Nonprofit Quarterly: Nonprofits Oppose Plan Cutting Sales Tax Exemption

Nonprofits Oppose New CT Plan that Would Cut Sales Tax Exemption

By Lauren Karch | Nonprofit Quarterly | April 27, 2017

Connecticut lawmakers are debating a proposed bill that would raise the state’s sales tax from 6.35 percent to nearly 7 percent while eliminating the sales tax exemption on goods and services purchased by nonprofit organizations, a move that has received opposition from some lawmakers and the state’s largest nonprofit association.

Connecticut House Republicans and the CT Community Nonprofit Alliance have opposed the measure, saying that as state government scales back social programs to close budget deficits, citizens are increasingly reliant on nonprofit social services that the government may become unable to provide.

In a statement, the CT Community Nonprofit Alliance said, “Nonprofits are uniquely positioned to leverage private contributions and donated volunteer time for the public benefit. Tax exemptions are a small price to pay for the value that nonprofits add to the life of every resident in Connecticut.”

The alliance’s director, Gian-Carl Casa, noted in a hearing last week that the proposed elimination of the exception would cost Connecticut’s nonprofit sector over $200 million per year. Indeed, a bipartisan fiscal analysis of the bill shows that $216.2 million in nonprofit monies would be impacted, with a gain in tax revenue of $203.3 million.

Not all states exempt sales taxes for nonprofits (and, of course, five states have no sales tax). Some states, such as Illinois, require nonprofits to apply for and be granted tax-exempt status; others allow nonprofits to simply fill out a certificate declaring themselves tax-exempt. Others apply tax-exempt status to only certain types or sizes of nonprofits—Oklahoma being one example noteworthy for its complicated exemption system. In Connecticut, most nonprofits, with the exception of fraternal, alumni, trade and similar organizations, are exempt from sales and use tax…for now.

The Connecticut sales tax exemption debate creates an unusual binary as lawmakers question whether the state should give preference to funding governmental services over charitable organizations. The Connecticut Conference of Municipalities, the state’s largest organization of city leaders, came out in support of the plan yesterday, saying that the increase in sales tax could provide an estimated $440 million to towns and cities—provided the state itself doesn’t keep a cut of the increase.

Another option has been promoted by a progressive advocacy group: Connecticut Voices for Children has suggested simply expanding the tax base to include services as well as goods, which would more than double the sales tax base in the state.

Read entire article here