for Nonprofits House Judiciary II Subcommittee on H.B. 482 – Tuesday, July 28, 2015

Thank you Mr. Chair.

On behalf of the North Carolina Center for Nonprofits, I wanted to bring to your attention a potential unintended consequence of the employee misclassification reform bill (H.B. 482) that could affect nonprofits. I was hoping the subcommittee would be amenable to a small clarifying change in a PCS.

Nonprofits and tax reform

The General Assembly is in the final stages of its efforts to restructure North Carolina's tax system.  The House and Senate are considering different version of legislation (H.B. 998) to lower tax rates and simplify the state tax system. It is essential that tax reform not harm nonprofits. Specifically:

Suggestions for Simplifying State Nonprofit Tax Laws

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Problem #1: The sales tax refund process is less efficient than a system of tax exemption

Problem #2: State law allows the IRS to arbitrarily deny sales tax refunds to some North Carolina nonprofits

Problem #3: Nonprofits are confused whether they need to collect and remit sales tax on their fundraising events

Problem #4: The exemption from sales tax on admission fees for “volunteer-only” nonprofits is confusing and unnecessary

Center's Opposition to Senate provisions

Below is an excerpt. Download the full 2-page PDF at bottom.

Comments of David Heinen of the N.C. Center for Nonprofits  House Appropriations Committee – Wednesday, July 29, 2015 

Thank you Mr. Chair. While individual nonprofits have many concerns with a variety of provisions in the Senate budget, the nonprofit sector has two main concerns about the tax plan in the Senate budget: 

Nonprofit Tax Exemption Talking Points

Why Is Nonprofit Tax Exemption Essential for North Carolina?

1. It protects taxpayers.

  • Nonprofits provide essential services that government would have to provide otherwise. Tax exemption costs much less than the cost of government having to provide the services itself.
  • Nonprofits provide public benefits in exchange for tax exemption.
  • Organizations may choose not to locate in counties or states that do not grant tax exemption. This is a potential loss for the people and economy in those locations.

Federal Tax Reform


As Congress considers major tax reform in 2017, it is likely to revisit tax incentives for charitable giving. The Center recently sent a letter to all of North Carolina's members of Congress encouraging them to preserve or expand incentives for charitable giving as they contemplate tax reform this year.