Fascinating article in Sunday's Times, reporting a Minnesota State Supreme Court decision with possibly far-reaching consequences:
Authorities from the local tax assessor to members of Congress are increasingly challenging the tax-exempt status of nonprofit institutions — ranging from small group homes to wealthy universities — questioning whether they deserve special treatment.
One issue is the growing confusion over what constitutes a charity at a time when nonprofit groups look more like businesses, charging fees and selling products and services to raise money, and state and local governments are under financial pressure because of lower tax revenues....
In a ruling last December that sent tremors through the not-for-profit world, the Minnesota Supreme Court said a small nonprofit day care agency here had to pay property taxes because, in essence, it gave nothing away.
In other words: Uh-oh.
After all, as the article states: "The idea behind tax exemptions is that the organizations provide a public service or substantially reduce the burdens of government." (Notice how uniquely American an approach to public interest this is.) And it is the "tax-exempt" clause in the nonprofit social compact that is at issue here. Since, obviously, lots of state and local governments would like to now have some of that potential tax revenue. (One of the many revelations to me in the article was that it's each state that decides nonprofit status, not the federal IRS.)
The trap some nonprofits are falling into, of course, is that you'd hardly know a lot of these places are operating as a public service as opposed to a good old regular "business." As one quoted expert from the nonprof field pleads:
“The nonprofit sector is being pressed to be more business-like and to find new ways to fill the gaps between what government will pay and what services cost, but then assessors want to treat us like businesses, which pay taxes.”Sound familiar?
It certainly does to anyone who's seen Mike Daisey's searing indictment of A-level nonprofit theatre world.
And it certainly would to a bunch of commercial producers currently griping how the Tonys will be "stolen" from them by supposedly not-for-profit behemoths who get to play in the same Broadway game but unhandicapped by taxes and helped out by lower advertising rates. (Hence Shubert chairman Gerald Schoenfeld's famous adage that the Roundabout and Lincoln Center should simply be called not nonprofit institutions, but simply "untaxed.")
Look, I'm not saying this is good news. Given the lust for tax dollars at the local level (thanks, of course, to the deceptive federal Bush tax "cuts") a lot of truly worthy and, yes, charitable institutions are going to be threatened. But--maybe this is a good moment to look to our nonprofit theatres and ask them: "So what are you 'giving' back to our community? Not just 'offering' (at $60-$75 a ticket). But truly giving. What public service do you provide than cannot be found on Broadway?"
For most theatres, the easy answer is: Education! Hence the busloads of middle-schoolers herded in for yet another 10am "student matinee" of The Glass Menagerie or The Crucible. Fair enough. (Although those schools usually do indeed pay for tickets.) But it's also why an often dumbed-down "Education Department" at the theatre far eclipses any genuine dramaturgy or new play development.
But given the philosophy of the founding of the tax exemption for Not For Profit Institutions...you'd think we're entitled to a number of free shows! All the time!
Of course, the economics of our times--and the pitiful lack of subsidy to supplement the tax-exemption--make this impossible. Hence, these institutions have to pump up their revenue enhancement, which usually means to maximize income from pure sales. Hence, this leads to increased revenues, which is great if you're a business. But bad, it turns out, if you're supposed to be a "charity."
Almost 88 percent of overall nonprofit revenues in 2005, the most recent year for which figures are available, came from fees for services, sales and sources other than charitable contributions, according to the National Center for Charitable Statistics.Wait a minute, indeed.
“We’re all seeing the growth of revenue in this area we call earned income,” said Audrey R. Alvarado, executive director of the National Council of Nonprofit Associations, adding that the Minnesota court decision “is saying, ‘Wait a minute, charities are supposed to give things away for free.’ ”
Again, the article doesn't touch upon the arts at all. And maybe there are other clauses and loopholes that redefine "charitable" for their purposes.
But just look at the institution involved in the lawsuit itself (fittingly named "Under the Rainbow") and tell me if you don't see similarities:
The agency, the Under the Rainbow Child Care Center, charges the same price per child regardless of whether their parents are able to pay the full amount themselves or they receive government support to cover the cost.And therefore:
The court concluded that because the center charged all families the same amount, regardless of their ability to pay, and because its rates were not lower than those of its competitors, it was not an institution of “purely public charity” under the law and thus was subject to thousands of dollars in property taxes — $16,000 in 2006 and in 2007.Or, to put it another way:
The Oregon tax court denied property tax exemption to a residential substance-abuse treatment center because it catered to “addicted professionals” and, like Under the Rainbow, did not give away its services.And so let us ask, are our theatres only for the "addicted professionals" in the audience, those who can afford to pay market-prices for tickets? What will they do to satisfy the fix of those drama junkies unable to afford their services.