Thursday, September 6, 2012

Albany Democrat-Herald: "NY court to decide if lap dance is tax-exempt art"

Some things you can't make up.  The title says it all.  Article here.

More seriously, though, I do ask my students in my tax-exempt organizations class every year whether a museum dedicated to explicit sex would qualify for tax exemption (the Museum of Sex in NYC is a for-profit institution, although it does have a related charitable foundation that accepts donations of both cash and collection items).  Does it matter if the museum charges admission?  Probably not, under current law, since many exempt museums do so.  How about if it charges admission and schedules regular showings of explicit sex films for its patrons?  If you're uncomfortable with that, then how about the YMCA that charges its patrons for use of its facilities and educational programs . . . (see my post from yesterday)?  If you're weirded-out by this, join the club (not the lap dance club . . . ).

JDC

September 6, 2012 | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 5, 2012

Tax Exemption and Athletic Clubs

Why are athletic clubs like the YMCA tax-exempt charities?  Historically, I guess, the "Y" was considered both an educational organization and an entity whose programs were especially directed at disadvantaged, poor and minority populations.

But is the modern "Y" any different from a for-profit workout facility?  The "downtown Y" is a problem presented in the Fishman and Schwarz casebook I use to teach tax-exempt organizations, and it is a perennial befuddler both for my students and, frankly, me.  

I stumbled across a recent example of this issue via an article in the Arab American News about H.Y.P.E. Athletics (according to the organization's web site, the acronym stands for "Helping Youth Progress and Excel").  This organization appears very "Y"-like, but the city of Dearborn Heights, MI, seems hell-bent on denying property tax exemption to the group (despite its having been recognized as a 501(c)(3) by the IRS). The city apparently is concerned about the $29/month membership fee for adults, though as the article indicates, the fully tax-exempt Detroit-area YMCA charges $59 a month.  I'll let you compare web sites and decide for yourself which you think is more charitable.  The Livonia Family YMCA (which I think is the closest metro-Detroit YMCA facility to Dearborn Heights) website is here.

In my home area of Champaign, IL, the local "Y" recently completed a fabulous new facility on the far west side of town - by the way, about as far as you can get from any minority or disadvantaged population and still be a part of the city of Champaign (there is a bus, the #14 Navy, that runs a whole seven times a day, if I'm reading the Champaign MTD schedule correctly. Good luck getting there if you are coming from the poorer, minority neighborhoods on the north side of town).  Membership is $47 a month, which according to the Y's web site "means more value and flexibility for our members! For example, you can work out in the 9,000 square foot fitness center and then take your family to the indoor pool and water slide. Or, you can take advantage of some of our two facilities' specialized programs, like water aerobics or recreational gymnastics."

Now, I'll freely admit the Y presents a variety of educational programs on health and fitness.  So does the for-profit gym I belong to.  So what, exactly, are the differences between the modern Y and a for-profit athletic facility?  And are the differences that exist (if any) enough to justify calling the Y a tax-exempt charity?  Are the Y's like nonprofit hospitals - organizations that once were clearly charitable, many years ago, but now are simply big businesses delivering a service for a fee?

Tax exempt charity?  Or a "for-profit in disguise"?  You tell me.

JDC 

September 5, 2012 | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 4, 2012

Are Charitable Tax-Exempt Bonds Potentially on the Tax-Reform Chopping Block?

One of the "big three" benefits of being classified as a charitable entity under Section 501(c)(3) is the ability to issue tax-exempt bonds under Code Section 145.   While this isn't something you'll see much with small charities, hospitals and universities are major bond issuers.

But charities are just a portion of the exempt bond market.  According to IRS Statistics of Income data, about 75% of the exempt bonds issued in 2009, for example, were issued by state and local governments ("munis" as they are called).   And munis appear to be on the radar screen of conservative tax reformers - an article in Forbes (also picked up by the Christian Science Monitor) noted that Mitt Romney's economic advisor, Glenn Hubbard, recently indicated the tax break for munis could be limited as part of a tax reform package; and Matt Jensen of the American Enterprise Institute has suggested this as part of a reform package, as well.

So far, these suggestions have been directed specifically at munis; exempt bonds issued by charities have not specifically been mentioned.  But if one goes down this road, one wonders if munis will be a logical stopping point.  After all, the issues involved (e.g., whether this is an efficient way for the federal government to subsidize economic activity, particularly if tax rates in general are lowered in a reform package) are similar, though perhaps one could argue that federal subsidization of charities via exempt bonds is "better policy" (or maybe just different!) in some way than subsidization of state and local governments.  I'm not so sure I can adequately distinguish between "private" public goods provided by charities and "public" public goods provided by state and local governments as an economic matter, though the politics certainly are different.  But the charitable sector should not take for granted that limits on exempt bond financing will stop with munis . . . after all, President Obama already proposed a limit on the charitable deduction for high-income individuals.  

JDC

September 4, 2012 | Permalink | Comments (0) | TrackBack (0)