Key Legislation Affecting Nonprofits in the 2016 Short Session
Updated: July 12, 2016
Tax Policy:
1. Nonprofit tax exemption. All 501(c)(3) nonprofits should be fully exempt from state and local taxes – including sales,
property, and business taxes – on activities related to their charitable missions.
 Why it matters to taxpayers and communities: New taxes on nonprofits would reduce their ability to provide
essential services and force them to cut jobs.
 What didn’t happen in 2016:
o In 2015, the Senate proposed several changes that would limit nonprofit sales tax refunds:
1. Lowering the annual cap on nonprofit sales tax refunds. Under current law, nonprofits must pay sales
tax on their purchases, but they can be reimbursed for the first $45 million in sales taxes they pay
each year. The Senate has discussed a cap of $100,000 (S.700) or $1 million per year (H.B. 97).
2. Changing nonprofit sales tax refunds from semi-annual to annual (H.B. 97). This would create cash
flow issues for thousands of nonprofits.
3. Making purchases of all goods and services, except for building materials, ineligible for sales tax
refunds unless purchased directly by a nonprofit rather than by authorized personnel (S.605). This
would mean that nonprofits could no longer receive refunds of sales tax paid on reimbursed
purchases of staff, board members, and volunteers. This would particularly affect small nonprofits.
4. Requiring nonprofit (but not for-profit) hospitals to report on their patient revenue and financial
assistance costs (charity care) based on their Medicare rates (which are lower than their actual
costs) as a means of justifying their sales tax refunds (S.825). This could set a dangerous precedent of
tying tax-exempt status to government-determined metrics for the amount of free or reduced-price
services provided by a nonprofit.
The Center opposed all of these provisions because they would create new taxes for nonprofits and
add red tape to the already burdensome refund process. Thanks to nonprofits’ advocacy, there were
no new limits on nonprofit sales tax refunds in 2015 or 2016.
o In 2015, legislators considered a proposal that would have authorized the Revenue Laws Study Committee
to study the impact on local governments of the acquisition of previously taxable properties by nonprofits
that are exempt from property tax (H.B. 430, S.422, and S.391). The Center was concerned that this
proposal could lead to new taxes on nonprofits. The bill containing this study didn’t pass in 2015 or 2016.
o At the end of the 2016 short session, legislators considered a proposal to study the property tax treatment of
golf courses, potentially including those owned by tax-exempt nonprofits (S.349). The Center did not take a
position on this bill. This study did not pass.
 What to expect in 2017 and beyond:
o The Senate could revisit its proposals to limit nonprofit sales tax refunds through a lower cap, a conversion of
refunds from semi-annual to annual, or an elimination of refunds on indirect purchases that are used for a
nonprofit’s benefit.
o Legislators could study limits on nonprofit property tax exemption, including the taxation of some new
property acquired by nonprofits.
 For more:
o http://www.ncnonprofits.org/voice/senate-bill-would-jeopardize-nonprofit-tax-exemption.
2. Incentives for charitable giving. Tax policies should encourage North Carolinians to give back generously to their
communities by supporting the work of charitable nonprofits.
 What didn’t happen in 2016:
o A 2015 Senate proposal would have effectively eliminated state incentives for charitable giving by including
the charitable deduction in a $20,000 cap on itemized deductions. A similar provision in Hawaii led to a
significant, measurable reduction in charitable giving and was therefore repealed after a year. The Center
opposed the limitation on the state charitable deduction. Thanks to nonprofits’ advocacy, there were no
new limits on the state charitable deduction in 2015.
 What happened in 2016:
Legislators made permanent a provision that requires individuals 70 ½ and older to pay state tax on
charitable contributions made from their individual retirement accounts. The Center opposed this provision.
In 2015, the Center worked with the House on an amendment (which passed by a 106-7 vote) to preserve
the IRA charitable rollover on state taxes, but the Senate removed it and wouldn’t consider it again in
2016.
 What to expect in 2017 and beyond:
o The Senate could revisit a cap on the charitable deduction if it makes changes to the personal income tax.
o House leaders have indicated an interest in reinstating the IRA charitable rollover on state taxes.
 For more:
o Charitable deduction: http://www.ncnonprofits.org/voice/senate-bill-would-jeopardize-nonprofit-taxexemption.
o IRA charitable rollover:
http://www.ncnonprofits.org/sites/default/files/public_resources/IRA%20rollover%20and%20state%20tax
es%204-27-16.pdf.
