By Gwen Cooper
Policymakers are taught early on that sometimes there are unintended consequences when implementing new legislation. HB 487 passed in the 2018 General Assembly imposed a six percent sales tax on sales of “admissions”. Sounds simple until you consider that nonprofit organizations, exempt from sales tax, often rely on “admissions” to support their missions.
For example, the new tax is imposed on performances, plays, shows, etc. Our arts and culture organizations rely on admissions to fund their operating budgets and entertain millions every year. Nonprofit health organizations create elaborate gala events like Hosparus Health’s Candle Glow Gala and sell tickets for entrance.
Imagine our surprise when we learned that the admission price for most nonprofit events just went up six percent. Budgets for the year were approved by voluntary boards, sponsorship packages already created, tickets prices set and tickets already printed for events planned after the effective date of the new tax.
What to do now? Who picks up the six percent increase in the costs? How do you tell a donor who is generous with their disposable income that the price of admission to a mission driven event is $106 rather than $100 and “Oh by the way, $6 of your ticket is not tax deductible, in fact, we must remit this back to the state or face collection activity”.
Property Taxes Too
Added to this surprise was the realization that property taxes would now be imposed on residents living on property owned and operated by a nonprofit. This means residents with a disability living on a campus like Cedar Lake would be assessed property tax for their supported living dwelling. How are they supposed to pay for this new expense on a fixed income?
There has already been much written by legal and tax professionals providing guidance for nonprofit organizations to adhere to the law, so I won’t discuss any of that here. What I will discuss is the unprecedented collaboration among all nonprofits spanning multiple important missions who came together to find a solution.
We talked with every elected official and I am thankful most realized very early on that that taxing nonprofit mission driven events and dwellings was a huge unintended consequence of this sales tax legislation.
Thankfully, Representative and Speaker David Osborne (R) has prefiled a bill that we are requesting be taken up in the first week of session. BR 76 amends sections of KRS 139.495, KRS 139.200 and KRS 132.195 and fixes the nonprofit tax glitch by adding three simple but powerful sentences:
Section 1. KRS 139.495 is amended to read as follows: Tax does not apply to the sale of admissions by nonprofit educational, charitable, UNOFFICIAL COPY 19 RS BR 76 or religious institutions.
Section 2. KRS 139.200 is amended to read as follows: Admissions charged by nonprofit educational, charitable, or religious institutions exempt under Section 1 of this Act.
Section 3. KRS 132.195 is amended to read as follows: Property of a purely public charity, if the property and the income derived from that property are used to further the purely public charity’s mission.
As soon as the session begins you will receive requests for support of the bill from nonprofit organizations across the Commonwealth whose missions contribute to the very fabric of our wellbeing. This is one bill that should marry the hearts and minds of all Kentuckians in its importance to fix.
Section 5 of the proposed bill says it best: Whereas reducing the tax impact on nonprofit organizations is essential for charitable missions within Kentucky, an emergency is declared to exist, and this Act takes effect upon its passage and approval by the Governor or upon its otherwise becoming a law.
On behalf of the thousands of nonprofits working to solve community problems, provide safety net health and social services and work to educate, entertain and sustain millions of Kentuckians, we hope you’ll use your voice to support BR 76 and fix this unintended consequence of the new sales and use tax law.
Unofficial Copy of 19 RS BR 76: An act relating to nonprofit exemptions in taxation and declaring an emergency. http://www.lrc.ky.gov/RecordDocuments/BillNoCache/19RS/BR76/bill.pdf
-Gwen Cooper is SVP/Chief External Affairs Officer at Hosparus Health.