In This Week's Edition of Snapshot…
- President Trump Delivered SOTU
- Bill Reintroduced to Allow Expanded Nonprofit Political Activity
- Rep. Conaway Reintroduced Bill to Repeal UBIT Provisions
- States Ready to Spend Money
- Weighing Wayfair for Nonprofits and Foundations
- Lawmakers Targeting Nonprofit Hospitals
On Tuesday night, President Trump delivered the State of the Union (SOTU) address to a joint session of Congress. In his speech, the president praised the strength of the economy and called for both parties to work together on infrastructure and trade issues. The president also highlighted gains by women in the job market, and the historic number of women elected to Congress—causing cheers among Democratic women.
Immigration was an important part of the speech; President Trump spoke about the consequences of illegal immigration and iterated the need for a border wall, which he described as “a smart, strategic, see-through steel barrier,” according to POLITICO. While the president agreed to sign a three-week spending bill to reopen the government through February 15 without funding for border security, he has mentioned the possibility of declaring a state of emergency if he does not get funding for his border wall. A bipartisan group comprised of members of the Senate and House Appropriations Committees have been working to find a compromise on border security funding. Lawmakers say they have yet to reach a compromise.
On Tuesday, House Republican Whip Steve Scalise (R-LA), Reps. Jody Hice (R-GA) and Mike Johnson (R-LA) and Senator James Lankford (R-OK) announced the reintroduction of the Free Speech Fairness Act. The bill passed the House during the 115th Congress.
Currently, charitable 501(c)(3) organizations are prohibited from participating in, or intervening in any political campaign on behalf of or in opposition to any candidate for public office, including the publishing and distributing of statements—a restriction that is sometimes referred to as the “Johnson Amendment.” This bill would create an exception to this part of the Internal Revenue Code, allowing 501(c)(3) charitable organizations to “speak about government or electoral activity without the threat of retribution from the Internal Revenue Service.”
Yesterday, the Council along with 130 organizations signed a letter addressed to the Chairman of the House Ways and Means Committee Rep. Richard Neal (D-MA) and the Chairman of the Senate Finance Committee Sen. Chuck Grassley (R-IA) asking them to protect and maintain the Johnson Amendment.
Last month, Rep. Mike Conaway (R-TX) reintroduced the Nonprofits Support Act (H.R. 513). This bill would repeal the new unrelated business income tax (UBIT) provisions.
The Council has been consistent in supporting a repeal of the two new provisions related to UBIT that were included in the 2017 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.
A report showcasing the impact that the UBIT provisions will have on nonprofits was released by Independent Sector. The analysis was done by the Urban Institute, with the Council providing data from a member survey about the impact of the provisions to help to inform the findings of the report.
More bills related to the repeal of the UBIT provisions are expected to be introduced in Congress in the upcoming weeks. Majority Whip Rep. James Clyburn (D-SC) announced last week that he is planning on reintroducing the Stop the Tax Hike on Charities and Places of Worship Act that would repeal the UBIT provision related to fringe benefits.
States including West Virginia, Washington and California have announced big spending initiatives for 2019. From California’s free community college plan to lawmakers in West Virginia contemplating the idea of a 5% raise for state employees, states are looking to spend money in wide range of issues.
This spending spree has been possible for some states due last year’s tax revenue. S&P cautions states about spending challenges tied to an aging population. Medicaid, pension contributions and retiree health-care costs—which are growing faster than overall expenditures—could crowd out other spending priorities.
Exclusive from our colleagues at the National Council of Nonprofits.
In addition to income tax laws, legislative agendas across the country are loaded with bills altering state sales taxes to take advantage of the U.S. Supreme Court’s South Dakota v. Wayfair decision. Reversing decades of precedent, the decision makes clear that states have the power to impose taxes on entities beyond their borders, meaning that states that alter their tax laws can collect sales taxes for online purchases of goods and services from sellers without a physical presence in the state. About half of the states already have taken legislative or regulatory action to tap into the billions of dollars in new revenue that the new taxing authority makes available, and new bills are under active consideration this year in more than a dozen states so far.
The Wayfair decision could have significant implications for charitable nonprofits that buy or sell online. Nonprofits could also lose out in upcoming state tax reform legislation as states seek to adjust their laws to take full advantage of their newly recognized powers. States currently are not consistent in whether some or all nonprofits are exempt from sales taxes as purchasers and sellers. As a result, the immediate impact of the decision is confusion about when, where, and how nonprofits should be paying and/or charging sales taxes. Legislatures that open up their sales tax laws for reforms can – whether intentionally or inadvertently – impose taxes on previously exempt nonprofits, as happened in Kentucky. Learn more about state efforts to avail themselves of the Wayfair windfall in our new analysis.
The trend of lawmakers questioning or misinterpreting nonprofit tax exemptions for hospitals continues in 2019 as reflected in legislation introduced in several states. An Indiana bill would restrict the tax exemption for a nonprofit hospital’s outpatient facilities only to those that are located in the same county as an inpatient facility that is exempt from property taxes. In Nebraska, legislation would impose two new restrictions on nonprofit hospitals. First, they would be required to grant use of their facilities to any local licensed medical practitioners, not just their employees, in order to remain eligible for property-tax exemption. Next, the value of the exemption would be limited proportionally to the percentage of the services that are provided gratuitously. A New Mexico sales-tax reform bill would preserve the charitable nonprofit exemption from the state’s gross-receipts tax, but partially remove nonprofit hospitals from the exemption.
Finally, two bills in Rhode Island look to impose property taxes on large institutions in the state. One bill authorizes municipalities to tax nonprofit properties that currently are exempt by charter or law. The legislation proposes to tax all property that is vacant, used for parking, or not “wholly and exclusively utilized for the purposes set forth in their respective charter, or applicable provisions of general or public laws.” Any property owned, leased, or operated by a nonprofit hospital or nonprofit college or university within the city or town may be taxed at the value of a previous or new assessment by the municipality. Separately, a freshman legislator is seeking to impose a municipal payment, or fee, equal to 65 percent of property taxes on a nonprofit hospital that has converted from a for-profit hospital.