In This Week's Edition of Snapshot…
- New Study Estimates $17 Billion Drop in Charitable Giving for 2018
- Tax Cuts 2.0?
- New UBIT Rules for Nonprofits Might be Delayed
- Wyden Calls for Investigation in Misuse of Charitable Organizations
- 2020 Census Public Comment Opportunity
- Marc Short Leaving White House
- In the States: New York Senate and Assembly Vote to Protect Nonprofit Transportation Benefits, Reprieve for Vermont Charitable Deduction, and Kentucky Taxing More Tax Exempts
On Monday, the American Enterprise Institute (AEI) released a study that estimates charitable giving will decline by more than $17 billion in 2018 due to last year’s overhaul of the tax code. According to The Hill, “AEI researchers estimated that of the projected $17.2 billion decline in giving, $14.2 billion of the reduction will be due to the bigger standard deduction and $3 billion will be due to other provisions in the tax law. The Congressional Budget Office (CBO) has estimated that the tax law will increase gross domestic product by 0.3 percent in 2018. AEI estimated that if that growth projection materializes, the tax law will only reduce charitable giving by $16.3 billion.”
This study is in line with previous studies and mirrors the concerns that the Council shared with Congressional offices prior to the passage of the last year’s tax reform legislation. A separate piece from The Hill—an op-ed by AEI Resident Scholar Alan Viard—argues for offsetting this likely drop in charitable giving by creating a universal charitable deduction, a position long championed by the Council. The piece notes, “Although the sweeping tax law adopted last December didn’t take aim at the charitable deduction, the deduction suffered significant collateral damage. … To aid the wide variety of nonprofit organizations that Americans choose to support, we should, at a minimum, make the charitable deduction available to everyone who pays individual income tax.”
After the passage of tax reform in 2017, it was widely expected that no other major tax legislation would be considered in the 115th Congress. However, after a seemingly innocuous comment by President Donald Trump during the White House visit by the Houston Astros back in March (captured by Business Insider), a “phase two” of tax reform has been slowly and quietly gaining momentum.
Since March, House Ways and Means Republicans have been meeting several times a week to discuss a second tax cut bill, with the possibility that the House will vote on—and pass—the legislation sometime this summer or early fall. However, it is unlikely the Senate would take up any additional tax cut legislation until after the mid-term elections, if at all. The Council will continue to monitor any developments and will keep members updated.
In response to a question from Suzanne Friday, the Council’s senior counsel and vice president of legal affairs, an official from the IRS’ Tax-Exempt and Government Entities (TE/GE) office said that they are considering delaying rules for the new unrelated business income tax (UBIT) provisions. According to Tax Notes, “‘It is being considered, yes,’ [John] Carter said June 15 at a TE/GE Exempt Organizations Council program in Washington. The new UBIT provisions were enacted as part of the Tax Cuts and Jobs Act (P.L. 115-97).”
The Council has been pushing for a delay regarding two new provisions related to UBIT that were included in the tax code overhaul. These new provisions require that 1) tax-exempt organizations with more than one unrelated trade or business activity treat each activity separately for the purposes of calculating unrelated business income, and 2) tax-exempt organizations pay UBIT on the value of certain fringe benefits provided to employees—such as transportation benefits and on-premises gyms. Last month, the Council formally advocated for a delay in a letter to Treasury Secretary Seven Mnuchin.
The push by the nonprofit community against these new UBIT provisions led to the introduction by Rep. Mike Conaway (R-TX) of the Nonprofits Support Act (H.R. 6037), which would repeal both of the new UBIT provisions.
Yesterday, Ranking Member of the Senate Finance Committee Ron Wyden (D-OR) wrote a letter to Chairman Orrin Hatch (R-UT), requesting a bipartisan investigation into the laws that regulate charitable organizations. The letter states, “When serious questions about compromising the integrity of our charitable tax laws are raised, the Senate Finance Committee has never ducked. … Through this Committee’s long history—and particularly over the past ten years—the Senate Finance Committee has rigorously investigated alleged abuses of charitable tax laws, often on a bipartisan basis.”
