Raleigh, N.C. — Various tax reform plans under consideration in the General Assembly could affect nonprofit organizations in North Carolina in different ways, says David Heinen, director of public policy for the N.C. Center for Nonprofits.
Heinen said his group is assessing each tax bill by looking at whether nonprofits would continue to have sales taxes now paid refunded to them, whether the incentive for individuals and businesses to give to charities is diminished, whether nonprofits would have to begin collecting sales tax on their services and whether the amount available to nonprofits through state grants would be cut because of lower revenue.
The bills he was looking at are the House version of tax reform authored by Rep. David Lewis, R-Harnett, the tax plan backed by Senate leadership authored by Sen. Bob Rucho, R-Mecklenburg, and a bipartisan Senate plan authored by Sens. Dan Clodfelter, D-Mecklenburg, and Fletcher Hartsell, R-Cabarrus.
Here's how those bills stack up in Heinen's estimation.
Does the tax plan take away the refund through which most nonprofits can recoup the sales taxes paid throughout the year?
The House plan makes no changes to sales tax refunds.
The Rucho bill caps and reduces the amount of refund a nonprofit can receive, starting at $5 million and eventually ratcheting down the refund cap to $100,000. Heinen said that roughly 750 nonprofits currently spend enough that they would pay more in sales taxes than they could get refunded were a $100,000 cap in place.
The Clodfelter bill does not make any changes to sales tax refunds.
Dr. Bill Atkinson, chief executive of WakeMed, said capping the refund could cost nonprofit hospitals like his millions of dollars.
"In our case, we truly have to trade off either reducing services or staff. There is no alternative. We don't print money here," Atkinson said, adding that costs would be passed on to patients.
WakeMed picks up the $189 million tab each year for health services to people who can't afford to pay, he notes.
"It is impossible to be a safety-net organization and then turn around be taxed for doing good deeds for the community. It makes no sense," he said.
Does the tax plan affect incentives for individuals or corporations to give to charities by adjusting income tax deductions?
Under current law, individuals and corporations can deduct some of their charitable contributions from the earning on which they are taxed.
The House bill doesn't change the current deduction scheme for charitable contributions.
The Rucho plan eliminates deductions for charitable contributions on a personal and corporate level, meaning that people would have less incentive to give to charity.
The Clodfelter plan lowers the amount of charitable deduction that an individual can take but does not change the current scheme for corporate contributions.
Does the tax plan broaden the sales tax base in such a way that nonprofits would end up collecting sales tax on services they offer?
There are two big concerns Heinen listed with this category. First, some nonprofits could end up having to collect and remit sales taxes that have never had that administrative headache before. Also, the addition of sales taxes could make some nonprofit services – such as child care, health care or arts exhibitions – more expensive or put them out of reach for certain clients.
"They may no longer be able to provide those services," he said. "People may no longer be able to afford them with that additional tax on those services."
The House bill broadens sales taxes, but nonprofits would keep current exemptions.
The Rucho bill would tax services offered by some nonprofits, meaning nonprofits would either have to "internalize" the cost or pass it on to clients. That could be particularly problematic for nonprofits set up to serve low-income clients. In the case of medical services offered by nonprofit hospitals, he said it was unclear how insurance companies and medical billing would handle the addition of a sales tax.
Like the Rucho plan, the Clodfelter plan could extend sales taxes to some services offered by nonprofits, Heinen said.
"We'll figure out how to deal with it best we can, but it will not be without noticeable differences with what we can do," Atkinson said.
Does the tax plan impact state revenues in such a way that budget writers will have less money to pay for nonprofits grants?
The Clodfelter plan would be revenue neutral, meaning it wouldn't require grant cuts for nonprofits. The other two plans would require reductions in state spending.