Question: What federal, state and local taxes are nonprofit organizations exempt from paying? Do nonprofits in Hawaii pay GE tax?
Answer: We turned to Tom Yamachika, president of the Tax Foundation of Hawaii, for help answering your questions. He explained that there are different categories of nonprofits. “Most of us think of a charitable organization, one recognized as an Internal Revenue Code 501(c)(3) organization, as a nonprofit. However, there are several other classes of nonprofits with different tax statuses. Labor unions, chambers of commerce, civic leagues, social clubs, employee benefit plans and homeowners associations are other examples.”
To answer your questions, Yamachika limited his focus to the tax status of 501(c)(3) charitable organizations, the type of nonprofit we think you were interested in knowing more about:
“Income tax: Charities typically do not pay income tax, except on ‘unrelated business’ activities. This rule prevents a charity from competing unfairly with a regular business. A charity can charge for, and does not pay income tax on, activities related with its tax exemption. Thus a museum can charge admission fees, a university can charge tuition and for a piano recital by its students, and so forth. These rules apply for state and federal income tax.
“General excise tax: Charities need to pay general excise tax on ‘fundraising’ activities, which is more broadly defined than ‘unrelated business.’ If, for example, a charity sells a ticket to a fundraising lunch for $50 and the lunch cost $30, it is taxed on the $50. As with income tax, GET is not payable on income related with the charity’s tax exemption.
“Real property tax: Certain kinds of charities are either exempt from, or are liable to pay only the minimum real property tax on, property on which charitable activities are being conducted. The benefit differs by county. In Honolulu, for example, a charity will pay only the minimum tax of $300.”
The U.S. Internal Revenue Service explains on its website that to be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes, and none of its earnings may enrich any private shareholder or individual. There are many other requirements, which you can read about at irs.gov/charities-non-profits.
Q: How many 501(c)(3)s are there in Hawaii?
A: There are 14,630, 5,813 of which are in Honolulu, according to the IRS’ Tax Exempt Organization Search tool, found online at apps.irs.gov/app/eos.
Complete Streets
Kokua Line continues to field complaints about Oahu crosswalks. As we’ve reported before, some are being removed as part of the city’s Complete Streets program, which aims to make city streets navigable by cars, bicycles and pedestrians. We’ve heard from numerous pedestrians who say changes have made their daily lives more difficult. Removing crosswalks from certain intersections that lack traffic signals means pedestrians either walk farther to cross at a signalized intersection or continue to cross at their usual spot, now an unmarked crosswalk; that’s not illegal but it’s presumably dangerous. So here’s a heads-up that Complete Streets is coming to Liliha Street and Nuuanu Avenue. There will be a community meeting tonight from 6:30 to 8:30 at the Maemae Elementary School Cafeteria, 319 Wyllie St. The city’s plans for the neighborhood will be on view and open for comment.
Mahalo
Mahalo to the person who found and turned in my senior citizen discount card and a gift card I accidentally dropped at the Waimalu Safeway on Wednesday. May you be blessed with the same kindness and good fortune. — Orson Moon, Aiea
Write to Kokua Line at Honolulu Star-Advertiser, 7 Waterfront Plaza, Suite 210, 500 Ala Moana Blvd., Honolulu 96813; call 529-4773; fax 529-4750; or email kokualine@staradvertiser.com.