3. Sales tax on services. Many nonprofits’ charitable services should not be taxed. If they were, nonprofits would have
to increase their fees, and fewer people would be able to afford nonprofits’ essential services, even when they are
priced below the cost of providing them.
 What didn’t happen in 2016:
o In 2015, the Senate proposed adding sales tax to several services, including advertising services. The Center
was concerned that requiring nonprofits to collect and remit sales tax when they sell advertising could
reduce a source of revenue and could cause some contributions to be partly taxable. This provision did not
pass in 2015 or 2016.
 What happened in 2016:
o A new law repeals sales tax exemptions for items sold by nonprofits for the benefit of the state – for example,
in state museum gift shops – and it would create a new sales tax exemption for certain school-sponsored
events (S.803). The Center did not take a position on these provisions.
 What to expect in 2017 and beyond:
o The Senate could revisit the expansion of sales tax to advertising and other services offered by nonprofits in
2016 or in the future when it explores further tax reform.
4. Sales tax on admission fees. Policymakers should make clarifying changes to this law to minimize red tape for
nonprofits, and to avoid taxing North Carolinians on their contributions to private nonprofits.
 What didn’t happen in 2016:
o A 2015 House bill would have allowed nonprofits to wait to remit sales tax on admission fees to the N.C.
Department of Revenue until after events have occurred. This would fix an administrative and accounting
issue for nonprofits that charge admission fees for entertainment events. The Center supported this change
and advocated for it.
 What to expect in 2017 and beyond:
o Legislators could reconsider the proposal to fix accounting issues with the payment of sales tax on admission
fees.
o Legislators could revisit exempting nonprofits from charging sales tax on admission fees and could look at
further clarifications to the law that would benefit nonprofits (e.g. specifying in the statute that nonprofits
are not required to collect or remit sales tax on events that are for fundraising purposes).
5. TABOR. The Taxpayer Protection Act or TABOR (S.607), which has passed the Senate in 2015 would have put on the
ballot a constitutional amendment to: (1) limit growth of state spending to the total of inflation and population
growth; (2) lower and cap the state income tax rate at 5%; and (3) grow the state’s rainy day fund and require a
supermajority vote of the legislature to use these funds.
 What didn’t happen in 2016:
o In 2016, the Senate approved a variation of TABOR to cap the state income tax rate at 5.5% (S.817 and
H.B.3). The Center opposes TABOR because it would likely lead to new taxes on nonprofits, cuts to state
grants and contracts with nonprofits, and the offloading of state functions onto nonprofits. No version of
TABOR passed the House in 2016.
 What to expect in 2017 and beyond:
o Legislators could revisit the Taxpayer Protection Act – or some other variation of TABOR – in the future.
 For more:
o http://www.ncnonprofits.org/tabor.
o
6. Transparency of tax rulings. Private letter rulings that taxpayers receive from the N.C. Department of Revenue
(DOR) have not been available to the public.
 What happened in 2016:
o A new law (S.481) makes requires DOR to make all private letter rulings issued after 2010 available to the
public. Identifying information about taxpayers (including nonprofits) must be redacted. The Center
supports this additional transparency, since it provides greater certainty to nonprofits – and the attorneys
and CPAs who represent them – about the ways state tax policy is interpreted by DOR.
Government Contracts with Nonprofits:
1. State budget.
 What happened in 2016: The state budget generally maintained or expanded funding for state grants and
contracts.
For more:
http://www.ncnonprofits.org/sites/default/files/public_resources/2016%20budget%20comparison%206-3016.pdf.
Prompt payment and prompt contracts. Half of all NC nonprofits with state grants and contracts are paid late by
state agencies, the 11th-worst record in the nation. Policymakers should ensure that state agencies (a) avoid delays in
paying nonprofits that deliver services; and (b) inform them in advance if a payment will be late. Policymakers also
should ensure that state agencies sign contracts with nonprofits before nonprofits are asked to begin delivering public
services.
 Why it matters: Late payments make it harder for nonprofits to provide necessary services, often forcing them to
take out large loans, cut (already reduced) salaries, and lay off staff.
 What happened in 2016:
o A provision in the 2016 state budget (H.B. 1030) requires the N.C. Department of Health and Human
Services to make initial payments to certain nonprofits within 30 days after the certification of the state
budget. The Center supported this change, which should reduce late payments to these nonprofits.
