New law to force taxes on non-profits, exempt state groups

Last updated: November 22. 2013 3:34PM - 1646 Views
By - kstrange@civitasmedia.com



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Language embedded in the much-touted Tax Simplification and Reduction Act, passed this year by the General Assembly, has some non-profit operators in what can only be described as a panic.


The new law, which will take effect on Jan. 1, barring any intervention by Gov. Pat McCrory, will require non-profit entities to begin charging both state and local sales taxes.


It is a requirement that both Tanya Jones, executive director of the Surry Arts Council, and Matt Edwards, director of the Mount Airy Museum of Regional History, say will have a devastating impact on their operations.


The law will tax non-profits that offer:


• A live performance or other live event of any kind.


• A motion picture or film.


• A museum, a cultural site, a garden, an exhibit, a show or similar attraction or a guided tour at any of these attractions.


The new law will mandate county non-profits charge a 4.75 percent state tax and a 2.25 percent local tax, resulting in an effective seven-percent tax rate. It will allow a twice-a-year exemption for non-profits holding festivals or other fund raisers, but taxes will be required for other events, and will be required for all memberships and admission to events.


Jones said the Arts Council is operating on a bare-bones budget as it is, and the new law will hurt in more ways than one.


“If this is left in place, in the future it will cost us about $35,000 each year in taxes,” she said. “The Surry Arts Council will have to increase prices to compensate both for the tax and the labor involved in the collection of the tax. It will be a daily issue for us. The three things it will affect is movies, museums and events with live entertainment. We have all three.”


Edwards agreed.


“There will be a huge amount of administrative overhead,” he said. “We’re going to have to start charging sales tax and taxes on a large portion of our fund raising events. Aside from the logistical problems with administering the new tax, it’s going to be a communications nightmare with our membership trying to explain this. We’re either going to have to raise prices across the board and tell people it’s tax included or charge a tax on sales.”


Jones said the new law is causing headaches for many of the non-profits across the state.


“It’s going to affect every entity that charges admission for live entertainment,” she said. “Just about everything we do will be taxed.”


But the law stipulates that state-run organizations will be exempt, a loophole that has raised the ire of Jones and Edwards.


“The frustration is they’ve exempted state entities,” Jones said. “In some cases a non-profit can be up the street from a state entity doing the same thing. They’re not taxed and we are. That’s a huge frustration.”


She suggested the idea that the legislature is spreading the tax burden more evenly through the law is laughable.


“They’re taxing groups who are stretching their dollars to try to improve the quality of life in a community, but they’re saying they’re reducing taxes,” she said, visibly frustrated. “They’re not reducing taxes, they’re transferring the burden to non-profits who are already operating on a razor-thin margin.


“When you’re operating on that kind of margin, you can’t afford to impose this kind of logistical burden on existing staff.”


Edwards said he is also frustrated because there was little notice before the bill became law.


“It was buried in pages and pages of state code, and it was kept quiet,” he said. “They’re supporting (state) organizations and making sure they don’t have to worry about this, and leaving the rest of us hanging in the wind.”


While some of the impacts of the law are yet to be felt, Edwards and Jones say they think it will affect many organizations who may be unaware of the new regulations.


“It’s going to be a huge local issue that some people don’t realize yet,” Jones said, noting that while the law allows exemptions for school-sponsored events, it will affect groups like a school’s PTA who may want to raise money.


“There are going to be people out there who are trying to do something nice for their community, and they don’t have a clue,” Edwards said. “This will absolutely reduce our membership.”


Officials with ARTS North Carolina are urging McCrory to intervene, suggesting he put off implementation of the law until October to allow more scrutiny.


Karen Wells, the executive director of the state arts organization, said she feels confident that legislators in Raleigh will do the right thing.


“We have all confidence that the legislative and executive branches can work together to find a legally viable decision to delay implementation until the legislature convenes in May and new legislation is introduced,” she said.


Stevens, Randleman Respond

Rep. Sarah Stevens, R-90, said she voted for the tax reform bill.

“I voted for it because you don’t get to pick and choose the part you vote for,” she said.

Stevens said she didn’t realize the new regulations would raise the ire of area non-profits.

“I would like to see what they’re looking for,” she said. “They’ve received an exemption that a lot of other businesses and organizations don’t. We’re simply trying to equalize it out among everyone, and are looking for loopholes in the tax code to close so everyone is paying their fair share of taxes.

“No non-profit, or citizen for that matter, wants to pay taxes.”

She said she is certainly willing to listen to the concerns of the non-profit sector.

“I’d be happy to hear how they’re saying it’s hurting them and see if we can do something, but then again that goes back to complicating the tax code.

“This is a sales tax like everyone else has to pay.”

Sen. Shirley Randleman, R-30, also voted for the measure, saying in the end it will put more money into the pockets of North Carolina families.

“In the first three years alone, this plan will put $1 billion back into the pockets of North Carolina families,” she said. “That in itself will encourage job growth.”

She said she didn’t have a definitive answer to why state agencies were exempted from the taxes.

“I cannot tell you why the drafters of this legislation chose not to tax those stae agencies,” she said.

Reach Keith Strange at kstrange@civitasmedia.com or 719-1929.


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