Saturday, June 11, 2011

When is a fee really a property tax? And, is that OK?

As most readers know, governments everywhere are revenue short, and are trying to come up with new ways to balance their budgets without having to make politically damaging cuts. Every municipality, county, and state has a different (and sometimes dizzying) array of taxes that make up their revenue stream. As a regular traveler, I've seen one hidden one for years; the 12%, 14% sometimes 18% tax on hotels that is added in many cities, taxing the people (visitors) who don't vote. Sweet move for the local pols.

What very few governments have done up until the current recession is force nonprofits to ante up and pay property taxes. Historically, nonprofits have been tax-exempt from all taxes; sales, property, income, etc., but now cities from Boston to Burbank are making efforts to extract "fees" that are really substitute taxes. And, of course the outcry is on.

I have very mixed feelings about this. Of course nonprofits are also in financial straits, and adding another levy to their financial burden could not come at a worse time. But many cities have significant parts of their land exempt from tax: Boston is a great example, with all the colleges, church property and government land being tax-exempt (I've heard estimates of up to 40%) the city still has to provide fire, police, trash collection and public eduction despite to every square foot of the city.

Additionally, this seems like a bad place for nonprofits to put up a fight....we in the sector talk about how important we are to the community, how much we care about the community, how the community would suffer without us, but we collectively whine about paying what every homeowner and business in our community must: our fair share of the tax load.

The trend toward billing nonprofits for their part of the tax burden is not going to go away, it will only accelerate as city managers watch peers tap this new resource. Long term, funders (yes, the governments, as well as foundations and large donors) need to recognize that such participation in the community is a good thing and include property taxes as part of each nonprofit's funded budget, without dunning nonprofits for yet another dreaded "admin" cost.

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