In recent years, the University of Washington has conducted extensive research into the high concentrations of poverty and extreme disparities in St. Louis, Ferguson, and Greater St. Louis, Inc. The results of this research have been devastating for the metropolitan area, with some of the effects being more obvious than others.
The state government of Missouri has a policy of exempting nonprofit organizations from paying property taxes, which is common practice. However, they also exempt nonprofit organizations from paying sales and use taxes, which is not as common at the national level. Additionally, local law exempts nonprofit organizations from the St. Louis payroll tax.
This means that even if universities and hospitals are thriving, the St. Louis Public School District and other programs funded with sales and use taxes in St. Louis do not receive any additional revenue. The situation is further complicated by six decades of population decline in St.
Louis, leaving behind a large surplus of government-owned land. Extensive federal highway infrastructure, a large park system, and several large cemeteries within the city limits have further reduced the amount of taxable land within St. Louis. The nonprofit sector has been steadily gaining ground for decades, particularly in schools, universities, and hospitals as more Americans enroll in post-secondary education and health care increases its participation in the national economy.
The nonprofit sector now represents 10% of the entire U. S., with this percentage usually being higher in urban areas with a high concentration of hospitals and universities such as St. Louis. The tax environment in Missouri is more favorable for nonprofit organizations than the average state. Missouri exempts nonprofit organizations from charging sales taxes on their own sales (think of a hospital cafeteria) and also exempts them from paying sales and use taxes on their purchases.
This means that when BJC buys 100 computers or St. Louis University buys building materials, they do not pay sales tax on the purchase. Unfortunately, there is no reporting requirement for these purchases so it is unknown how much revenue cities and the state of Missouri are losing due to this exemption. State law and state constitution provide for property tax exemption for universities and hospitals, making it impossible to change this policy. State law also creates sales and use tax exemptions which are unlikely to be eliminated due to the economic importance and political influence of the state's hospitals and universities.
Local legislators can only collect payroll tax but this has met with substantial opposition from major local institutions. The irony of the growth of the nonprofit higher education market is that at the local level it reduces disposable income for elementary education as more land is removed from the tax rolls, leaving less available to generate property tax revenue for the school district. This creates a conflict between public primary education and private secondary education. While some cities (Boston) have managed to negotiate payments from nonprofit organizations that represent a percentage of what they would owe depending on the market, these payments are still generally voluntary and surrounded by a certain degree of uncertainty.Of course, these institutions still use city services such as 1% income tax generated by their employees as well as creating a market for other local businesses through their concentrations of employees and visitors. The problem is not black and white but as more properties become tax-free due to the expansion of nonprofit organizations or other federal or local government institutions (NGA, zoo etc.), an organization must understand the costs, time commitment, and increased oversight needed to grow when planning to do so through grant applications or an increase in fundraising. They should discuss the reporting requirements for the state, federal government, grantors, and donors such as whether they require an audit or if they will have to submit a 990-EZ or 990 form if applying for a grant or how often should they report on its grant progress? Does the grantor require a functional expenses report? Organizations must also analyze their structure and policies such as whether their conflict of interest policy applies or if there is a separation of duties at staff level or if their board is independent both in its appearance and application. These questions are essential before applying for grants or accepting large donations as audits cost money and take time to prepare while 990 audits are extensive and some states have low thresholds for reporting financial statements for licensing. In conclusion, while negotiating tax-like payments with universities and hospitals may be difficult to achieve in the short term at least St. Louis School District should conduct a more thorough investigation to understand exactly how much revenue is being lost because of these exemptions so that local governments can engage with the nonprofit sector in a more productive way in its shared responsibility with its communities.