 What to expect in 2017 and beyond:
o The Center will work with legislators on other ways to reduce late payments to nonprofits by state agencies.
Less red tape. Three-fourths of NC nonprofits with state grants and contracts experience problems with the
application process and reporting requirements required by state agencies. Policymakers should find ways to
streamline regulations, applications, and reporting and auditing requirements for nonprofit service providers.
 Why it matters to taxpayers and communities: This adds an administrative burden for nonprofits and wastes
taxpayers’ money by taking time and resources away from direct services.
 What almost happened in 2016:
o The House unanimously passed a provision in its regulatory reform bill (S.303) that would authorize the Joint
Legislative Program Evaluation Division to create a government-nonprofit contracting task force that would
investigate various contracting issues, redundant red tape, and underpayment of indirect costs and make
recommendations for reforms in 2017. The Center recommended this provision and advocated strongly for
its passage. It passed the House unanimously, and key Senate leaders also supported it. Unfortunately, the
Senate did not take up the bill because of an unrelated provision in another bill.
 What to expect in 2017 and beyond:
o The Center will again ask legislators to authorize a study to reduce red tape for nonprofits that provide
public services through state grants and contracts. Several legislators have already agreed to introduce this
legislation in 2017.
 For more:
http://www.ncnonprofits.org/sites/default/files/public_resources/Nonprofits%20and%20government%20c
ontracting%205-4-16.pdf.
Document vault. The state should increase efficiency by creating a centralized, electronic “document vault” to store
grant and audit documentation, accessible to all relevant agencies. This would remove the need for nonprofit service
providers to send identical information to multiple agencies.
Effective performance-based contracts. For nonprofits that provide public services, the performance benchmarks in
their government contracts should be: (a) carefully tailored to provide the best return on investment for taxpayers;
and (b) fair, reasonable, and appropriate for nonprofits delivering services.
 What happened in 2016:
o The General Assembly approved legislation that will authorize lawmakers to demand that state programs
undergo “measurability assessments.” A measurability assessment, conducted by an independent evaluator,
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would include various metrics to determine whether the program is addressing the need that it is designed to
meet and would require programs to produce a logic model that uses the standards developed by the W.K.
Kellogg Foundation. These assessments would apply to nonprofits providing services through grants and
contracts funded by the state programs.
6. State compliance with federal rules. Policymakers should ensure full and fair implementation of the cost principles
and other grants reforms in the new OMB Uniform Guidance issued Dec. 2014.
 What to expect in 2017 and beyond:
o As legislators consider changes to the State Budget Act in 2017 and in the future, the Center will encourage
them to conform state law with the OMB Uniform Guidance to ensure greater consistency in grants
reporting and to allow nonprofits to be paid more fully for their true costs of providing services.
Nonprofit Operations:
1. Employment law changes. As nonprofits employ 10% of the state’s workforce, lawmakers should ensure that
changes to state employment laws do not have unintended consequences for nonprofits’ operations or missions.
 What didn’t happen in 2016:
o In 2015, the House has approved legislation that would create new penalties for employers that misclassify
their workers as independent contractors instead of employees. It uses a different standard than the federal
law. The Center generally supports this bill and encourages all nonprofits to regularly check to see that
they are properly classifying their workers. The Senate never took up this bill, although the Governor
signed an executive order in 2015 that accomplishes some of its goals.
o In May, the U.S. Department of Labor (DOL) issued final federal regulations that will require employers to
begin providing overtime pay to administrative, executive, and professional employees with salaries below
about $47,476 per year, starting on December 1, 2016. Many nonprofit employees are subject to overtime
pay rules under state law rather than federal laws because the N.C. Wage and Hour Act incorporates by
reference the federal rules into North Carolina law. The Center explored with legislators the idea of
delaying the implementation of the North Carolina change by a year. Legislators ultimately didn’t pass this
provision, so the overtime rule changes will apply to all North Carolina nonprofits on December 1, 2016.
o The House considered an immigration bill (H.B. 1069) that would have required nonprofits and businesses
with five or more employees to use the federal E-Verify system. Currently, E-Verify requirements apply to
nonprofits with 25 or more employees. The Center was concerned that this provision would create new
costs and administrative burdens for small nonprofits. This bill did not pass.
