Charities’ Tax Exemptions Called Into Question

A Minnesota Supreme Court ruling in December, coupled with increased scrutiny by Congress and local tax assessors across the country, are calling into question the tax exemptions that many nonprofit organizations receive, reports The New York Times.

The Minnesota court determined that a small day-care center in Red Wing, Minn., must pay property taxes because it gave nothing away — charging parents the same fee per child regardless of whether they paid for the service or the government covered the cost — and charging fees that were the same as its competitors.

Regulators say that determining which nonprofit organizations deserve tax exemptions has become increasingly difficult as more groups offer the same service as their for-profit counterparts. The vast majority of nonprofit groups’ income, 88 percent in 2005, came from fees for services, sales, and sources other than charitable contributions, according to the National Center for Charitable Contributions.

Additionally, regulators are looking hard at universities, hospitals, and even some evangelical organizations to see whether they deserve tax exemptions. In Massachusetts, for example, state legislators are considering imposing a 2.5 percent annual assessment on colleges with endowments of $1-billion or more. Harvard, in Cambridge, has an endowment of $35-billion in assets.

Congress is also considering whether to make wealthy universities pay out a minimum amount of their endowments annually, as well as scrutinizing nonprofit hospitals.

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