Public Policy Update: Philanthropy Scores Victories on Private Foundation Excise Tax, UBIT
The end of the year will see the philanthropic sector achieve two major policy victories in Washington: a repeal of a burdensome tax on nonprofit organizations and the long-sought simplification of the private foundation excise tax.
On Tuesday, the House of Representatives passed a tax and spending package that addresses two issues SECF and other philanthropy-supporting organizations have worked on for years.
The bill, expected to pass the Senate later this week and be signed by the president, would repeal changes to the unrelated business income tax (UBIT) that were a consequence of the 2017 tax bill. The changes to UBIT required the taxation of transportation benefits, such as parking and transit, provided by nonprofit organizations to their employees.
A study commissioned by our allies at Independent Sector and conducted by the Urban Institute and George Washington University had concluded that, on average, the tax diverted $12,000 a year away from each nonprofit's community work.
Many nonprofits have already paid this tax -- fortunately, the legislation passed by the House makes the repeal retroactive. Affected organizations will be able to obtain a refund for any taxes already paid.
The bill would also simplify the private foundation excise tax at a rate of 1.39 percent. SECF has called for simplification of this tax since 2013. Current law allows the rate to be set at either 1 percent or 2 percent for any foundation -- this two-tiered system could effectively penalize a foundation for greatly increasing its giving to address an urgent community need. The complicated structure also put an administrative burden on foundations, many of which have small staffs.
The new, 1.39 percent rate is revenue-neutral and is supported by SECF and its allies -- a November 6 letter signed by SECF and other philanthropy-supporting organizations is available online here.
"The passage of this legislation is proof that, when we remain focused and persistent, philanthropy can effectively advocate for policies that support charitable giving and the work of the nonprofits foundations support," said SECF President & CEO Janine Lee. "Thank you to our Public Policy Committee and to all the SECF members who, at Foundations on the Hill and in-district meetings, and through phone calls and e-mails, never stopped working to protect and defend our sector."