As always, the Council’s government relations team will be in communication with Senate Finance committee staff and will monitor any further action the Committee takes on this matter.
The Census is a crucial tool used by our government to collect population data, which is ultimately applied to make funding decisions. It serves as the baseline that helps determine a decade’s worth of government grants and other actions. This past March, Commerce Secretary Wilbur Ross instructed the Census Bureau to add a citizenship question to the 2020 Census, and the Bureau is currently seeking public comment, as required by law.
On Tuesday, the Council shared a letter drafted by The Bauman Foundation, along with a collaboration of funders, that calls for the omission of the citizenship question on the 2020 Census. The Council encourages other foundations to read the draft letter and sign-on to this campaign here. The deadline for sign-on is July 16. The 2020 Census has wide ranging implications for how community needs are addressed. The Council believes that getting a fair and accurate Census is a nonpartisan goal that the entire sector can share.
Last Friday, POLITICO reported that White House Legislative Affairs Director Marc Short told his colleagues that he will resign. Short is expected to leave around mid-July, though it is unclear if the Director of Legislative Affairs has accepted a new position yet.
One former administration official mentioned that Chief of Staff John Kelly has spoken to the deputy director of the National Economic Council, Shahira Knight, about potentially taking over Short's job. It has been announced that Knight—who was instrumental in developing the policy groundwork as well as selling Republican lawmakers on the major tax bill, H.R. 1 (115)—is leaving the White House in the coming weeks to take a position at The Clearing House, a banking policy and lobbying group. Officials inside the White House and close advisers did not think any internal candidates for Short's job would come out of the current legislative affairs shop.
Exclusive from our colleagues at the National Council of Nonprofits.
New York Senate and Assembly Vote to Protect Nonprofit Transportation Benefits
Shortly before a legislative deadline this week, the New York State Senate and Assembly approved a bill to decouple state law from the new federal tax on nonprofit and employee expenses for transportation benefits. The federal tax law enacted in December imposes federal unrelated business income tax (UBIT) on any amount a nonprofit employer has “paid or incurred” for qualified transportation benefits such mass-transit cards or employee parking. New York law imposes a state UBIT whenever federal law does so. As a result, New York would have automatically followed the new federal statute, imposing an additional nine-percent state tax effective January 1, 2018, on top of the 21 percent federal tax. The Nonprofit Coordinating Committee of New York, the New York Council of Nonprofits, and many other organizations advocated for the legislative fix. Advocacy efforts now turn to ensuring that Governor Cuomo signs the bill.
Reprieve for Vermont Charitable Deduction
The Vermont House failed to override the Governor’s veto of the state budget and tax package that includes a provision repealing the state’s charitable giving incentive and replacing it with a five-percent tax credit. The version sent to the Governor would cap the tax credit at $20,000, meaning that regardless of donations in excess of that amount, charitable giving could only reduce state taxes by $1,000 per year. The Governor had proposed the change, the House added a $10,000 cap, and the Senate partially responded to nonprofit concerns by doubling the House cap. The Governor vetoed the bill over unrelated tax issues that must be resolved to avert a government shutdown at the end of the month.
Kentucky Taxing More Tax Exempts
Questions and confusion have reigned for Kentucky nonprofits since the Legislature enacted numerous tax-law changes this spring. A comprehensive tax reform package, passed over the veto of the Governor, expands sales tax to services and labor and imposes a six-percent sales tax on admissions that may apply to charitable nonprofits. The Department of Revenue reportedly has confirmed that it will start collecting the new sales taxes beginning July 1. It has also been determined that organizations will be required to collect sales taxes on fundraising special events, silent auction items, and some types of memberships (including, for example, recreational memberships). Several issues remain unresolved, such as whether camp registrations are taxable as recreational activities, or treated as child/day care, educational enrichment (i.e., STEM camp), faith formation, or rehabilitation. Nonprofits will be seeking legislative revisions when the Legislature reconvenes for special session later this year. The Kentucky Nonprofit Network is hosting a webinar on June 28 to provide additional information about the tax-law changes and their impact on nonprofit missions.