Nonprofits have options to avoid costs associated with state taxes

January 16, 2014

Nonprofits have options to avoid costs associated with state taxes

Nonprofits in North Carolina are growing concerned about a sales tax expansion that could eat into the revenue of ticket sales for museums, sports games and cultural events. Many of the organizations rely on the income from ticket sales for financial support, so a 7 percent bite could be costly.

"If you were giving $100 worth of tickets for a $100 contribution, then you've got to pay the tax on that or whatever amount that may be," Thalian Hall Center for the Performing Arts Executive Director Tony Rivenbark told North Carolina's NPR affiliate. "You know, we have people that give a $5,000 gift or a $10,000 annual gift, then they may get several hundred dollars worth of tickets for that.  But we're going to have to pay 7 percent on that several hundred dollars worth of tickets."

Rivenbark said that he was also concerned about the indirect costs of the tax increase, such as additional bookkeeping.

Nonprofits often struggle with state taxes
Nonprofits may also find themselves taking a hit from state unemployment tax pools. While nonprofits are exempt from federal taxes related to unemployment, they are still responsible for meeting the state obligation. States make the actual payments to unemployed individuals but not all businesses are able to cover their own costs. The pooled contributions mean that even nonprofits with no unemployment turnover still pay into the state system.

While for-profit businesses have no other options than to pay the tax, nonprofits can opt out of state UI pools and become self-reimbursing employers. Under this designation, nonprofits are responsible only for the actual amount of money paid out in claims to former employees. A nonprofit with no claims would have no costs.

However, opting out of the state program can leave nonprofits open to unexpected costs if they suddenly experience a large turnover. To avoid this situation, organizations should take advantage of other options such as a UI savings programs. Saving programs through an experienced provider allow nonprofits the cost savings of opting out with less risk. Once members of the program, organizations have access to claim protection if unemployment spikes.

For information on how your organization can cost-effectively meet its unemployment insurance needs, contact First Nonprofit Companies at FNCUI@firstnonprofit.com or visit www.firstnonprofitcompanies.com.

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New York Council of Nonprofits, Albany, NY

We were introduced to First Nonprofit through another housing authority. In our analysis and comparison to what we were paying the State, our first year savings was $5,800 plus. We have been with them since the end of 2008 and I am glad we have been. I consider them an arm of our HR department.

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