Report: Fed Tax Reform Will ‘Squeeze’ NYC Not-For-Profits
The non-profit sector employs approximately 1.3 million workers in New York State, the largest workforce than any other state. More than half of those jobs are located in New York City, according to the City Comptroller.
NEW YORK CITY—While much of the criticism of the federal tax reform bill has been focused on real estate tax-related costs to individuals and corporations in New York and other high costs states, a new report by New York City Comptroller Scott M. Stringer says the non-profit sector will also get hit hard by the new law.
The report released on Wednesday specifically points to the expected reductions in charitable contributions, higher taxes on unrelated business income and an excise tax on university endowments included in the Tax Cuts and Jobs Act enacted into law last December as damaging to non-profit concerns.
“Just when for-profit businesses have received one of the largest tax cuts in history, not-for-profits are being squeezed for money,” says Stringer. “It’s wrong—and the numbers we found represent more than just revenue digits. These are real programs that employ and support thousands of New Yorkers that are hurting due to Washington’s misguided actions. We have to fight back to support New York City’s crucial non-profit sector.”
The non-profit sector employs approximately 1.3 million workers in New York State, the largest workforce than any other state. More than half of those jobs are located in New York City, according to the City Comptroller.
The report points to a number of damaging provisions of the TCJA including the doubling of the standard deduction, which will cause fewer tax filers to itemize deductions and therefore diminish the tax savings incentives of making charitable contributions for those filers. The doubling of the exemption threshold for real estate taxes from $5.6 million to $11.2 million will also likely reduce the tax incentive for charitable contributions from estates, which totaled $18 billion in the U.S. in 2016.
The $10,000 limitation on SALT deductibility in the TCJA will impose increased federal tax liabilities on high-income filers, and thereby reduce their after-tax income, which could potentially result in lower contributions to non-profits, the report states.
Other detrimental provisions of the federal tax reform law affect non-profits that engage in businesses or activities outside their stated core purpose, but provide necessary sources of income for their operations. The TCJA disallows losses from one activity to offset gains from other activities. The result is that taxable income and taxes are likely to increase, and more non-profits will be required to file burdensome tax forms, the Comptroller’s office notes.
Finally, the TCJA includes an annual 1.4% excise tax on private university endowments (with at least 500 students) valued at $500,000 or more per full-time student. At least three institutions in New York City could see their ability to provide financial aid, services and programs reduced by this tax, the report notes.
Comptroller Stringer issued several recommendations to the state tax code that could mitigate some of the onerous impacts of the federal tax reform law to non-profits in New York City and throughout New York State:
• Allow all filers to claim deductions for charitable contributions even if they don’t itemize;
• Expand the charitable deduction allowance for high-income filers from its current level of 50%;
• Decouple state tax law from the TCJA unrelated business income provision; and
• Allow universities to deduct the endowment excise tax from any NYS unrelated business income.