Regardless of the daily accusations, tweets, and headlines, the actual pace of policy “progress” in Washington is slow, deliberate, and, often, incomplete. That is not at all true in the states where legislation and policy ideas move through the system at breathtaking speed and the number of bills passed outnumber the productivity of Congress by a 77 to 1 margin. That realization over the years has led to a mantra of the National Council of Nonprofits: the action’s in the states.
So what actions do nonprofits have to look forward to or fear in 2020? Three key trends rise to the top of the agenda, based on extensive tracking and engagement at the state level: expanding charitable giving tax incentives, shrinking tax exemptions, and expanding state-specific workplace policies.
Giving Incentives Getting Attention
Starting with the positive, it’s clear that state lawmakers recognize that the federal doubling of the standard deduction, as was done in the 2017 tax law, is likely to reduce giving to charitable nonprofits, particularly small and mid-size organizations. What to do about it is a key question and presents legislative opportunities.
Several states are looking at the new Arizona non-itemizer deduction that provides taxpayers who take the standard deduction with a 25 percent deduction for donations to charitable nonprofits. Colorado and Minnesota also provide examples of extra giving incentives for people who don’t itemize deductions on their state tax forms.
North Carolina legislators continue efforts to restore a state-level equivalent of the IRA charitable rollover that allows tax-free distributions from retirement accounts to charitable organizations. Throughout 2019, nonprofit advocates in New Jersey have been promoting a new charitable giving incentive for itemizers and non-itemizers alike — the Garden State has none currently. Those efforts will start up again in 2020 should the Legislature not get bipartisan legislation across the finish line this year.
Fair warning, though: states can also get stingier when it comes to promoting charitable giving through their tax codes. In 2018, Vermont repealed its longstanding charitable deduction and replaced it with very limited tax credit. Also, while Massachusetts is on track to reinstitute its charitable deduction by 2021 — it’s a long story involving a decades-old ballot measure — there are rumblings that some in the legislature might try to block the giving incentive from going into effect. Nonprofits in the Commonwealth and around the country are taking this challenge seriously since it could dampen momentum for restoring state support of giving elsewhere.
Tax Reforms and Tax Exempts
Every year, a handful of states attempts big reforms to its income, sales, and/or property tax laws. Since mid-2018, sales tax reforms have been the hottest topic as states sought to tax internet sales, as permitted in the South Dakota v. Wayfair decision of the Supreme Court of the United States. The tax-overhaul trend continues.
For the 2020 legislative session, Utah intends to adjust income and sales taxes to “address the state’s structural revenue imbalance.” Nebraska lawmakers will soon release a plan to reform and cut property taxes, and make adjustments to income and other taxes to fill the likely billions in lost revenue. More tax reform plans will surely be pre-filed in the coming weeks.
So why should tax-exempt organizations care about how others who are taxed end up being taxed? Because tax reform efforts almost always turn on backroom deals, announced at the 11th hour, that impose new taxes on unsuspecting entities. It happened to nonprofits in Louisiana in 2016 and Kentucky in 2018 (both of which were subsequently reversed thanks to advocacy). The lesson learned is to engage early and stay late to protect nonprofit interests.
Then there are the recurring efforts to whittle away at the American Rule on nonprofit property tax exemption: every state exempts from taxation the real property owned and used by charitable nonprofits for their charitable purposes. Cities like Boston have come up with schemes called “payments in lieu of taxes” (PILOTs) that pressure land-owning nonprofits to make “voluntary” payments to the city’s treasury based on an arbitrary formula. Bills to tax nonprofit properties and/or impose municipal fees can be expected again in 2020 in Connecticut, Massachusetts, Montana, South Carolina, and elsewhere as lawmakers seek to raise revenue or cut someone else’s taxes in an election year.
Raising Workplace Standards
Perhaps the greatest growth area in state legislation has been in efforts to raise workplace standards and expand employee benefits. Currently, 29 states set their minimum wages at rates higher than the federal level of $7.25 per hour. The number of states and their wage levels will continue to grow as the movement to set a $15/hour (or higher) rate spreads across the country.
Similarly, the minimum salary that white-collar employees can earn without triggering overtime pay is also subject to state adjustment. The U.S. Department of Labor recently published a new, higher salary threshold ($684/week or $35,568/year) taking effect in 2020, and that has renewed attention at the state level. California, Maine (rising to $36,000 next year), New York, and Pennsylvania already have higher salary thresholds; Washington State is finalizing its new regulations on the subject; and Michigan’s Governor recently announced plans to raise that state’s salary threshold to approximately $51,000 per year. Other states are looking at the issue and several are likely to pursue legislative and regulatory action early in the year.
Finally, the subject of mandated employment benefits must be considered. Multiple states considered paid leave bills in 2019. Maine enacted a law requiring employers, including nonprofits, with 11 or more employees to provide paid leave up to 40 hours per year for employees. Colorado set up a study of a paid family and medical leave program and numerous other states, including some in more conservative parts of the country, are expected to reconsider bills that didn’t quite make it through the legislative process this year.
These three subject areas — charitable giving incentives, taxing tax-exempts, and workplace policies — certainly aren’t the totality of action we’re likely to see in the states in 2020. Spending decisions, as always, will create winners and losers; and in states with declining economies, more nonprofits tend to be losers. The 2020 census still needs extra help from the states and their nonprofit partners.
Increasing political acrimony leading up to the elections will make nonprofit nonpartisanship even more essential, and that could entice states to follow New York’s lead in incorporating the text of the federal Johnson Amendment into state tax law — just in case the IRS truly abdicates enforcement of the longstanding law.
All of this legislating will take place while the presidential primaries are raging and lawmakers in 45 states are rushing to wrap up their sessions at the State House to start campaigning. Perhaps the best advice is to rest up now, because 2020 will be as (or more) frenetic than ever in the states and nonprofits have much to gain or lose.
David L. Thompson is vice president of public policy for the National Council of Nonprofits in Washington, D.C.