How does the State Income Tax Affect Nonprofits?

In 2008, several conservative taxpayers associations advocated for a repeal of Massachusett’s 5.3% income tax. This repeal would have cost the state $11 billion in tax revenue.

While it would have had a very negative impact on nonprofits, many of which heavily rely on state funds, it would have had a more dramatic impact on education, infrastructure, social services, and all other publicly-funded sectors of the economy, and likely would have led to an increase in property and sales taxes.

With the lobbying efforts of the MNN and our drive to communicate the importance of public funds to the general public, over two million Massachusetts citizens turned out to vote against the repeal, defeating the motion in a landslide victory. Despite the warnings of the repeal’s advocates, the income tax level has remained steady, and the public sector and social service industries remain very important parts of the state’s economy. The nonprofit sector alone employs 14.6% of Massachusetts workers, more than the entire public sector, and total employment in the health and education services make up nearly a quarter of the entire workforce.

H274: An Act Relevant to the Annual Report of Public Charities, 2008

Nonprofit organizations are subject to the same demands of bookkeeping that come with running a business. The MNN has used its extensive knowledge of nonprofit organization and administration to lobby for legislation that will reduce the burden of business administration for nonprofits so that they can focus on their goals. A prime example of this is H274:

An Act Relevant to the Annual Report of Public Charities passed in 2008. For the past thirty years, nonprofit organizations with annual operating budgets of more than $100,000 had to file costly financial statements that often necessitated the services of a Certified Public Accountant. However, this ruling failed to consider the impact of inflation and the rising costs of running a business.

The reality is that many small nonprofit organizations require a budget of at least $100,000 in order to effectively carry out their goals. As a result, the MNN worked extensively with State Representative Charles A. Murphy and State Senator Susan C. Fargo to draft and pass legislation that raised the nonprofit budget requirement from $100,000 to $200,000. This legislative change, though seemingly minor, has reduced the operation costs for numerous small nonprofits across the state and has eliminated the need for these smaller organizations to take time away from their missions to address this complicated and time-consuming

What is the College Cost of Reduction Act? (CCRA)

The costs of attending college increase every year, often at a rate that outpaces inflation. As a result, many students find themselves priced out of obtaining a college degree.

This unfortunate event greatly limits their potential to advance economically, as a college degree is becoming increasingly essential for finding steady employment in today’s economy. In 2008, Congress made an inroad against the price barrier of college with the Cost of College Reduction Act, which was designed to increase the size of college grants, reduce interest rates on loans, and create a new program for loan forgiveness after ten years of work.

However, the Senate originally only granted loan forgiveness for work in the public sector, while the House version of the bill included the nonprofit sector. The MNN joined a coalition of organizations known as the Massachusetts Council for Human Service Providers and engaged in an intensive lobbying effort to get the Senate to include the nonprofit sector in the bill.

The late Senator Edward Kennedy recognized the lobbying effort and helped to ensure that the nonprofit sector was included when the bill passed. As a result of this bill and its loan forgiveness program, the lower pay associated with the nonprofit sector is a much less significant barrier for college graduates; they are empowered to work for social justice in a wider range of fields with fewer financial constraints.  This, in turn, gives nonprofit and public sector organizations a wider pool of workers who are well-educated and well-trained for the demands of human service work.

For detailed information on specific aspects of this significant legislation, please visit Idealist.org for more information.

How do I contact my state and local legislators?

Contact your state legislator:

Contact your federal legislator:

What nonprofit organizations qualify for tax-deductible donations?

Generally, almost all 501(c)(3) organizations are tax-deductible. Donations to other nonprofit classifications are complex. Please visit the IRS Publication 526 to determine if a nonprofit organization qualifies for a tax-deductible gift.

What can be done for Nonprofit Health Insurance in Massachusetts?

MNN launched the Nonprofit Health Insurance Project (NHIP) in January 2009 in collaboration with the Blue Cross Blue Shield of Massachusetts Foundation to identify strategies and inform policies to enhance the accessibility and affordability of health insurance coverage for Massachusetts nonprofits and their employees. To do this, MNN assembled a task force of highly knowledgeable and qualified experts from various organizations and sectors; membership was diverse and included representatives from both legislative and executive branches of state government, advocates, nonprofit leaders, and health policy experts. Additional expertise was sought on a consultative basis to further develop the groups’ deliberations.Click here to download the full report.

Executive Summary of the Report:

Nonprofit organizations represent a vibrant sector of the Massachusetts economy employing approximately 14% of the Massachusetts workforce and providing countless programs and services contributing to the quality of life in the Commonwealth. In a study of nonprofits across Massachusetts published in early 2009, the issue of quality, affordable health insurance was cited as the number one benefits issue facing nonprofits in the Commonwealth.

