Relating To Nonprofit Organizations.
By exempting fundraising income from the state's general excise tax, HB798 is set to relieve nonprofits of significant financial burdens. Nonprofits often face what is termed a 'double whammy,' where they are taxed on gross income without the allowance for expenses related to fundraising activities, such as venue rentals and marketing costs. By aligning state tax provisions with federal standards, this legislation would help ensure that nonprofits can retain more of their income for essential services.
House Bill 798 aims to align Hawaii's general excise tax law with federal income tax law concerning nonprofit organizations. The bill finds that nonprofit organizations play a critical role in providing necessary services that, without them, would fall to government agencies and taxpayers. Currently, while nonprofits are federally exempt from income tax for income related to charitable activities, state law imposes taxes on income derived from 'unrelated business activities.' This results in a discrepancy that makes it burdensome for nonprofits to comply with differing tax obligations.
Overall, HB798 represents a significant reform for nonprofit organizations in Hawaii, intended to bolster their financial viability and operational capabilities. By clarifying tax obligations and eliminating the general excise tax on fundraising income, the bill seeks to foster a healthier nonprofit sector, enabling these organizations to better serve their communities.
Some points of contention may arise from the changes this bill proposed to existing tax regulations. Opponents may argue that exempting fundraising income could lead to potential abuses, where organizations might classify all fundraising as related to their exempt purposes to evade taxes. Additionally, some stakeholders may express concerns about whether this change adequately addresses the nuances between different types of income earned by nonprofits and the necessity for accountability in how these funds are used.