Strapped for Cash, Some Cities Consider Taxing Nonprofits

Even as the federal government continues to run a budget surplus, some municipalities have been revisiting the notion of taxing large nonprofit organizations to stave off looming budget deficits, the Associated Press reports.

In Baltimore, Mayor Martin O'Malley recently considered imposing an 8 percent energy tax on large nonprofit groups in the city such as Johns Hopkins University in order to raise $3 million toward reducing a $21 million deficit. But the university brokered a deal with the city at the last-minute in which it convinced 21 other local nonprofits to pay the city $20 million over four years to keep the tax from being signed into law.

It's legal for local and state governments to tax nonprofits as long as their actions don't interfere with federal tax regulations, and the number of municipalities considering such an arrangement probably numbers in the hundreds, if not the thousands, said Doug Peterson, a senior policy analyst at the Washington, D.C.-based National League of Cities. But, he added, "there are political costs and risks for the elected officials involved in making those decisions. When things aren't moving along as smoothly, that's when people look around to see what their options are."

O'Malley would seem to agree. "[Nonprofits] all make the argument that their mission is too important to be taxed." But, he added, "I really think the amount of money we're asking [for] is a fairly small amount in the scheme of things, when you consider the amount of land covered and the services provided."

That's an argument that concerns Audrey Alvarado, president of the National Council of Nonprofit Associations, who told the AP that it was difficult for most nonprofits to absorb more financial obligations. "You're really starting to tear into the muscle of our organizations. When you add additional charges that they haven't had before, they have to make decisions on where they're going to put their money."

Sheila Hotchkin. "Cities Consider Taxing Nonprofits" Associated Press 06/12/2001.