Tacoma, Wash. Eyes Imposing Business Tax on Nonprofits to Address Deficit

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February 20, 2012; Source: News Tribune | Add Tacoma, Wash. to the list of cities eyeing nonprofit coffers to address municipal budget difficulties. Tacoma city officials are looking at nonprofit health care providers that are currently totally exempt from the city’s business tax. The new idea would knock the 100 percent exemption down to 75 percent, with big impacts on two particular hospitals: MultiCare, which would have to pay $591,645 annually, and the Franciscan Health System, which would be hit with a business tax bill of $375,000 annually. 

The 75 percent exemption is apparently the moderate position. One city councilman wants to eliminate the exemption entirely, which would make the annual take $2.2 million from MultiCare and $1.5 million from the Franciscans. 

Tacoma’s city fathers are also looking at other nonprofits for extra cash. One idea is to levy a five percent tax on ticket sales for nonprofit events at venues such as the Museum of Glass, the Broadway Center for the Performing Arts, and the LeMay car museum. The proposed tax would be levied on nonprofits that earn more than a quarter million annually and it’s estimated that it would generate some $537,000 a year.

There are important dimensions of the Tacoma debate for the nonprofit sector’s consideration nationally.

At a city council hearing, “activists” and residents—including a union official—spoke in favor of reducing the exemption while business leaders supported the hospitals’ position to keep the exemption at 100 percent. Think about it. In these cases of municipal attempts to tax nonprofits, citizens lump nonprofits—mostly big, but some small—in with business. As one union member said at the hearing, “They make a lot of money in profit even though they’re not for profit.” Meanwhile, it was the Tacoma-Pierce Chamber of Commerce weighing in for the hospitals against the community activists. 

The hospitals are responding to the business tax proposal by citing their payment of other taxes (MultiCare enumerated the $96.2 million it pays in other taxes) or their provision of public services (the Franciscans cited providing $15 million worth of free care). To the critics, these are taxes that the hospitals would be obligated to pay no matter what or charity care that nonprofit hospitals are supposed to deliver in order to receive their other tax advantages. 

But the real question on the table is how much “skin” the nonprofit sector has—or should have—in addressing state and local budget deficits. To the nonprofit sector, its array of charitable functions and services constitute the skin in the game. To critics looking at large nonprofits such as hospitals or cultural groups with a constituency comprised largely of a community’s wealthier elite, they wonder. As an 84-year-old former state senator testified at the city council, “no one likes taxes, [h]owever, everyone wants services, and the question is, how do you pay for those services? You’re trying to close a gaping hole. I know how that goes.” –Rick Cohen