June 11, 2021
Note: The North Carolina Center for Nonprofits typically provides Nonprofit Policy Update each week as a benefit to its nonprofit members. However, to help all North Carolina nonprofits respond to the COVID-19 pandemic, we're temporarily providing this newsletter to non-member nonprofits.
In this issue...
NC Senate approves COVID-19 relief grants and massive tax cuts
Legislators agree on size of state budget
Let us know: How would sales tax exemption help your nonprofit?
U.S. Senate bill would make changes to donor advised fund laws
NC Senate committee approves election law changes
NC House approves bill to delay 2021 municipal elections
NC House committee approves legislation to provide support for direct care workers
NC House and Senate disagree over unemployment legislation
NC Senate Approves COVID-19 Relief Grants and Massive Tax Cuts
Yesterday, the NC Senate gave final approval to a bill (H.B. 334) that would make automatic grants to many nonprofits that have received federal or state COVID-19 relief over the past year and would make significant state tax cuts. The bill would use about $1 billion of North Carolina’s $5.7 billion in aid from the American Rescue Plan Act (ARP) to create the Job Opportunity and Business Saving Grant Program (JOBS Program). The JOBS Program would make automatic grants to nonprofits and businesses that received Paycheck Protection Program loans, Economic Injury Disaster Loan advances, Job Retention Program grants, Shuttered Venue Operators Grants, or Restaurant Revitalization Fund support. Under the proposal, nonprofits and businesses that received any of these sources of federal or state COVID-19 relief would receive additional state grants valued at 7.5% of the amount of their federal or state relief. The maximum grant awards would be $18,750 per entity (for nonprofits that received $250,000 or more from the PPP, EIDL, SVOG, Job Retention Program, and/or Restaurant Revitalization Fund).

The bill also includes a variety of major changes to the state tax code. These include:
  • Cutting the state individual income tax rate from 5.25% to 4.99%.
  • Raising the state standard deduction from $21,500 to $25,500 for married couples (and $10,750 to $12,750 for single filers) and raising the maximum child tax deduction from $2,500 to $3,000.
  • Phasing out the state corporate income tax (current 2.5%), starting in 2024. For nonprofits, this would eliminate state tax on unrelated business income.
  • Reducing the state franchise tax (nonprofits are already fully exempt, even if they have unrelated business income).
  • Conforming to the Internal Revenue Code on the universal charitable deduction for 2021 (meaning North Carolinians would get to deduct the same $300/$600 in contributions on their state taxes that they can deduct on their federal taxes. In 2020, North Carolina decoupled from federal tax law (i.e. taxed these charitable contributions).

These proposed tax law changes would likely mean tax cuts for businesses (through the cuts to the franchise tax and corporate income tax), low-income North Carolinians (through the higher standard deduction and increased child tax deduction), and wealthy North Carolinians (through the reduction in the individual income tax rate). Collectively, these tax law changes would reduce state revenue by about $1.4 billion in FY2022-23 and by about $2 billion per year once they are fully implemented four years from now. This revenue reduction could create challenges for future state investment in the work of nonprofits through grants, contracts, and appropriations.

The Senate is likely to include the tax cuts from this bill in its version of the state budget. The JOBS Program could be included in either the state budget or in a separate legislation to spend the state’s ARP funds later this summer.
Legislators Agree on Size of State Budget
On Tuesday, leaders of the NC Senate and NC House of Representatives announced that they had reached an agreement of the size of the state budget for FY2021-23, which begins on July 1, 2021. Overall, legislators are planning to spend $25.7 billion in FY2021-22 and $26.7 billion in FY2022-23. This would be lower than Governor Roy Cooper’s recommended spending levels of $26.6 billion for FY2021-22 and $26.9 billion for FY2022-23. Now that the House and Senate have agreed on spending levels, they can begin to work through the details of the budget. The Senate could release and vote on its budget next week, and the House could then approve its version by the middle of July. Legislators hope to get the final budget to Governor Cooper by the end of July. Depending on the details of the legislative budget, it is possible that Governor Cooper could veto it.
Let Us Know: How Would Sales Tax Exemption Help Your Nonprofit?
Earlier this year, the Center worked with state senators to get a bipartisan bill (S.441) introduced to exempt most North Carolina nonprofits from paying sales and use tax when they purchase goods and services. Currently, nonprofits pay sales tax on their purchases and can apply to the NC Department of Revenue for semi-annual refunds of the taxes they pay. Many nonprofits have told the Center that this refund process creates unnecessary red tape and cash-flow issues for their organizations and that a point-of-sale exemption from sales tax would fix these problems.

As we continue to meet with state legislators to advocate for them to pass this bill, the Center is seeking examples of nonprofits that would benefit from sales tax exemption. Let us know if sales tax exemption would save time or money for your nonprofit. Any details you can share will be extremely helpful in advocating for this legislation. If you prefer, we can keep your name and organization confidential.
U.S. Senate Bill Would Make Changes to Donor Advised Fund Laws
This week, two U.S. Senators introduced the Accelerating Charitable Efforts Act (ACE Act), which would make changes to federal tax laws related to donor advised funds (DAFs). Under current law, donors can set up DAFs at nonprofits, which allow donors to receive immediate tax benefits for contributions that will be made in the future to support nonprofits’ programs and services. Over the past decade, a growing percentage of overall charitable giving has come through contributions to DAFs. As a result, critics have expressed concerns that donors can use DAFs to get immediate tax benefits for contributions that aren’t providing immediate financial assistance to nonprofits serving communities.

