The Next Blog du Jour submitted by Salli Martyniak

I've been swamped but that doesn't mean I haven't give thought to writing this blog — but thinking and doing are definitely two different things. While thinking (rather than just doing), I also seriously pondered about the next "blog du jour" — and there were many.

I could easily write about why anyone thought it was a "good investment strategy" to invest precious nonprofit savings in the stock market and risk losing lots of money (these are often the same people who wonder if the $100,000 — now $250,000 — CD was insured). Or I could write about why I don't think it's necessarily a good idea for nonprofits to act more like for-profits, or there's always the issue of the real number of nonprofits in Dane County: 2,000, 4,000 or millions! Instead, I will save those topics for another blog and write about nonprofit property tax exemption — an issue that's been brewing for almost five years.

Today, the State Legislature is taking up the issue of nonprofit property tax exemption and wrestling over whether or not to make tax exemption permanent for some or all properties owned and managed by nonprofits. (For legal history about the 2003 ruling that ruled "against" nonprofit property tax exemption, click here to download a memo prepared by Tim Radelet, partner, Foley & Lardner.)

In a nutshell, what is known as the Columbus Park ruling interprets rent use restrictions (typically associated with low-income housing) in a way that subjects nonprofit property owners to paying real estate taxes on property that had traditionally been tax-exempt. In the last several years, that interpretation has expanded to include any property owned by a nonprofit if that property has a lease and tenant/s associate with it.

At first blush, this may sound like a good idea to you. Your immediate thought may be that for-profits pay taxes, so why shouldn't nonprofits. Well, it's not that easy. Let's begin with taxes: Nonprofits do pay taxes. They pay payroll taxes just like any other employer, and they should. They also pay taxes indirectly, if they lease any kind of space and, directly, when paying federal levies such as telephone and gasoline excise taxes.

On the other hand, there are some taxes that nonprofits do not pay — including sales tax and Federal income tax. The argument for this is that nonprofits exist solely to provide programs and services that are of "public" — not personal or private — benefit. Thus, the difference between nonprofit and for-profit, since a for-profit owner of a company is in business for personal gain. You will get no argument from me on that point.

So, why should nonprofits be exempt from paying real estate taxes? That's a more complicated question because it raises the question whether all nonprofits should be equally exempt from paying property taxes.

When I think "nonprofit," I think about the YWCA or Goodman Community Center or Centro Hispano. Each is dedicated to serving and giving a voice to economically-challenged and socially vulnerable populations. But what I don't think about is the National Football League! (I am sorry if this offends avid football fans.) In 2007, its revenues almost topped $170 million; yet they are a nonprofit with the same designation as the aforementioned nonprofits. And, there are many others like them. Something is definitely amiss!

So you can understand why the question of property tax exemption is not an easy one to ponder. But think about this:

  • Many mission-driven nonprofit organizations offer services not provided by any other organization. They feed the poor and shelter the homeless and take care of the sick when no one else will. They are the safety net of humanity.
  • Nonprofits innovate, advocate and bring about much-needed social change. Where would we be today were it not for the nonprofits that advocated for civil rights and women's rights?
  • Taxing nonprofits could be brutal and wreak havoc with budgets and drive some organizations out of business — many of those being nonprofits that provide care and services to the most vulnerable people in our society. And that is definitely not in anyone's best interest.

In 2001, the Council on Foundations summed up these and other reasons why tax exemption is good for nonprofits, though, I might add, not necessarily all. "Generous exemptions recognize the important principle that organizations that act voluntarily to further the public good should be freed from the obligation to support government through payment of taxes. Exemption maximizes the ability of charities to help others."

So, if you agree that nonprofits deserve a property exemption because of the work they do and the value they bring to society, spread the word! If not, think about the National Football League and cheer for your team come fall.