Lake Times

, Intermountain Commercial

Friday, October 31, 1997 Salt Lake City, Utah $6 single copy

TAX EXEMPTIONS

Nonprofits are not necessarilynonprofit

Nearly 250 nonprofits provide contractual services to 21 state agencies.In 1996, about 100 nonprofits reportedly were eligible for state audit

because state agencies contribute the majority of their funding.Joe Stewart-Mash

coordinator of the project, and NancyHansen of the Internal Revenue Ser-vice were very interested in this de-velopment.

According to SUNUP'S interimfirst year reportusssl, nearly 8,000active nonprofits are registered withthe state and almost 6,000 tax-exemptUtah entities are registered with theIRS. More than 700 groups are au-thorized to solicit charitable contri-butions.

Most of the organizations belong-ing to and targeted by UNA are501(3)(c) designated which are clas-sified by the IRS as charitable, edu-cational, literary, cruelty preventionfor animals and children, religiousand scientific, and other. Of the 1994Utah 5,879 tax exempt nonprofits,3,423 are 50l(c)(3)'s. The SUNUP in-cludes other categories in order toget a more complete picture of thetotal nonprofit segment

The majority, 262, of those listedas charitable organizations list their"activity" as gifts, grants and loans toother organizations. Nearly 250nonprofits provide contractual ser-vices to 21 state agencies. In 1996,about 100nonprofits reportedly wereeligible for a state audit because stateagencies contribute the majority oftheir funding. "The state Auditor issupportive of SUNUP in part becauseof the possibility of turning up po-tential customers to serve under theaforementioned federal audit re-quirement" states the report.

The state agencies, as listed on anOct. 1990 vendor report, who did themost business through vending con-tracts with nonprofits are: Commu-nity and Economic Development's

Continued on page A22

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U.S. nonprofits number morethan one million and con-tribute almost $500 billionannually to the U.S.

economy. According to IndependentSector in Sales & Marketing Manage-ment, 48.8% of the U.S. populationvolunteer time and 68.5% contributemoney to charitable causes.

Roz McGee, president of the UtahNonprofit Association board, reportsthe first ever study on Utah'snon pro fits' economic impact will bepresented at the UNA conferenceNovember 6. It will be made avail-able to the public in December. Partof the economic report was given tothe Record in advance of publica-tion.

McGee said the study was quite achallenge, more work than antici-pated but what they learned wasmore than they expected.

In 1990, the UNAwas formed "by,and for, people who want a better,stronger, more professional not-for-profit community in Utah."

The 120 member UNA, located atthe University of Utah, works in con-junction with the Junior League, theU of U Center for Public Policy andAdministration, the Utah Depart-ment of Commerce and the UtahDept. of Community and EconomicDevelopment among others.

The UNA instituted a three-yearprogram to analyze the scope of theUtah nonprofit sector. LaunchedApril 1, 1996, it is called the State ofUtah Nonprofit UnderstandingProject (SUNUP).

The scheduled three, now four,year plan is to construct a directorydatabase of nonprofit organizations,gauge the demographics, economic

impact and social contribution ofUtah nonprofits, look at how publicpolicy impacts nonprofit organiza-tions, and find ways to expand thecapacity of nonprofits.

What was not covered are the im-pacts of property and sales tax ex-emptions. The Utah State Tax Com-mission, the Salt Lake CountyAuditor's office, the Utah Founda-tion, the Utah State Taxpayer's Asso-ciation and the Utah Atheists wereall contacted regarding the propertytax issue and none knew of any studythat could put verifiable numbers toit

Nonprofits are charged with tak-ing up the slack from governmentreductions by creating partnerships

health care organizations, arts, com-munity and trade groups.

This sector of the economy isgrowing faster than private and gov-ernment sectors. U.S. nonprofits'employment grew 63% while privatebusiness grew 31% and governmentemployment increased 27% from1977-90.

Utah's first nonprofit, incorpo-rated in 1868, was a religious corpo-ration. More than 70% of Utah'snon profits were formed in the last 20years and 641 new nonprofits incor-porated in 1996.

Two nonprofits, Best Friends, aKanab-based animal sanctuary, andthe National Association of CertifiedValuation Analysts (NACVA1, Salt

The state agencies ... who did the most businessthrough vending contracts with nonprofits are:Community and Economic Development's 90

contracts worth $2.9 million, the Public ServiceCommission's $2. 7 million contract with the

.Utah Association for the Deaf for the deaf relay.

with private industry and govern-ment to underwrite and utilize re-sources to meet community needs.

Nonprofit organizations, a.k.a.not-for-profit, independent, philan-thropic, voluntary, social or third sec-tor, have been defined as corpora-tions formed for a purpose other thanto generate a profit. Nonprofits in-clude religious groups, schools,

Lake City, were named to the Utah100, the fastest growing companiesin the state, October 22. TheMountainWest Venture Group'sranking is based on voluntarily sub-mitted Utah-based corporations' rev-enue growth figures from 1992-96.Corporations must have minimumsales of $25,000 to be considered.Both Steve Klass of Klass Strategies,

Volume 40 Number 45INSIDE

Under Analysis A2 Utah Technology A24

The Intermountain Commercial Record & Salt Lake TimesA-22/ Friday, October 31,1997

Nonprofits are not necessarily nonprofitContinued from page A1

90 contracts worth $2.9million, the Public Ser-vice Commission's $2.7 million contract withthe Utah Association for the Deaffor the deafrelay, (known by consumers as the TDD chargeon a phone bill).These are both dwarfed by theCorrections Division's 18contracts totaling $7.6million.

