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Category: Editorials Editorials
Published: 12 January 2018 12 January 2018

By Tsiporah Nephesh, Executive Director, New Mexico Thrives

Nonprofits are a crucial part of the fabric that strengthens our communities. Many provide vital services, while others add to the quality of life. But nonprofits will have a diminished role in New Mexico if Governor Martinez gets her way. She would like to end the tax exemption for nonprofits as part of a plan to close tax loopholes. But nonprofit tax exemptions are not loopholes.

Governor Martinez is talking about restructuring the tax system in such a way that it could have devastating impacts on how nonprofits operate. New Mexicans should be taking notice.

New Mexico Thrives, New Mexico’s state nonprofit association, followed the various tax reform bills in 2017 by attending committee meetings to listen to the debates. We’ve heard the various arguments for taxing nonprofits, but they are based on faulty assumptions and a misunderstanding about the complexity of the nonprofit sector. Nonprofits fill an entirely different role in society than does the for-profit business sector. This is why the two are taxed in different ways (and, yes, nonprofits do pay several taxes—payroll taxes and gross receipts taxes on contract services). Comparing the two for the sake of an argument over tax fairness is an exercise with a faulty premise.

Consider charities in New Mexico. All charities are nonprofits, but not all nonprofits are charities. A charity is defined as benefiting the general public – examples include food pantries, domestic violence shelters, animal rescue organizations, churches, and hospitals. While they each serve specific populations, their work has positive impacts on society as a whole. When nonprofits provide housing and services to the homeless population, we all benefit through savings in first responder and emergency room costs. Advocacy is another type of nonprofit work that benefits the general public. The advocacy work of animal rights groups many years ago provided a blueprint for our modern child abuse laws.

Nonprofit organizations that are not considered charities are created for mutual benefit. These organizations provide a service or benefit to members of a group, rather than to society in general. Examples include homeowner associations, clubs and professional associations.

Most of the time, nonprofits do the work that no one else will – the hard but important work that isn’t driven by a profit motive. Nonprofits do not have owners or shareholders and all money that is earned or donated is invested into the service of the organizational mission.

When Governor Martinez says that she wants to close all tax loopholes, she is including all nonprofits’ tax exemption from gross receipts taxes (GRT) on the purchase of goods. Forcing nonprofits that purchase goods to pay the GRT, (e.g., adaptive equipment for the disabled) would result in less money available to serve our communities. Many nonprofits serve economically disadvantaged people, so nonprofits will not pass the cost of the tax along to them like most businesses do. Taxing nonprofits would make it more difficult for them to do their work and ultimately that would make us all poorer.

Nonprofits employ 48,000 New Mexicans, or just over 8 percent of our workforce, according to Independent Sector. They serve many more thousands of people and help provide vital services to our communities. Why would we tax non-profits to make it more difficult for them and ultimately for ourselves?

New Mexico does need increased revenue, but taxing the very organizations that serve those in our state with the greatest need, works against our own best interests.