1. Lake Times
, Intermountain Commercial
Friday, October 31, 1997 Salt Lake City, Utah $6 single copy
TAX EXEMPTIONS
Nonprofits are not necessarily
nonprofit
Nearly 250 nonprofits provide contractual services to 21 state agencies.
In 1996, about 100 nonprofits reportedly were eligible for state audit
because state agencies contribute the majority of their funding.
Joe Stewart-Mash
coordinator of the project, and Nancy
Hansen of the Internal Revenue Ser-
vice were very interested in this de-
velopment.
According to SUNUP'S interim
first year reportusssl, nearly 8,000
active nonprofits are registered with
the state and almost 6,000 tax-exempt
Utah entities are registered with the
IRS. More than 700 groups are au-
thorized to solicit charitable contri-
butions.
Most of the organizations belong-
ing to and targeted by UNA are
501(3)(c) designated which are clas-
sified by the IRS as charitable, edu-
cational, literary, cruelty prevention
for animals and children, religious
and scientific, and other. Of the 1994
Utah 5,879 tax exempt nonprofits,
3,423 are 50l(c)(3)'s. The SUNUP in-
cludes other categories in order to
get a more complete picture of the
total nonprofit segment
The majority, 262, of those listed
as charitable organizations list their
"activity" as gifts, grants and loans to
other organizations. Nearly 250
nonprofits provide contractual ser-
vices to 21 state agencies. In 1996,
about 100nonprofits reportedly were
eligible for a state audit because state
agencies contribute the majority of
their funding. "The state Auditor is
supportive of SUNUP in part because
of the possibility of turning up po-
tential customers to serve under the
aforementioned federal audit re-
quirement" states the report.
The state agencies, as listed on an
Oct. 1990 vendor report, who did the
most business through vending con-
tracts with nonprofits are: Commu-
nity and Economic Development's
Continued on page A22
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U
.S. nonprofits number more
than one million and con-
tribute almost $500 billion
annually to the U.S.
economy. According to Independent
Sector in Sales & Marketing Manage-
ment, 48.8% of the U.S. population
volunteer time and 68.5% contribute
money to charitable causes.
Roz McGee, president of the Utah
Nonprofit Association board, reports
the first ever study on Utah's
non pro fits' economic impact will be
presented at the UNA conference
November 6. It will be made avail-
able to the public in December. Part
of the economic report was given to
the Record in advance of publica-
tion.
McGee said the study was quite a
challenge, more work than antici-
pated but what they learned was
more than they expected.
In 1990,the UNAwas formed "by,
and for, people who want a better,
stronger, more professional not-for-
profit community in Utah."
The 120 member UNA, located at
the University of Utah, works in con-
junction with the Junior League, the
U of U Center for Public Policy and
Administration, the Utah Depart-
ment of Commerce and the Utah
Dept. of Community and Economic
Development among others.
The UNA instituted a three-year
program to analyze the scope of the
Utah nonprofit sector. Launched
April 1, 1996, it is called the State of
Utah Nonprofit Understanding
Project (SUNUP).
The scheduled three, now four,
year plan is to construct a directory
database of nonprofit organizations,
gauge the demographics, economic
impact and social contribution of
Utah nonprofits, look at how public
policy impacts nonprofit organiza-
tions, and find ways to expand the
capacity of nonprofits.
What was not covered are the im-
pacts of property and sales tax ex-
emptions. The Utah State Tax Com-
mission, the Salt Lake County
Auditor's office, the Utah Founda-
tion, the Utah State Taxpayer's Asso-
ciation and the Utah Atheists were
all contacted regarding the property
tax issue and none knew of any study
that could put verifiable numbers to
it
Nonprofits are charged with tak-
ing up the slack from government
reductions by creating partnerships
health care organizations, arts, com-
munity and trade groups.
This sector of the economy is
growing faster than private and gov-
ernment sectors. U.S. nonprofits'
employment grew 63% while private
business grew 31% and government
employment increased 27% from
1977-90.
Utah's first nonprofit, incorpo-
rated in 1868, was a religious corpo-
ration. More than 70% of Utah's
non profits were formed in the last 20
years and 641 new nonprofits incor-
porated in 1996.
Two nonprofits, Best Friends, a
Kanab-based animal sanctuary, and
the National Association of Certified
Valuation Analysts (NACVA1, Salt
The state agencies ... who did the most business
through vending contracts with nonprofits are:
Community and Economic Development's 90
contracts worth $2.9 million, the Public Service
Commission's $2. 7 million contract with the
.Utah Association for the Deaf for the deaf relay.
with private industry and govern-
ment to underwrite and utilize re-
sources to meet community needs.
Nonprofit organizations, a.k.a.
not-for-profit, independent, philan-
thropic, voluntary, social or third sec-
tor, have been defined as corpora-
tions formed for a purpose other than
to generate a profit. Nonprofits in-
clude religious groups, schools,
Lake City, were named to the Utah
100, the fastest growing companies
in the state, October 22. The
MountainWest Venture Group's
ranking is based on voluntarily sub-
mitted Utah-based corporations' rev-
enue growth figures from 1992-96.
Corporations must have minimum
sales of $25,000 to be considered.