Average premiums for family health insurance coverage have increased 119% nationally over the past 10 years, and Massachusetts’ insurance premiums are some of the highest in the country. Despite these facts, health insurance is the most commonly provided employee benefit in nonprofit organizations in Massachusetts, and data show it is a benefit nonprofits are committed to providing even when the financial indications suggest doing so is a strain on the organization.

The NHIP Task Force crafted policy and program options for further exploration within three broad categories: 1) policy options that would expand health insurance coverage and/or reduce insurance costs for nonprofits and nonprofit employees; 2) educational initiatives that would help nonprofits and their employees take fuller advantage of the programs and opportunities currently available; and 3) recommendations to stabilize employer sponsored insurance provided by nonprofits and to assist in nonprofits’ pursuit of compliance with the requirements of health reform. Specific options include the following:

  • Policy Priority Option #1: Expand the employer buy-in options available through the Connector to include access to CommCare, or a comparable product, for low-wage workers of qualifying small businesses by leveraging existing employer and employee premium contributions and providing subsidy for any remaining premium to those under 300% FPL.
  • Policy Priority Option #2: Harness the administrative sophistication, management and purchasing clout of the GIC for the benefit of the nonprofit community by creating a pool within the GIC through which nonprofits can purchase health insurance.
  • Policy Priority Option #3: Explore the possibility of creating one small group purchasing pool overseen by the Division of Insurance for all nonprofits and other small businesses in Massachusetts that requires participating plans cover all state mandated benefits and disallows exclusions for preexisting conditions; create incentives for small business participation.
  • Education Priority Options: Establish a multi-lingual, literacy-sensitive, small employer-based curriculum for training owners and managers, and their employees, on the issues of health insurance coverage and health reform; explore the possibility of establishing a hotline specifically for nonprofits and other small businesses modeled after the Health Care For All helpline for individuals.
  • Priority Options for Stabilizing Employer Sponsored Insurance in Nonprofit Organizations: Further clarify and amend the Fair Share Contribution requirements to make the provisions more easily understood and to recognize the financial limitations of nonprofit businesses struggling to provide employer sponsored insurance; research ways of better coordinating the enrollment procedures and coverage opportunities for individuals within various state-sponsored health insurance programs – such as Commonwealth Care, MassHealth, the Medical Security Program, the Insurance Partnership, and others; add ways of tracking health insurance coverage in the Massachusetts employer base by tax status (nonprofit and for profit).

In the next phase of the Nonprofit Health Insurance Project, MNN will pursue funding for additional data collection and research to further inform the priority policy options and to begin developing an outreach and education strategy for nonprofit employers and their employees. Ultimately, a blue-ribbon commission will be assembled to pursue the relevant and appropriate policy and program options based on the additional research findings and the outcome of federal health reform.

This project was funded through generous support from the Blue Cross/ Blue Shield Foundation

Prepared by:

Molly Yuska, M.M.
Yuska Solutions

With Support from
Cathy Dunham, Ed.D.
Executive Director
The Access Project
and David Magnani, Ed.D.
Executive Director
Massachusetts Nonprofit Network

How does the lobbying law apply to nonprofit communications?

  • Question: I am employed by a non-profit organization to work as an advocate for developmentally disabled persons. I work directly with my clients helping them, among other things, to get housing and medical treatment, and helping them with daily life activities. My organization also encourages our clients to talk with legislators about their challenges or to advocate for more treatment resources. In some cases, I may accompany my clients to meetings and help them prepare what to say. Sometimes I may also say a few words but only to help my clients express their views when they unable to speak at the meeting or are having a difficult time expressing their views. The preparation for these meetings takes more than 25 hours in any six-month period. Do I have to register?
    • Answer: Yes, unless your communications are limited solely to helping your client express his or her views, in effect, like a translator or interpreter. If you were also to advocate on behalf of mentally ill persons generally or your organization you would have to register as a lobbyist, again assuming your advocacy and any related strategizing is more than “incidental”.
  • Question: I work for an advocacy group for the mentally ill. An employee in the Department of Mental Health (DMH) telephones and asks how one of the providers under contract to DMH is doing. The purpose of the call is to help DMH determine whether to renew that provider’s contract. Do I need to count that time as “lobbying” to determine whether I exceed the 25 hour trigger?
    • Answer: Yes, unless the DMH employee’s request and your response is in writing. By definition, executive lobbying includes “any act to communicate directly with a covered executive official to influence a decision concerning policy or procurement.” If the purpose of the call were to help determine whether to continue a specific procurement contract the time spent would have to be counted toward the 25 hour trigger. The law, however, provides for a specific exception if the information is provided “in writing in response to a written request for specific information by an officer or employee of the executive branch.” If you do not wish this time to count toward the 25-hour threshold, you should ask that the officer or employee submit a written request to you for this information and to reply in writing.

