Nonprofits: Just Like For-Profit Businesses and Completely Different

by David Thompson, Vice President, National Council of Nonprofits

Many a budding film writer will pitch a movie idea to a producer by saying it’s just like such-and-such blockbuster and completely different. That’s basic marketing to appeal to the familiar and profitable) and the different (perhaps new and improved). The distinctions between for-profit businesses and charitable nonprofits can be described similarly, but for substantive and constitutional reasons. And the similarities/differences matter most in the area of government policymaking.

Starting with the obvious similarities: For-profit and nonprofit entities contribute mightily to the economy of Arizona and the nation. Nonprofits generated $23.5 billion in economic activity — nearly eight percent of GSP in 2016. This, according to data collected by the Alliance of Arizona Nonprofits. The nonprofit sector directly employs nearly 200,000 employees, making it the fifth-largest non-governmental employer in Arizona. Nonprofits also generated approximately $2.3 billion in state and local taxes, which equals 9.1 percent of all state and local tax revenues in Arizona in 2016.

That last point may seem surprising, since by definition, nonprofits are exempt from most federal and state taxes. But they’re not exempt from all taxes, and nonprofits engage on tax debates because of the impact on their operations and the people they serve. For instance, nonprofits share the view that pro-business tax policies can promote investment and profits in businesses and help advance nonprofit missions. Arizona’s new 25-percent nonitemizer deduction is a perfect example of how tax policy can reduce tax burdens while encouraging giving to important charitable works in the state.

Government contracting is another prime example of similarities and differences. Governments at all levels hire businesses, for-profit and nonprofit alike, to perform services that are better provided by the private sector. Think roadbuilding, job-training programs and human services. No knock on bureaucrats intended, but people specializing in certain types of work and grounded in the community tend to be more efficient and effective. A difference, of course, is that roadbuilders are paid based on bids and are expected to make a profit. Nonprofits typically operate under grants with governments and are expected to break even, and sometimes are required to raise additional funds — either as matching funds or unspoken subsidies of government.

Finally, one would assume that employers of all stripes cast a wary eye on any proposals to increase worker protections or mandate benefits. That would be an overgeneralization, of course, but it’s particularly off base for nonprofits. A notable recent example is the U.S. Labor Department’s new Overtime Final Rule that will raise the minimum salary that white-collar employees must be paid to remain exempt for overtime. During the rulemaking process, many smallbusiness representatives pushed for a carve-out for employers under a certain size or a different set of labor standards. Except in a very few instances, charitable organizations urged the Labor Department to treat us like every other employer. The reason is, nonprofits don’t want to become employers of last resort; we don’t want our employees to be looked at as second-class citizens.

David Thompson is vice president of National Council of Nonprofits.

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