Both Steve Klass of Klass Strategies,
Volume 40 Number 45
INSIDE
Under Analysis A2 Utah Technology A24

2. The Intermountain Commercial Record & Salt Lake TimesA-22/ Friday, October 31,1997
Nonprofits are not necessarily nonprofitContinued from page A1
90contracts worth $2.9million, the Public Ser-
vice Commission's $2.7 million contract with
the Utah Association for the Deaffor the deaf
relay, (known byconsumers as the TDD charge
on a phone bill).These are both dwarfed by the
Corrections Division's 18contracts totaling $7.6
million.
The Utah Division of Corporations assigns
the U.S. Department of Labor's Standard In-
dustrial Code::(SIC) to nonprofits when they
apply for incorporation. The majority of Utah
nonprofits, 1,412,are given the "Miscellaneous"
(8600or 8900 series) designation. This is prob-
lematic according to SUNUP because it does
not give a true picture of what exactly those
organizations do and recommend the Div. of
Corp. use either the IRS classification system
or federal IDnumbers. ACommunity and Eco-
nomic Development researcher concurs, "They
are supposed to be cleaning up their act," he
said referring to the Div. of Corp.'s code as-
signments.
Apresumption made by SUNUP collabora-
tors was that human services would be the
biggest factor in overall impact according to
Klass.They were partially correct.
In 1995, the top five nonprofit categories
with the "greatest economic magnitude" were
individual and family services, including child
care, with a payroll of$I1.7 million and 3,323
workers in 182firms. Second, was medical fa-
cilities and home health care services, payroll
was $10.3million with 2,202workers in33firms.
Third, was civic, social, professional and reli-
gious with a $6.7 million payroll, 1,599workers
in 235firms. Fourth, was schools with $5.3mil-
lion in wages, 1,186people in 55 "firms." Fifth
was entertainment, membership sports and
recreational with $4.4million and 944workers
in 41 firms.
The IRStax code lists more than 25 classifi-
cations of businesses eligible for federal tax
exemption. "Wedon't use the word nonprofit"
stated Hansen who said the correct term is tax
exempt.
Religious organizations' numbers are not
necessarily included in IRS statistics because
they are exempt from paying federal income
tax and are not required to obtain 50l(c)(3)
designation or to file Form 990's Hansen con-
firmed. She said some of SUNUP's numbers
could be disputed because they're not getting
.all the information from churches, universities
and other organizations.
In 1996,most ofUtah's nonprofits are small,
but account for the bulkofassets and increases,
62% of 1,114 the nonprofits reporting income
to the IRShad incomes of less than $250,000.
Fifteen percent, 168 entities, had income
greater than $1 million which is 93% of total
reported income.
In 1994,total tax exempt organizations' as-
sets exceeded $6.2 billion, 42% held by chari-
table organizations and 42% by credit unions.
Total income was more than $3.4 billion, 64%
from charitable organizations and 21% from
voluntary employees' beneficiary associations
(VEBA).
The most cognizant explanation of VEBA
comes from Ron Snyder, attorney and actuary
with Benefit Strategies Group. It is a 50l(c)(9)
tax exempt trust set up by unions, other non-
profit groups and private employers to admin-
ister welfare benefits. Snyder said VEBA'sper-
ceived impact is due to First Health, the largest
third party administrator of benefits, who sets
up trusts here in Utah, its headquarters, rather
than the states where its client companies are.
The top three 1996tax exempt categories by
assets and income are: 107 state chartered
credit unions and mutual reserve funds with
assets of $3.4 billion and income of $284 mil-
lion. Second largest is religious, education,
charitable, scientific or literary organizations
numbering 3,650, with total assets of $2.9 bil-
lion, and income of $2.6 billion. Third is VEBA
with 96 reporting entities, assets of $415 mil-
lion, and income of $690 million. Concerning
types of nonprofits, Utah leads the mountain
west in arts and culture and falls behind in
religious. Utah has almost double the number
of environmental and animal charities than
the U.S. average.
The top five 50l(c)(3) organizations by in-
come are: IHC Health Services, Inc., $1.3 bil-
lion, IHC Health Plans Inc., $197 million,
George S.Eccles and Delores Dore EcclesFoun-
dation, $169 million, Sisters of the Holy Cross
Hospital Association $61 million, and Valley
Mental Health Inc., $50 million.
Not all 50l(3)(c) organizations remain ac-
tive. Klass explained that once you've obtained
the classification, you have to request an offi-
cial IRS form and submit it to be unclassified.
Few do that. Or you can lose the designation
by being under investigation for violating the
tax exempt status.
Not surprising, most nonprofits operate in
the greater Salt Lake City area.
The majority of non profits who responded
to the Utah Nonprofits Directory questionnaire
listed their "activities" as: 1)education, 2) chil-
dren and youth services, and 3) social services.
"This study may be raising more questions
than it answers," said Klass when asked by the
Record/Times some specific questions about
the data that he could not answer.
The bulk of the data gathered by SUNUP
came from the Utah Division of Corporations
and IRS Form 990's. A questionnaire was sent
directly to Utah nonprofits and those results
are also included.
The directory and related materials will be
made available to the public and can be pur-
chased from UNA, U of U Annex Bldg. #2120,
Salt Lake City, Utah, 84112. Telephone
801.485.9146.
, IRS reform bill offers I Passing on the family