Last week I wrote that the free lunch for churches ought to be ended. And, I still think that’s the case. However, after a conversation with a friend last week about this, I think the lens should be broadened to include non-profits generally. Would it surprise you to know that there are 107,620 non-profit organizations registered in California? It was a surprise for me. The total annual revenue for those non-profits $122,064,153,463 through October, 2008 according to the The Urban Institute, National Center for Charitable Statistics. The total registered assets for these charities is $219,137,897,358 in the same time period.
Now, delving a little deeper into the data, it turns out that 91,153, or 85% of these charities take in less than $250,000 per year accounting for just 1.5% of total annual revenue. That’s eye-opening and says to me, that these non-profits should get the tax break and the other 15% who bring in the $120B annually should be paying the 10.3% state income tax as they are not really non-profits, they’re large scale enterprises working the non-profit angle as a tax shelter. There’s $12B per year that helps close the gap.
So, what do you say Arnie? Let’s close the loophole on this and get the budget back in shape.
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Thanks for the link in your comment to my NFP post, Mike. Like I said there, it mostly depends on how you’re defining NFP and the return of value.
An NFP is set up to take money and route that for some cause. If the money is not returned to the person giving money, then it’s considered a donation and not an investment. Many NFPs pay extensive taxes in the form of employee payroll, endowment taxes (based on how it’s invested), etc. That doesn’t take away the fact that they don’t return value to the donator/investor.
I could build a NFP that would take money from interested rich people and use it to fund lower-income small business ideas. I could even charge interest on the loans and use that to grow. If it got to be so big, that I got a billion dollars, I’m still not return value to the donors. Does that mean I should be taxed on donations, or that the donors shouldn’t be allowed to have a tax break?
I think it would be fine to propose changes to NFP laws, but understanding the consequences would be important.