June 18, 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 House committee approves bill to modernize nonprofit corporation laws
NC Senate likely to vote on state budget next week
Improved state revenues could be good news for nonprofits
How would sales tax exemption help your nonprofit?
National Council of Nonprofits asks Congress not to claw back ARP state and local funds
Governor Cooper extends limited COVID-19 restrictions through July 30
NC Senate approves election law changes
IRS issues new FAQs on paid leave tax credits
New IRS online tool designed to help low-income families register for Child Tax Credit 
Legislators approve bill to delay 2021 municipal elections
NC House Committee Approves Bill to Modernize Nonprofit Corporation Laws
On Wednesday, the House State Government Committee unanimously approved a bill (H.B. 696) to make a variety of improvements to the North Carolina Nonprofit Corporation Act, including:
  • Creating a simple, online, no-fee annual report for North Carolina nonprofits. This change would protect the reputation of our state’s nonprofits by helping prevent fraud and abuse of defunct nonprofits. Almost all other states currently have annual reporting requirements for nonprofits.
  • Allowing more nonprofit boards to use email to take action by unanimous written consent. Currently, nonprofits need to “opt in” to allow board members to use email for unanimous written consent votes (usually by a provision in their bylaws). However, during the COVID-19 pandemic, many nonprofits have discovered that their bylaws do not include the necessary language to allow for email board votes.
  • Allowing nonprofits to merge with unincorporated nonprofit associations or limited liability companies (LLCs) that are treated as 501(c)(3) charitable organizations for federal tax purposes. As more nonprofits are looking to collaborate with other organizations or consolidate their operations, this revision would help ensure that they have the option of merging with other charitable organizations, regardless of their corporate form.
  • Simplifying the process for nonprofits incorporated in other states to become North Carolina nonprofit corporations. This type of “domestication” provision could allow nonprofits to relocate to North Carolina without having to re-apply for tax-exempt status with the Internal Revenue Service.
  • Requiring nonprofits incorporated in North Carolina in the future – other than private foundations – to have at least three board members. This would make the North Carolina law consistent with nonprofit best practices and with most other state nonprofit statutes.

This bill, which was recommended by the Center, was developed based on input the Center has received from nonprofits and attorneys representing tax-exempt organizations over the past several years. The Center appreciates Representative Brandon Lofton (D-Mecklenburg) for introducing the bill. The bill now goes to the House Finance Committee for consideration.
NC Senate Likely to Vote on State Budget Next Week
With just 12 days left before the end of the state’s fiscal year, state legislators have not yet begun the formal process of developing a state budget for the next two years. Governor Roy Cooper released his proposal for the state budget in March, recommending a total of $27.3 billion in state spending for FY2021-22 and $28.6 billion for FY2022-23, and the NC Senate and NC House of Representatives agreed last week that total state spending levels would be $25.7 billion in FY2021-22 and $26.7 billion in FY2022-23. 

Next week, the NC Senate is likely to release and approve its version of the state budget. The House will then develop its version of the budget by the middle of July, and legislators hope to send a final version of the budget to Governor Cooper by the end of July or early August. If Governor Cooper vetoes the budget (as he has done in previous years), he will need to negotiate with legislative leaders on a final version. In the meantime, current state spending levels will remain in place after June 30, meaning that state funding won’t be increased or revised to adapt to changing needs in the state.

In addition to appropriating money for various state programs and services (including support for a variety of nonprofits that provide public services in North Carolina communities), the Senate budget is likely to include significant tax cuts and a plan to spend some or all of the state’s $5.7 billion in American Rescue Plan Act (ARP) funds. Specifically, the Senate budget is expected to include the Senate-approved tax plan (H.B. 334) that would:
  • Create a new Job Opportunity and Business Saving Grant Program (JOBS Program) to make automatic grants to many nonprofits that have received federal or state COVID-19 relief over the past year;
  • Cut the state individual income tax rate from 5.25% to 4.99%;
  • Raise 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;
  • Phase out the state corporate income tax (current 2.5%), starting in 2024. For nonprofits, this would eliminate state tax on unrelated business income; and
  • Reduce the state franchise tax (nonprofits are already fully exempt, even if they have unrelated business income).

