Should nonprofits pay taxes?

taxing nonprofits

The town government in Concord, Mass., felt that local taxes were so high, they were driving residents away. So the town’s board sent a letter to the local nonprofits (private schools, hospitals, charities and churches) asking them if they could start paying their fair share, according to a report by Pam Fessler on NPR’s All Things Considered.

Much to my shock,  one arts group offered $1,000. The rest of the groups politely declined.

According to the NPR story, state and local governments, eager to close their budget gaps, are increasingly going after charities and other tax-exempt groups.

Besides the Concord example, it points to Boston, which wants its universities, hospitals and nonprofits to pay 25 percent of what they would owe if they weren’t tax-exempt. However, from what I understand from an article in the Boston Globe, that request wasn’t made to put the squeeze on nonprofits.

Here’s the situation, according to the Boston Globe : Nonprofits in Boston already pay cash and provide services in lieu of property taxes. Some pay millions; others pay significantly less. Because each agreement is negotiated individually, payments vary widely and the ill-defined system has long been the target of criticism. A mayoral task force was set up to examine the system. It is suggesting a new formula under which nonprofits would eventually increase contributions to 25 percent of what they would owe in taxes if they were not exempt.

I think the context of how this change came about is important. It’s not a desperate attempt of a government to balance its budget on the backs of nonprofits, but an attempt to make the system that is already in place more equitable for everyone, including the nonprofits who may have been paying more than their fair share.

At the same time, it should be noted that the change  would more than triple the current amounts paid by some of the city’s biggest nonprofit landowners. It’s easy to see why they would be concerned.

Philadelphia is looking at a similar situation, trying to make its system of payments in lieu of taxes more equitable, according to a blog post on, a site that  is a partnership between the Daily News and WHYY.

While Kansas and Hawaii proposed repealing the tax-exempt status of nonprofits in budget negotiations, I couldn’t find any news reports that the proposals passed.

Minneapolis has imposed a “streetlight fee” on nonprofits to help pay for electricity and bulbs, and that tactic of imposing fees is perhaps a more real threat to nonprofits than the prospect of having to pay property taxes. As Rick Cohen points out in a blog post on, it’s easier to impose fees than to repeal property tax exemptions.

“Taking off from charging nonprofits for streetlights, other localities are starting to charge nonprofits for police and fire services and even fire hydrants,” Cohen said.

Is your nonprofit feeling an extra pinch of new government fees? What do you think of these tactics?

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  1. 1

    In our town, we have a payment in lieu of taxes agreement with a large nonprofit organization which equates to 25% of their property tax. Our town is extremely small and when the business changed from a profit business to non-profit, the town lost approximately half of its property tax revenue. The organization has been very gracious in extending the offer and it has made the pinch much easier to take. If they did not extend this offer, our small town would absolutely be forced to give the difference to the residents.
    I think it really depends on the situation. In ours, the deal is a very congenial decision that was nearly necessary to the survival of the town. However, when cities are spending out of control and take from places that need the money to provide essential services, it becomes nearly like a new tax on the people since they lose those services.

    Comment by Jos Myers — May 26, 2010 @ 4:07 PM

  2. 2

    Thanks for that interesting information. It’s great that everyone kept the community’s best interests in mind when they reached that agreement. Sounds like a great place to live!

    The circumstances can be quite different from place to place. Albany, NY, is our state capital and the biggest “industry” there is government. It also has a big state university campus. Put that all together, and its situation resembles yours, where a half the real estate is tax exempt. That puts the city government in a real bind when it comes to supplying police and other services.

    If people can keep the big picture in mind, as your town did, I think people can come up with a fair way to share costs. Of course, that’s not easy to do, and that’s why it’s so rare.

    Thanks for telling us about a town that took the high road!


    Comment by Connie — May 26, 2010 @ 4:29 PM

  3. 3

    Smaller non-profits and those that get public funding will pay those fees by cutting staff (already cut to the bone in many cases) or by not giving raises to front line staff – who already make less than people in private industry and often pay more of their health insurance premiums, too. I lost $240/month in pay over the last two years, due to no pay raise and increased health ins. costs. Why not just tax me out of a job so that I can’t pay MY property tax. There has to be a better way.

    Comment by Anne S — May 27, 2010 @ 10:30 AM

  4. 4

    Good point! For many nonprofit organizations, salaries for front-line staff, though small, often are a large proportion of the agency’s budget. Many small nonprofits already don’t have enough staff to do the administrative tasks they must do to stay healthy, such as raise funds. They’re in a starvation cycle. Thank you for your insight.

    Comment by Connie — May 27, 2010 @ 10:44 AM

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    This has been an active discussion in several spots. To see what others have to say, also go to these groups on LinkedIn:

    Non Profit Network – MojaLink

    Non-Profit Marketing

    Magnifying Public Relations Ideas for Non-Profits & Associations

    Comment by Connie — June 4, 2010 @ 9:23 AM

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