Associations would likely see their tax bills rise if the tax reform plan served up by Rep. Dave Camp last month were to become law. The primary targets for new taxes: unrelated business income and sponsorship revenue.
Although the tax reform plan released last month includes provisions to reduce tax rates and increase certain deductions and credits—presumably appealing to many individual and corporate taxpayers—the package could result in significant new tax bills for nonprofits, according to a recent statement from ASAE.
After poring over the comprehensive tax reform draft released by House Ways and Means Committee Chairman Dave Camp (R-MI) on February 26, leaders in the association community are raising concerns about specific provisions in the bill that would expand the unrelated business income tax (UBIT) statute and could affect the revenue streams of many associations and tax-exempt organizations.
Proposals in the 979-page bill to make royalties and certain qualified sponsorship payments subject to UBIT are particularly troubling, according to members of ASAE’s public policy team, who have studied the bill.
“Royalties paid for the use of an organization’s name or logo closely resemble other passive income for tax-exempt organizations, such as rent, interest, and dividends. Royalties are passive income because the association is not actively involved in the marketing or administration of whatever product or service connected with the arrangement,” ASAE wrote in a message to members last week. “Many associations and other tax-exempt organizations have developed significant royalty revenue streams through the licensing of their names and logos, so this provision would present a significant new tax burden to those groups.”
The Camp bill would tax certain qualified sponsorship payments, treating them much like advertising income to the association. Specifically, the bill would tax those payments if the sponsorship acknowledgement at an event mentions any of the sponsor’s products or if a sponsor is given greater recognition than other donors.
“ASAE does not believe that qualified sponsorship payments should be treated as advertising income in cases where there is no more than a ‘thank you’ provided by the tax-exempt organization,” ASAE said in its message. “Requiring that all sponsors be acknowledged in substantially the same manner is also nonintuitive and will discourage sponsorships.”
ASAE members will travel to Capitol Hill to discuss these and other policy concerns with Ways and Means Committee members and staff during the association’s legislative fly-in March 25-26.
Few Congress-watchers expect the bill to go far, with term limits forcing Camp out of the Ways and Means chairmanship at the end of the current session and with little likelihood that differences on the issue between Republicans and Democrats can be resolved in a midterm election year. Sen. Mitch McConnell (R-KY) recently told reporters that lawmakers “will not be able to finish the job” on tax reform this year, according to a UPI report.
No markup or hearing on the bill has been scheduled.