Nonprofit leaders say sales tax, charitable deduction changes would hurt

Posted June 17, 2015

State budget

— Leaders of hospitals, YMCAs, churches and other nonprofits say they would not be able to serve as many people if two key changes that are part of the Senate budget proposal become law.

"I pray that our elected officials demonstrate compassion for our fellow North Carolinians who need food, clothing and shelter," said the Rev. Joseph Mann, a minister with the United Methodist Church and an adjunct professor at Duke University's School of Divinity.

Under current law, charities can claim up to $45 million in state and local sales tax refunds per year. The Senate budget would reduce that to $1 million per year, or roughly the amount of refund available on $15 million worth of purchases. Senate leaders say the move would affect mainly larger nonprofits such as hospitals, which they say are large, profitable businesses that can afford to contribute to the state.

"We will protect the (nonprofits) on the lower level, and the others will be able to pay their part of the share of the operation of the state of North Carolina," Sen. Bob Rucho, R-Mecklenburg, said. That change would earn the state at least $160 per year by 2019, according to an analysis of the bill by legislative staff.

But Mann said even mid-sized nonprofits would be affected. For example, small churches are often able to build bigger or more useful buildings because they can claim a sales tax refund on the supplies used. Losing that, he said, would delay or scale down building projects.

Another provision would cap the currently unlimited charitable contribution deduction at $20,000 per year. That, said Mann and other nonprofit leaders, would cut down on the number of charitable gifts made by individuals. It's unclear what the benefit might be to the state for that change.

Taken together, nonprofit leaders who gathered at the Legislative Building on Wednesday said, the two would both add to cost of operating charities and make it harder to raise funds.

Sheree Vodicka, executive director of the North Carolina Alliance of YMCAs, said the changes would take money out of programs for free swim lessons and lunches for summer care programs, as well as partnerships with hospitals that teach healthy living and do diabetes prevention.

"These low-cost, effective programs would be in jeopardy," Vodicka said.

Private universities would also suffer, said Britt Davis, vice president for institutional advancement at Campbell University, which is based in Harnett County. Campbell and other private universities, he said, reinvest sales tax refunds in the programs that benefit students.

Hospitals also say they can't afford to lose the refund.

"Eliminating the sales tax refund would cost Cape Fear Valley Health System millions of dollars per year," said Marion Olin, chairwoman of the hospital system's board of trustees.

Olin said that the hospital provides $42 million in charity care every year to patients who can't pay, six times what the state gives back in terms of a refund.

"We earn our tax exemption every day," she said.

House leaders say they are not inclined to go along with the changes for nonprofits.

"The role that nonprofits play in the state reduces the size of state government," said Finance Committee Chairman Jason Saine, R-Lincoln.

Saine said that there were a number of differences between the budget and tax plan offered by the House and the one senators are due to pass by the end of this week.

"It's going to be a long summer. That's OK. We have a lot to talk about," he said, referring to expectations that it will take weeks, if not months, to find a compromise between the House and Senate budgets.

"It was a House priority in the last round of tax cuts, and it remains a House priority to recognize the value the nonprofits provide in our community," House Rules Chairman David Lewis, R-Harnett, said. "At this time, we are committed to maintaining the charitable deduction, and we are very concerned with any adjustment to the sales tax refund cap."


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