The bill would replace existing DAFs with two new types of DAFs:
  1. 15-year DAF, where donors would still receive immediate tax benefits but where DAF funds must be distributed (or donors would give up the right to advise on how the funds were spent) within 15 years of the donation.
  2. 50-Year DAFs, where donors would not receive income tax deductions for their contributions until the donated funds are distributed to a charitable nonprofit. Under this “aligned benefit rule,” donors to 50-year DAFs would continue to receive capital gains and estate tax benefits when they make their donations. All funds in 50-year DAFs would be required to be distributed outright to charitable organizations no later than 50 years after their donation.

In response to concerns raised by some donors and community foundations, the bill would provide special treatment for DAFs held by community foundations. Under these rules, donors could hold up to $1 million in DAF funds at a community foundation without being subject to the proposed payout rules. Donors could create DAFs of more than $1 million at community foundations (and still receive immediate tax benefits) as long as they paid out at least 5% of the value of the DAF each year.

The bill also includes changes to private foundation rules to try to ensure that private foundations distribute more of their assets to operating nonprofits. Specifically, the bill would prevent private foundations from meeting their 5% payout requirements by paying salaries or travel expenses to a donor’s family members or by making distributions to DAFs.

The Center has not yet taken a position on this bill.
NC Senate Committee Approves Election Law Changes
This week, the NC Senate Redistricting and Elections Committee approved three bills that would make changes to state election laws. Many of these changes could affect people served by nonprofits. The three bills include:

  1. One bill (S.326) would require mail-in absentee ballots to be received by Election Day. Currently, voters must mail their ballots by Election Day, but they have a three-day grace period for their county boards of elections to receive their absentee ballots. Some nonprofit advocates have expressed concerns that, under the Senate bill, postal delays could cause some voters’ ballots to go uncounted.
  2. Another bill (S.724) would allow North Carolinians to register to vote online and would require the NC State Board of Elections to create an online portal for individuals with visual impairments to submit absentee ballots online. The bill also expresses support for state funding for a new program to help North Carolinians obtain photo identifications for voting and other purposes. This bill could increase access to voting for some people served by nonprofits, including individuals with disabilities, seniors, and low-income North Carolinians.
  3. A third bill (S.725) would prohibit private funders – including nonprofits – from providing funding to the State Board of Elections or to county election boards. Legislators expressed concern that some organizations – including nonpartisan 501(c)(3) nonprofits – could provide funding to local elections boards to bolster support in communities with strong partisan leanings.

The full Senate could vote on all three bills next week.
NC House Approves Bill to Delay 2021 Municipal Elections
On Wednesday, the NC House of Representatives unanimously approved a bill (S.722) that would delay some municipal elections scheduled for this fall until March 2022 to allow time for redistricting. Earlier this year, the U.S. Census Bureau announced that Census data used for redistricting will not be available until September 30, 2021. Overall, 62 municipalities throughout North Carolina are scheduled to have elections this fall. Cities and towns where officials are elected to represent districts will need to redraw those districts before the election. The bill would postpone those elections until next spring and require affected municipalities to review and revise their districts once Census data is available this fall. However, under the version of the bill approved by the House, municipalities could still have separate elections for some positions – like mayor or at-large city council seats – this fall, potentially creating some confusion for voters. The House-passed version of the bill also would permanently shift Raleigh city council and mayoral elections to even-numbered years. The Senate passed a different version of the bill (also unanimously) last week and could take up the House version next week.

Once the new dates of municipal elections are finalized, it will be important for nonprofits to provide clear information to their staffs, volunteers, and the people they serve about delayed elections in their communities.
NC House Committee Approves Legislation to Provide Support for Direct Care Workers
On Tuesday, the NC House Health Committee approved two bills (H.B. 665 and H.B. 914) that would make changes to state Medicaid rules to help provide wage increases for workers at a variety of organizations that provide services to North Carolina children, families, and adults. These bills could help ensure that many nonprofit service providers have the ability to provide better compensation for their direct care workers. The full House could vote on the bills next week or could include them in their version of the state budget.
NC House and Senate Disagree Over Unemployment Legislation 
The NC House of Representatives and NC Senate are both looking at ways to respond to concerns about labor market shortages in North Carolina. On Wednesday, the House voted unanimously to reject a Senate bill (H.B. 128) that would provide $1,500 payments to workers on unemployment who find jobs within 30 days and $800 payments to workers on unemployment who find employment within 60 days. These proposed bonus payments are intended to respond to concerns about labor shortages by offering incentives for North Carolinians to return to work. This could help some nonprofits that are having difficulty finding workers to fill vacant staff positions. Because the proposal would use federal funds to make bonus payments, it would require congressional approval if it were ultimately signed into law.

In the coming weeks, legislators are likely to negotiate between the bonus payment proposal and a House-passed bill (S.116) that would withdraw North Carolina from the Federal Pandemic Unemployment Compensation (FPUC) program that provides $300 weekly supplemental payments to unemployed workers.
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Nonprofit Policy Update is a weekly newsletter for current members of the North Carolina Center for Nonprofits. We track state and federal policy issues that affect all 501(c)(3) nonprofits. Learn about the Center's public policy priorities. For more information, contact David Heinen, Vice President for Public Policy and Advocacy.