President's message:

The nation is watching Hawaii
nonprofit tax exemptions 

Recent proposals by state and city to raise taxes on Hawaii nonprofit organizations have sparked national attention, such as this Feb. 28 New York Times article, and decisions here could become tax policy models elsewhere.

House Bill 2878, to repeal the general excise tax exemption for nonprofits, was deferred in committee last week and is most likely dead for this session. Thanks to all who gave written and verbal testimony in opposition. We dodged that bullet for now, but other potentially damaging measures might surface before the Legislature adjourns. One is House Bill 2877, which adds a 1 percent tax for nonprofit gross revenue from conferences, conventions, trade exhibits and displays. This bill will go to the Senate for its consideration.

Several HANO members say we should compromise and be part of the solution to the state budget crisis.  Unfortunately, these tax proposals are “one size fits all” and our sector is not. It’s as diverse as they come – in missions, budget sizes, revenue mixes, scope of service delivery, geography, etc. Finding a fair compromise is challenging; a tax larger nonprofits could swallow might put small ones out of business.

HANO wants to be a constructive partner and is willing to come to the table to discuss options, but we thought an initial hard stance was best. Tax exemptions were enacted for good reasons. Ours allow nonprofits to provide cost-effective services. As one nonprofit CEO said, “In the real world of economics, nonprofits get only two breaks: tax free contributions and exemptions on contract revenues. Donors and businesses do help us, but for the most part we pay our own way.

“Much of the work of nonprofits does not involve manufacturing or selling a product; we also can’t issue stock when we need funds. We basically deliver services,” he said, “more efficiently, in greater volume, and at a lower cost than government or private agencies.  People depend on what we do to navigate through difficult times. And there is a particular need for the smaller nonprofits who meet very specific and targeted needs.” 

Well said.

Stay tuned as this conversation continues. HANO is working now to gather data to document what financial impacts such proposals could have on nonprofits. Meanwhile, our March newsletter provides some context to this struggle.  I hope you find them helpful.

Lisa Maruyama
HANO President & CEO