How does the New Lobbying Legislation Apply to Research, Writing & Strategizing

  • Question: I work for an environmental non-profit organization as a researcher. I review and analyze data and write reports for the organization for many different purposes. Sometimes, my organization uses my research or reports as the basis for drafting legislation or environmental regulations. I also occasionally write op-eds about my research and give briefings to the general public. I do not write to or talk with legislators or regulators about my research and reports or otherwise engage in lobbying for my organization. The organization has a registered lobbyist who does that work. Do I have to register as a lobbyist?
    • Answer: No. Regardless of how much time you spend preparing, or how much you are paid for, your research or reports that are used by others in connection with legislation or you are not considered a lobbyist and, therefore, do not have to register. Why? Because you have not had “at least 1 lobbying communication with a government employee.’ If you never have a lobbying communication with a government employee about the research or other issues for your employer, you will not have to register as a lobbyist.If you did have a lobbying communication with a legislator or other government employee about legislation drafted by the organization, you would have to register as a lobbyist unless, during a six-month reporting period, your lobbying activities are “incidental,” i.e. you engage in them for less than 25 hours and are paid less than $2,500 for the hours you work on lobbying. Your research and report writing, as well as any strategizing, would be considered as lobbying activities if they were “performed in connection with or for use in an actual communication with a government employee.”

How does the new lobbying law pertain to Board Members?

  • Question: I am a member of the board of directors of a non-profit organization that advocates for civil rights and equity issues. Board members are unpaid and volunteer their time. Many of the board members write, meet or call legislators and engage in other legislative lobbying to promote the organization’s agenda. Do the board members who contact legislators or engage in legislative lobbying have to register as a legislative agent or lobbyist?
    • Answer: No. Volunteer board members of a non-profit organization do not have to register as a lobbyist. The lobbying law does not consider someone to be a legislative agent or lobbyist unless the person is “compensated or rewarded” for engaging in lobbying activities. It does not matter, therefore, how many hours unpaid volunteer board members lobby for their non-profit organization. If they are not paid to lobby, they are not legislative agents and they do not have to register.
  • Question: I serve on an unpaid, volunteer board of a non-profit organization. Sometimes we hold board meetings during the workday. Board members, who are employed, attend on their lunch hours or use personal time from their employers to attend board meetings. For example, I am a legal secretary and another member is a banker. My employer has a written policy while the banker’s employer has a customary practice that allows employees to participate in community service during the day. Does merely attending board meeting during the day mean we are paid by our employer to attend board meetings and therefore have to register?
    • Answer: No. Although some or all of the board members of a non-profit organization may be employed by other organizations or businesses, such employment does not make them lobbyists. This is because they are not being paid, or as the statute says “compensated or rewarded” for their service on the non-profit organization. Moreover, such employment does not make them a lobbyist even if the organization and its lobbying activities are of concern to their employer’s business unless there are other factors involved.
  • Question: I am a member of the board of directors of a non-profit organization that advocates for civil rights and equity issues. Board members are unpaid and volunteer their time. Many of the board members write, meet or call legislators and engage in other legislative lobbying to promote the organization’s agenda. Do the board members who contact legislators or engage in legislative lobbying have to register as a legislative agent or lobbyist?
    • Answer: Yes, you are compensated for purposes of the lobbying law. Although you are not compensated by the non-profit for your service as a board member or its lobbying activities, your service on the board and your lobbying are part of your usual professional responsibilities. You will, therefore, have to register as a legislative agent unless your lobbying activity is “incidental” for purposes of the lobbying law. Lobbying activities are presumed to be incidental if, during a six-month reporting period, you
      • (a) engage in lobbying for no more than 25 hours and
      • (b) are paid no more than $2,500 for such lobbying.

What happens if I don't register or report for the new Massachusetts Lobbying Law?

Late reports for the new Massachusetts Lobbying law are subject to a $50 per day late fee up to 20 days and $100 per day thereafter. These fines may be waived for good cause. The law also sets up a new civil enforcement procedure in the Secretary’s office modeled after the enforcement process conducted by the State Ethics Commission. If the Secretary finds, after a hearing, that a person has violated the law, the Secretary may ordered the person to cease and desist, suspend or revoke his or her license to lobby, and/or impose a fine of up to $10,000. The Secretary’s decision may be appealed to superior court, and if the court finds against the Secretary, the petitioner may be entitled to limited attorney’s fees. The lobbying laws may also be prosecuted criminally by the attorney general or district attorney if there criminal intent. Criminal fines are also up to $10,000 and up to 5 years in prison.