NPQ Positions on the Multidimensional Landscape of Nonprofits and Taxes

This article comes from the spring 2019 edition of the Nonprofit Quarterly.

NPQ has long covered attempts by various levels of government to impose taxes (and fees) on nonprofits. Because we all pay taxes at the local, state, and federal level, these proposals are myriad, but they are connected by type and justification. This makes them relatively easy to address on a practical level, if:

1. A network that understands the flow among the various levels—and which can mobilize quickly on a local or state level—exists to do so.
2. The sector does not protect elements that violate the “contract” between the public and itself. These “elements” tend to be larger organizations that are viewed as not just providing insufficient public benefit but, further, as not placing public benefit first, as they are meant to do.

NPQ has long distinguished itself from most of the rest of the nonprofit infrastructure by not viewing every attempt to hold nonprofits accountable on this last point as an incursion on the whole body. We recognize that some behaviors violate the expectations that the public has, and that if we let those behaviors become extreme, then the basic contract that maintains our credibility and trust position with the public is abridged. The issue, then, is to make the distinctions—and this sorting is not always easy, nor is it ever without controversy. Both points highlight recommendations elaborated on further down—one for philanthropy and the other for policy—based on NPQ’s study of the issues over the years; and this group of articles should be read overall as a position statement vis-à-vis how nonprofits should be orienting themselves around those issues.

Over the past week, we have run a series of articles. Jon Pratt provided an on-the-ground analysis of the financial realities of nonprofit tax contributions to the public, emphasizing that those contributions are robust even with the benefits of tax exemption. Ruth McCambridge examined the controversial proposals to tax nonprofits, and outlined NPQ’s position with respect to the recommendations. And yesterday, Tim Delaney talked about the complexities surrounding how nonprofit tax policy is formed.

NPQ takes positions on a couple of issues related to the earlier points. These are:

• The nonprofit sector needs the one network that addresses nonprofit tax policy proposals as they appear across geographical boundaries: the National Council of Nonprofits (NCN), a network made up of nonprofits and nonprofit associations throughout the United States. We believe its current funding level to be well out of proportion—very low in relation—to its strategic importance, and we are taking a position, as longtime observers of the nonprofit infrastructure, that a pool of philanthropic money should be developed to build the organization to reasonable and even robust scale. (The same is true for the individual state associations involved in nonprofit tax policy.) (You may note that NPQ and NCN do not always agree on policy issues—see Delaney—but we believe that their capacity is critical to the sector.)
• The sector should not resist but rather should encourage generous payment in lieu of taxes (PILOT) arrangements among the very large nonprofits—mostly the “eds and meds”—that for some communities unreasonably shrink their tax bases. These organizations should also acknowledge and honor the nonprofit “promise” in the nonprofit/public contract more generally.

This group of articles has by no means been an exhaustive treatment of nonprofit taxation proposals, but it begins to try to clarify some of the crucial issues in our advocacy in that regard. As we write this, Senator Chuck Grassley has asked the IRS for the results of its monitoring of nonprofit hospitals’ compliance with community benefit requirements. NPQ’s stand is that, in order to support the nonprofit sector’s position in the public trust, these kinds of monitoring efforts are necessary and should be supported rather than viewed as a threat.