COMMUNITY..NONPROFIT NEWS BUSINESSES CHALLENGE RIGHTS OF NONPROFITS The philanthropic sector purchased goods and services from the business sector totallying $42 .6 in 1980, while donations to nonprofit organizations and business purchases of nonprofits services totalled $6 billion Without as much subsidy, nonprofits have had to either cut staff and services or raise the charges and fees for their services. The organizations have had to also take business principles of marketing and promotion more seriously. New services have been created, or old free ones have added a price tag. Sometimes more creative and complex solutions have resulted, such as creating profitmaking subsidiaries The philanthropic sector-organizations whose income is exempt under the federal income tax laws and to which contributions are deductible-spent $129.2 billion in 1980. In the same year sales of services by the philanthropic sector, $61.5 billion, covered less than half of the $129.2 billion of its costs. The shortfall was financed primarily by private and government donations and from investment earnings; very little of the cost of such services was financed by borrowing. The philanthropic sector had a favorable "balance of trade" with the business world. The sector purchased goods and servics from business totalling $42.6 billion in 1980, while business purchases of nonprofit services and its donations to nonprofits totalled but $6 billion. There are claims being made among some small business advocates that the excemption from federal income taxation gives nonprofit organizations an unfair competitive advantage in the marketplace. In November 1983, the U.S. Small Business Administration (SBA) published a report entitled, Unfair Competition by Nonprofit Organizations with Small Business: An Issue for the 1980 's .. It was also a major theme of the White House Conference on Small Business held in August 1986. The Business Coalition for Fair Competition has described its organizing principles in a booklet, entitled Unfair Competition in the States: How to Page 28 RAIN Fall/Winter 1986 Combat Competition From Nonprofit Business Ventures. Most ot the document is an organizing tool, providing potential local small business supporters with strategies and resources for combating unfair competition from nonprofits. Strategeies include: establishment of a private enterprise review commission; a statute of prohibition against competition by state agencies; guidelines for use of state-supported research equipment and facilities; expansion of unrelated business income taxes on nonprofits; advocating for nonprofits to be forced to set up separate for-profit subsidairies; establishment of a commission to review the state corporation counsel's criteria for chartering of nonprofit organizations. For More Information: Business Coalition for Fair Competition, 1725 K St., NW, Ste. 301, Washington, DC 20006 The National Assembly of National Voluntary Health and Social Welfare Organizations has issued two reports on the subject, Competition Between the Nonprofit and For-Profit Sectors , and The Myth of Unfair Competition by Nonprofit Organizations. Both books explore the history of nonprofit tax status, describe the advantages businesses hold over nonprofits, and critiques the arguments and statistics of the SBA and other small business advocates' reports. For More Information: The National Assembly, 1319 F St., NW, Ste. 601, Washington, DC 20004, 202-347-2080. Several recent rulings by the IRS have had an impact on nonprofit organizations's ability to earn income. In a ruling last April, the IRS ruled that tax-exempt organizations will have to pay taxes on the money they take in from advertising in their publications unless they can prove the ads help to educate readers about the group's purpose. Potentially the ruling could affect some 700 organizations that publish journals, taking in more than $100 million in revenue from their ads. The Tax Reform Act of 1986 (H.R. 3838) had several provisions affecting nonprofit income taxes.
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