The General Assembly is in the final stages of its efforts to restructure North Carolina's tax system. The House and Senate are considering different version of legislation (H.B. 998) to lower tax rates and simplify the state tax system. It is essential that tax reform not harm nonprofits. Specifically:
- All 501(c)(3) nonprofits should be fully exempt from sales tax, consistent with the practice in most other states. Removing or capping nonprofit sales tax refunds takes money away from the essential services nonprofits provide for communities and creates job loss in the nonprofit sector. Also, the process that the state currently uses is burdensome: 501(c)(3) nonprofits pay sales tax on purchases and then have to apply for semi-annual refunds. This pay-and-get-refund process creates a burdensome administrative cost for nonprofits and wastes state funds, too.
- Charitable giving incentives for individuals – including the the state charitable deduction and the tax credit for charitable giving by those who do not itemize deductions on their federal income taxes – should be retained or replaced with equivalent tax incentives. It is imperative that tax reform make no changes to charitable giving incentives that threaten the ability of nonprofits to serve those most in need and to continue to strengthen our communities. More than half of all North Carolina nonprofits have experienced a decrease in individual giving each of the last three years. Reductions to tax incentives for charitable giving would cause this disturbing trend to continue.
- The state tax code should retain or expand incentives for businesses to contribute to nonprofits. Currently, the state corporate tax deduction for charitable contributions has a lower cap (5% of net income) than the federal deduction (10% of net income). The corporate charitable deduction helps small businesses give back to their communities. Unlike larger companies, small businesses typically don’t have separate philanthropic foundations. By eliminating this deduction, large multistate companies get preferential treatment to small businesses.
- Any expansion of sales tax to services should be done in a manner that does not harm nonprofits. Creating new taxes on child care, health care, the arts, or education, entertainment, and recreation activities offered by nonprofits may mean that nonprofits are forced to raise their prices, serve fewer people, and/or lose program service revenue. This would fundamentally change the business model for some nonprofits and could put some nonprofits out of business.
- Tax reform should be done in a manner that will not reduce overall state revenue, since such reductions are typically passed on to nonprofits.
See how the House and Senate plans compare on issues that matter to nonprofits.
The N.C. Center for Nonprofits is particulalry concerned that the Senate plan would cap nonprofit sales tax refunds, eliminate incentives for charitable giving, and reduce state revenue below the level needed to fund essential services that nonprofits provide on behalf of taxpayers.
Nonprofit tax exemption protects taxpayers, creates efficiencies, and improves North Carolina's economy. Learn more about why all 501(c)(3) nonprofits should be fully tax exempt.