In addition to the JOBS Program and possible appropriations to specific nonprofits that have taken on new programs and services during the pandemic, the Center has asked legislators to use some of the state’s ARP funds to create a $75 million nonprofit relief fund. Based on input from many nonprofits, the Center is seeking a grant program that would provide support to nonprofits that have experienced: 
  • Revenue losses during some period of the pandemic;
  • Shut-downs of operations due to COVID limitations;
  • Loss of volunteers during the pandemic;
  • Costs incurred by changing the way programs and services are provided as a result of social distancing; or
  • Increase in services to meet community needs during the pandemic.
Improved State Revenues Could Be Good News for Nonprofits
On Tuesday, the NC Office of State Budget and Management and the NC General Assembly’s Fiscal Research Division released a new revenue forecast for the 2021-23 biennium. Because of the continued growth in personal income tax and sales tax revenue, state revenues are now expected to be more than $4.5 billion higher over the two-year period than when state economists last released their projections in February. In addition, state revenue is about $6 billion higher than expected in the current fiscal year, giving legislators more one-time resources in developing the next state budget. The improved revenue projection is good news for nonprofits because it should reduce the pressure on state legislators to cut or eliminate state grants and appropriations to nonprofits or to consider new taxes on nonprofits as a way to raise new revenue. 

However, significant state tax cuts could change this projected revenue surplus. For example, the tax cuts that the NC Senate recently approved (see the item above) 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.
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. Thank you if your nonprofit has already shared this information with the Center.
National Council of Nonprofits Asks Congress Not to Claw Back ARP State and Local Funds
On Monday, the National Council of Nonprofits sent a letter to congressional leaders and all members of Congress opposing any proposal to claw back or reclaim funds already allocated to governments from the American Rescue Plan Act (ARP). Some U.S. Senators have called for blocking those funds from going out to state and local governments and instead using the money to pay for federal infrastructure programs.
Governor Cooper Extends Limited COVID-19 Restrictions through July 30
Last Friday, Governor Cooper issued Executive Order No. 220, which extends the limited COVID restrictions that are currently in place in North Carolina through July 30, 2021. Under the executive order, masks are still required in schools, child care facilities, camps, hospitals, outpatient healthcare settings, long-term care facilities, skilled nursing facilities, intermediate care facilities for individuals with intellectual disabilities, correctional facilities, public transportation, and facilities providing services to people experiencing homelessness. Under the executive order, nonprofits may continue to require masks at their facilities and other places where they provide programs and services.
NC Senate Approves Election Law Changes
On Wednesday, the NC Senate 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 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.

All three bills were approved along part lines. The House could consider them later this year.
IRS Issues New FAQs on Paid Leave Tax Credits
Last Friday, the Internal Revenue Service issued new FAQs on the tax credit for nonprofits and other employers that offer paid sick leave and paid family and medical leave. The ARP extended these refundable tax credits through September 30, 2021. The FAQs include information on how eligible employers may claim the paid sick and family leave credits, including how to file for and compute the applicable credit amounts, and how to receive advance payments for and refunds of the credits.
New IRS Online Tool Designed to Help Low-income Families Register for Child Tax Credit
On Monday, the Internal Revenue Service opened an online non-filer sign-up tool designed to help eligible families who don’t normally file tax returns register for the monthly Advance Child Tax Credit payments, scheduled to begin July 15. Under the ARP, the maximum Child Tax Credit was increased to $3,000 per child (up from $2,000 per child) and to $3,600 for children under the age of six. To help working families access this support sooner, the ARP authorized the IRS to issue the Child Tax Credit in advance monthly payments rather than having taxpayers wait to claim the credit on their tax returns. The IRS anticipates that about 88% of families with children will receive the advance payments automatically. The IRS is encouraging community-based nonprofits to spread the word about the new non-filer sign-up tool to help families with children access these advance payments.
Legislators Approve Bill to Delay 2021 Municipal Elections
On Monday, the NC Senate 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 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 bill would also permanently shift Raleigh city council and mayoral elections to even-numbered years. The House passed the bill last week, and it now goes to Governor Cooper for his consideration.

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.
Not a Center Member? Join now.

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.