2. Charitable solicitation. The state should continue to regulate nonprofits and others that solicit funds on behalf of
charitable organizations. This is essential to preserve the public’s trust in the nonprofit sector.
 What to expect in 2017 and beyond:
o The Center anticipates the need for several changes to the charitable solicitation laws in the near future:
1. Increasing the budget threshold for providing an audit to the state from $500,000 per year to
$750,000 per year.
2. Simplifying the process for nonprofits to be exempt from charitable solicitation requirements.
3. Raising the annual budget threshold for small nonprofits that are exempt from charitable solicitation
requirements from $25,000 to $50,000 to be consistent with IRS reporting requirements.
4. Modernizing the charitable solicitation registration process to be consistent with the forthcoming
single portal for multi-state charitable registration.
3. Nonprofit fundraising. Lawmakers should ensure that any rule changes for nonprofit fundraising events, such as
charitable gaming, are clear and consistent with best practices for nonprofits.
 What happened in 2016:
o Legislators approved a new law (H.B. 292) that creates new fees ($300) and registration requirements for
for-profit businesses that offer bingo games. Currently, nonprofits are required to register and pay a $200
fee to offer bingo games as fundraising events, and nearly 250 nonprofits across the state are registered to
do this. The Center supported H.B. 292 because it levels the playing field for nonprofits by ensuring that
they aren’t subject to stricter regulatory requirements than for-profit businesses.
 What didn’t happen in 2016:
o A 2015 House bill (H.B. 831) would have expanded the ability of nonprofits to use raffles as fundraising
events by eliminating the caps on the value of raffle prizes. The Center supported H.B. 831, but it did not get
a vote in 2015 or 2016.
o Another 2015 House bill (H.B. 894) would have allowed nonprofits to conduct up to four “game nights” per
year as fundraising events. The Center did not take a position on H.B. 894. It did not get a vote in 2015 or
2016.
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 What to expect in 2017 and beyond:
o Legislators could consider modifying state laws related to nonprofit fundraising.
Nonprofit conversions to LLCs.
 What happened in 2016:
o In the final days of the short session, legislators approved a bill (S.482) that allows religious or charitable
nonprofits to convert to single-member limited liability companies (LLCs) as long Is the sole member is a
religious or charitable nonprofit. The Center supported S.482 because it provides greater flexibility for
nonprofits. We worked with legislators and attorneys representing nonprofits to ensure that the N.C.
Nonprofit Corporation Act was amended appropriately to allow for this type of conversion.
 What to expect in 2017 and beyond:
o The Center will work with attorneys who represent nonprofits and other interested parties to look more
broadly at amending the N.C. Nonprofit Corporation Act to allow for other types of conversions to or from
nonprofit corporations.
Benefit corporations. Lawmakers should provide legal protection to benefit corporations, which are socially
responsible businesses that frequently collaborate with nonprofits, provide services to nonprofits, make significant
charitable contributions, and encourage volunteerism among their workers.
 What didn’t happen in 2016:
o A 2015 House bill (H.B. 534) would have provided legal protection to benefit corporations. It didn’t get a vote
in the House in 2015 or 2016. The Center supported H.B. 534.
 What to expect in 2017 and beyond:
o Legislators will likely revisit benefit corporations in the future. Similar legislation has passed in many other
states, including South Carolina and Virginia, and it has bipartisan support in North Carolina.
Assumed business names. Under current law, if a nonprofit operates using a name other than its legal corporate
name, it must file an assumed name certificate in each county of North Carolina where it conducts business.
 What happened in 2016:
o Legislators passed a law (S.124) that will allow nonprofits to just file an assumed name certificate with the
register of deeds in one county where they operate. The Center supported S.124 because it will improve
compliance and cut red tape for nonprofits that operate with assumed business names.
Nonprofit identification cards. Currently, nonprofits are allowed to issue identification cards that can, in certain
circumstances, be used by law enforcement officials to verify residency and identity. Some nonprofits have used
these cards as part of programs to improve community relations.
 What didn’t happen in 2016:
o Legislators considered two bills (H.B. 100 and H.B. 1069) that would have prohibited local law enforcement
officials from accepting identification cards issued by nonprofits to confirm individuals’ identity and
residency. Neither bill passed in 2016.
For more information, contact David Heinen, Vice President for Public Policy and Advocacy, at 919-790-1555, ext.
111, or [email protected].