Lesson 1: Introduction to the Non-Profit Sector Reflections

• What does it really mean to be a “non-profit?”

Non-profits are corporations that exist for some purpose other than the distribution of profits to its shareholders. The non-profit sector describes institutions and organizations that are neither government nor business. Non-profits do not exist to make money for owners or investors; instead these groups are dedicated to a specific mission. Making a profit is not a primary motivation for non-profit organizations, but it doesn’t mean these organizations are unable to generate revenue that exceeds expenses. The non-profit sector serves as a forum for the creation and distribution of new ideas, delivering social services, and protecting our environment, culture, and values. All non-profits are exempt from federal corporate income taxes. Most are also exempt from state, local property, and sales taxes. Non-profits aren’t exempt from withholding payroll taxes from employees and are required to pay taxes on income from activities unrelated to their mission.

• Why does the government grant non-profits “exempt” status? What value does that reflect?

Non-profit organizations are tax exempt. Non-profits relieve government’s burden. Private schools, homeless shelters, hospitals, etc. are provided by the non-profit sector. If they were not to provide these services, the government may be required to offer these services. The government supports the work of non-profits and receives a direct benefit in return. Non-profits encourage public policy issues, economic development, and civic involvement; which are valuable services to society. The public benefits overall from the non-profit services. Taxing non-profits would be a difficult task as there would be difficulty determining what is qualified as taxable income. Tax exempt religious non-profits specifically preserve the government’s separation of church and state. This limits the government’s ability to promote one religion over the other or tax a particular church too much. Overall, non-profits benefit the society as a whole and work in partnership with the government.