More nonprofits seek exemptions every year, says David Bailey, a lobbyist working for the Coalition of Virginia Nonprofits. Each exemption is granted for a five-year term. Most are small, but the House and Senate Finance Committees must examine each one. Then, Bailey says, the bills usually get rolled into "one omnibus bill," which is sent on to the governor.
In Maryland, by contrast, the state Department of Taxation handles all nonprofits' applications for exemptions a process that can be attended to year-round, instead of cramming it into a 43- or 60-day legislative session. "The process, I think from the perspective of the legislators, has grown rather cumbersome," Bailey says of Virginia's system.
The House and Senate took one step toward reexamining the entire procedure in the last legislative session. They voted to extend exemptions for private schools and colleges for only one year instead of five. This gives a joint subcommittee time to complete a massive study of tax revenue and decide what changes to make.
"Nonprofits can't take it for granted that their exemption will automatically continue," Bailey warns. But local organizations say repealing the exemption would hurt communities more than it would help the state.
"It's not the nonprofit that's penalized, but rather the beneficiary of the funds that are collected and then distributed to all the worthwhile organizations," says Marsha Hurwitz, executive director of the Jewish Community Federation of Richmond, one member of the coalition of nonprofits. "It's the people we serve who are in need for social and humanitarian services that will get less."
Nonprofits shouldn't be singled out, Bailey says. He recommends the state look at what he considers far larger categories of exemptions, such as agriculture, manufacturing, even cell-phone companies. The growing e-commerce industry is another place the state could target, says George McVey, President of the Virginia Council for Private Education. Don't punish nonprofits when they didn't cause the overall decrease in tax revenue, he says.
The House committee on sales and use tax exemptions will continue to meet during the summer and will make its report in August, Bailey says.