The Nonprofit Response to "Taxing": Ideas to Consider

The NY Times featured an article about the growing trend of municipalities turning to nonprofits to help plug budget holes by charging fees for services or asking for voluntary payments in lieu of taxes. But we really need to recognize this fee or payment for what it is: a form of taxation. It remains to be seen how nonprofits respond to this growing trend, but we can all see it is a train wreck in slow motion. The funds that these nonprofits now must allocate for such fees will come directly from general operations and programs. Nonprofits have already made significant cuts to preserve programs, so this will be their only choice now. What will the response be from people and communities already demanding more services and assistance?

How should nonprofits respond? What if these were the responses?

• Nonprofits relocate to more "tax" friendly locations- why not, real "businesses" do this everyday. What would the impact be on any city if some of its major nonprofits picked up and moved to another location in exchange for economic incentives, no "service" charges and a true partnership between the city government and the organization?



• Outsource our nonprofits- hey, why not? Corporations outsource our workers all the time. Let's try it in the nonprofit sector. Interested in seeking a direct service? I'm sorry, we don't offer that in person any more, but you are welcome to submit your symptoms in writing, and someone will be back in touch with treatment suggestions shortly. Looking to speak to someone directly? Use our auto attendant feature and get referred around from department to department. This should help nonprofits save some money and pay their fees.



• Charge a service fee of their own- It is interesting that the cities and counties would argue that nonprofits should pay a fee for services they take advantage of. Who do they think is going to pay for these fees? Donors and funders aren't going to okay their money covering these costs. They want to know their money is helping people and paying for programs. So, maybe nonprofits need to take the same approach and add their own service fees? Hey, that will be $1 service fee for restocking that library book. $2 toilet charge for use of the restroom at your local museum. Please make your check payable to your local city treasurer.



• Nonprofit strike-We all know that the nonprofit sector is made up of various types of organizations all carrying out their missions in different ways. Clear agreement on any one issue is somewhat hard to come by in the sector, but new developments like these fees can be a rallying point for all organizations. All nonprofits can see the writing on the wall, and what is happening with larger organizations will trickle down eventually. Why not come together as a sector and develop a true and visible response to how these fees will impact the sector? Maybe it is a well thought out campaign or some lobbying efforts, although this seems like much of the same old. Instead, how about a nationwide nonprofit strike? This isn't about unionizing, but about showing our friends, neighbors, communities and politicians how integral nonprofits are to their everyday lives. I can't think of anything more grassroots to do, but if you have an idea, post it here.

Do you have other ideas? Feel free to share them here. We would love to hear from you.

"Taxing" Nonprofits: Call It What It Is

The NY Times featured a recent story about the growing trend of municipalities developing or charging nonprofits service fees (aka taxes on certain services). Clearly this is a challenge for most nonprofits, especially as they struggle to address increasing needs, higher operating costs and decreasing funding and donations. It seems that nonprofits will likely cut services in response, especially since most have already cut everything possible in an attempt to preserve programs and services. What kind of impact this will have remains to be seen, but it feels like watching a train wreck in slow motion.

The article relates:
As recession-racked cities struggle to balance their budgets with everything short of feeling behind sofa cushions for loose change, a growing number are seeking more money — just don’t use the word taxes — from nonprofit institutions that occupy valuable land but by law do not pay property taxes.

Boston has been sending letters to its largest nonprofit institutions this year, telling them the value of their land and asking them to begin making annual payments that would eventually rise to a quarter of what they would owe if they paid property taxes. Mayor-elect Rahm Emanuel of Chicago wants the city to begin charging water fees to nonprofits, which have been spared them in the past. And the mayor of Providence, R.I., Angel Taveras, cited Boston’s example this month when he called on nonprofits to pay more money to the city.

Read more here.

Taxing Nonprofits: What is the Impact?

Tim Delaney, President & CEO, National Council of Nonprofits, posted to Huffington Post about the recent issue of PILOTS in Boston.

As he relates: Leaders of nonprofit organizations across America were stunned by reports this week in the Boston Globe and NPR's Marketplace that the City of Boston would turn its back on the nonprofit cultural, educational, and health care institutions that have played such vital roles in making that city great.

What stunned nonprofit leaders nationwide is that Boston sent letters essentially mandating that various nonprofits make "Payments-In-Lieu-Of-Taxes" (PILOTs) to the city based on the value of their property, even though Massachusetts law -- like the law in all 50 states -- prohibits local governments from taxing nonprofit property. What in turn shocked nonprofit leaders is how Boston intends to enforce its supposedly "voluntary" PILOT program: with a Scarlet-letter campaign designed to coerce compliance with the city's demand for "voluntary" payments.

Boston has concocted an Orwellian program that uses euphemisms -- such as "PILOTs" instead of "property taxes" and "voluntary" instead of "coerced" -- apparently attempting to hide what is really happening to evade what the law prohibits. The city, knowing the courts would strike down as an illegal act any attempt to directly impose property taxes on charitable nonprofits, invented a program to coerce "voluntary" Payments-In-Lieu-Of-Taxes. But slapping on a misleading label to cover a bad act does not render it any more acceptable; a payment based on property value is still a tax.

To enforce its legally unenforceable program, Boston has threatened to paint a Scarlet letter of shame on every nonprofit that does not comply with the city's demands for payments. Such coercion to obtain what the Commonwealth's law prohibits is outrageous and threatens everyone; who's next, when Boston -- or any government -- wants something the law prohibits?

The city's program also disregards unique aspects of nonprofit law, thus putting coerced nonprofits at risk of running afoul of the Massachusetts Attorney General, who has jurisdiction to oversee that funds donated to nonprofits are used as donors intend. By demanding that nonprofits pay the city 25 percent of their property's tax value, the city is whipsawing nonprofits, putting them in a lose-lose dilemma: either undergo the city's shameful public branding, or cave in to the city's demands to pay, only to have the Massachusetts Attorney General come after the nonprofit if donors complain that they gave their money for purposes other than transfers to the city treasury.

In trying to balance its budget on the backs of people served by charities and those who donate to them, Boston has disregarded not only the law, but also fiscal reality. The recession already has stretched nonprofits too far financially as demands for their services have skyrocketed while their revenues have nosedived, with corporate contributions declining, foundation grants down, and governments delaying payments and not paying full costs on legally-binding contracts. According to the IRS, even individual giving has sagged by 20 percent. Read more here.