The Utah Division of Corporations assignsthe U.S. Department of Labor's Standard In-dustrial Code::(SIC) to nonprofits when theyapply for incorporation. The majority of Utahnonprofits, 1,412,are given the "Miscellaneous"(8600or 8900 series) designation. This is prob-lematic according to SUNUP because it doesnot give a true picture of what exactly thoseorganizations do and recommend the Div. ofCorp. use either the IRS classification systemor federal ID numbers. ACommunity and Eco-nomic Development researcher concurs, "Theyare supposed to be cleaning up their act," hesaid referring to the Div. of Corp.'s code as-signments.

Apresumption made by SUNUP collabora-tors was that human services would be thebiggest factor in overall impact according toKlass.They were partially correct.

In 1995, the top five nonprofit categorieswith the "greatest economic magnitude" wereindividual and family services, including childcare, with a payroll of$I1.7 million and 3,323workers in 182 firms. Second, was medical fa-cilities and home health care services, payroll

was $10.3million with 2,202workers in 33 firms.Third, was civic, social, professional and reli-gious with a $6.7million payroll, 1,599workersin 235 firms. Fourth, was schools with $5.3mil-lion in wages, 1,186people in 55 "firms." Fifthwas entertainment, membership sports andrecreational with $4.4million and 944workersin 41 firms.

The IRStax code lists more than 25 classifi-cations of businesses eligible for federal taxexemption. "Wedon't use the word nonprofit"stated Hansen who said the correct term is taxexempt.

Religious organizations' numbers are notnecessarily included in IRS statistics becausethey are exempt from paying federal incometax and are not required to obtain 50l(c)(3)designation or to file Form 990's Hansen con-firmed. She said some of SUNUP's numberscould be disputed because they're not getting.all the information from churches, universitiesand other organizations.

In 1996,most ofUtah's nonprofits are small,but account for the bulk of assets and increases,62% of 1,114 the nonprofits reporting incometo the IRS had incomes of less than $250,000.Fifteen percent, 168 entities, had incomegreater than $1 million which is 93% of totalreported income.

In 1994, total tax exempt organizations' as-sets exceeded $6.2 billion, 42% held by chari-table organizations and 42% by credit unions.

Total income was more than $3.4 billion, 64%from charitable organizations and 21% fromvoluntary employees' beneficiary associations(VEBA).

The most cognizant explanation of VEBAcomes from Ron Snyder, attorney and actuarywith Benefit Strategies Group. It is a 50l(c)(9)tax exempt trust set up by unions, other non-profit groups and private employers to admin-ister welfare benefits. Snyder said VEBA'sper-ceived impact is due to First Health, the largestthird party administrator of benefits, who setsup trusts here in Utah, its headquarters, ratherthan the states where its client companies are.

The top three 1996tax exempt categories byassets and income are: 107 state charteredcredit unions and mutual reserve funds withassets of $3.4 billion and income of $284 mil-lion. Second largest is religious, education,charitable, scientific or literary organizationsnumbering 3,650, with total assets of $2.9 bil-lion, and income of $2.6 billion. Third is VEBAwith 96 reporting entities, assets of $415 mil-lion, and income of $690 million. Concerningtypes of nonprofits, Utah leads the mountainwest in arts and culture and falls behind inreligious. Utah has almost double the numberof environmental and animal charities thanthe U.S. average.

The top five 50l(c)(3) organizations by in-come are: IHC Health Services, Inc., $1.3 bil-lion, IHC Health Plans Inc., $197 million,

George S.Eccles and Delores Dore Eccles Foun-dation, $169 million, Sisters of the Holy CrossHospital Association $61 million, and ValleyMental Health Inc., $50 million.

Not all 50l(3)(c) organizations remain ac-tive. Klass explained that once you've obtainedthe classification, you have to request an offi-cial IRS form and submit it to be unclassified.Few do that. Or you can lose the designationby being under investigation for violating thetax exempt status.

Not surprising, most nonprofits operate inthe greater Salt Lake City area.

The majority of non profits who respondedto the Utah Nonprofits Directory questionnairelisted their "activities" as: 1) education, 2) chil-dren and youth services, and 3) social services.

"This study may be raising more questionsthan it answers," said Klass when asked by theRecord/Times some specific questions aboutthe data that he could not answer.

The bulk of the data gathered by SUNUPcame from the Utah Division of Corporationsand IRS Form 990's. A questionnaire was sentdirectly to Utah nonprofits and those resultsare also included.

The directory and related materials will bemade available to the public and can be pur-chased from UNA, U of U Annex Bldg. #2120,Salt Lake City, Utah, 84112. Telephone801.485.9146.

,\ IRS reform bill offers I Passing on the family