Taxation and Representation

The New York Times recently published an article called “Tax Exemptions of Charities Face New Challenges” about local, state, and even federal governments questioning the tax-exempt status of nonprofit institutions. The article claims the tax-exempt status of charities costs local governments $8 billion to $13 billion annually. I’ve always found estimates like this very dubious. It doesn’t take into consideration any of the benefits nonprofits provide. Besides, if local governments all flipped a switch and took away the tax exemptions tomorrow, it’s not clear that they would get all that money. It’s not like the private sector always pays taxes either. For the promise of more jobs and sales tax revenue, large corporations can negotiate tax abatements and even tax payer funded financing and capital improvements. One retailer, Cabela’s, relies so heavily on this strategy they had to put a disclaimer in their annual report, according to this article.

The New York Times story centered around a court case in Minnesota where a daycare center was deemed not charitable enough and will now have to pay property taxes. However, there are plenty of examples closer to home. With Massachusetts facing a budget crisis, tax-exempt nonprofits are getting closer scrutiny. State legislators are considering imposing a 2.5 percent annual assessment on universities with endowments of more than $1 billion, like Harvard’s which has reached $35 billion.

But it’s more than just an issue of budget shortfalls. As nonprofits strive to be more “business-like” and create more consistent revenue streams with earned income, there is growing confusion over what it means to be a nonprofit. What does this have to do with marketing? Well it’s really a branding question. What does the nonprofit brand mean? How is a nonprofit daycare center or hospital different from its for-profit counterparts? Lots of questions, no simple answers.

For example, I pay what I consider to be a ridiculous amount of money (even with insurance) for mostly adequate medical services. Until I got a fundraising letter in the mail, I did not know the clinic where my doctor practices is a nonprofit. At that point, it was too late for them to define their brand with me. Corporations spend billions on their brands and yet brand identity isn’t really determined by a color, or slogan, or ad campaign. It’s the sum of experiences your audience has each time they encounter your brand – each client, employee, donor, etc. Ultimately, you don’t define your brand, your audience does. So what can an organization do? Set an easy-to-understand target and make sure everything it does is consistent with that brand identity. That's easier said than done. Marketing is hard work.

There is still a question of whether the nonprofit community can, or even should, have a cohesive brand identity. How much does a small, volunteer-run, start-up have in common with a large, hundred-year-old hospital or university? I’m keeping my eye on the Massachusetts Nonprofit Network. One of the stated goals of this new organization is “Build the public image of the nonprofit sector … to increase the valuing of our sector and its clients by the general public, policy-makers, and the state legislature.” It will be interesting to see how that effort unfolds.