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December 9, 2021


Why tax-exempt organizations need to deal with tax issues carefully

It seems like being tax-exempt would mean that an organization doesn’t need to worry about taxes at all. They are, after all, exempt from taxes.

However, nonprofits and tax-exempt organizations still need to address tax-related issues all the time. In fact, even though tax-exempt organizations are free from the burden of most tax obligations, there are still areas of taxes that are required. Careful tax planning and compliance are just as important for nonprofits as they are for any type of business.

3 common tax issues nonprofits need to address

In a Forbes interview earlier this year, David Thompson of the National Council of Nonprofits discussed some important tax issues facing nonprofits and the impact of tax policies on tax-exempt organizations.

A couple of important issues related to nonprofit tax matters emerged from that interview:

  1. Property ownership tax issues: Although nonprofits are exempt from property tax on the federal level, it is not uncommon for local city council members to ignore that rule and try to impose property tax burdens on property owned by nonprofits. In many cases, city council members simply don’t know the law – they’re not trying to swindle nonprofits – but the result is the same. Nonprofits need to address the taxes imposed upon them.
  2. State adjustments to various tax categories: Federal tax exemptions are not shielded from some of the adjustments and modifications made regularly at the state level. As David Thompson said in the interview, “States are regularly looking at expanding or increasing the exemption for income tax, property tax, sales, and use taxes, as well as dealing with the unemployment taxes that nonprofits pay.”
  3. Federal policy changes: At the federal level, lawmakers are regularly altering policies, not only tax policies but other policies that have tax implications, as well. Nonprofits need to know how the laws and policies are changing, and how those changes will impact their tax liabilities.

At all levels of government, and in every branch, the regulations and procedures of tax law are constantly fluctuating. It is just as critical for any nonprofit as it is for any major corporation to be up to date with this changing legal landscape.

State and Local Taxes