In a Taxing Economy, Non-Profits Take Another Hit

As the economy continues to sputter, non-profits are in a pickle: funding is scarcer, but the community's need for their services is greater than ever. From offering resources and support to the (often-newly) homeless to running college prep programs in already-underfunded schools faced with devastating budget cuts, the 1.5 million 501(c) organizations in the United States work to create a supportive web of social change in places where government programs have failed.

To recognize non-profits for all the indispensable work they do in their communities, city and state officials have recently come up with a great way to say, "thanks for having our backs": Make them pay taxes.

They're not being called taxes, of course. Euphemisms for this particular abuse of government influence include "paying their fair share," "donations to the community," and "a new model for ensuring fair contributions." No one is being forced to — at least not yet (although coalitions in places including Providence, Rhode Island are pushing for legislation).

No matter what you call it, telling non-profits that they must pay "25 percent of what they would owe in taxes if they were not exempt," as a mayoral task force in Boston recommends, is taxation, plain and simple. It is reduced taxation perhaps, but it certainly fits the bill of the standard definition of tax — "a charge usually of money imposed by authority on persons or property for public purposes."

Non-profits benefit communities "in lots of ways," admits the financial director of Concord, Massachusetts, "except that they don't contribute to the cost of running the town." This is just one example of the flawed logic behind taxing the non-profit sector because this model of reasoning fails to quantify the value of the non-monetary contributions made by non-profits.

Educational institutions like universities provide jobs in communities (for everyone from professors to maintenance workers), often give a town a cultural and artistic base, provide opportunity for stores and restaurants seeking a young clientele, and often put a town "on the map."

The tangible effects of social service non-profits are even more quantifiable. From food banks that keep borderline families from going on food stamps to volunteer court advocate groups that save thousands in the long run by finding the right placement for a foster child, this type of organization supports government programs in a proactive, rather than corrective, way.

Even non-profits often seen as "dispensable," like museums and environmental preservation groups, provide services to the community by giving them additional attractions for tourists and visitors. No one wants to vacation in a cultural wasteland with nothing to do, surrounded by dead trees and smog.

So before sending letters asking them for "their fair share," financial analysts in communities considering new sources of revenue ought to analyze in the most quantifiable way they can exactly what value the non-profit sector brings to their area. If this figure is less than their expected tax contribution would be, it may be time to reanalyze the organization's strategic plan to see how they can be more effective. But as for well-managed non-profits with clear missions and histories of service to the town, I am relatively certain these would be far better off using a spirit of collaboration than one of taxation.

Photo credit: alancleaver2000