State & Federal Tax Updates

State Tax Reform Efforts

State legislators will be focused on the budget and tax reform in 2018.  House and Senate leadership indicated that we can expect to see another bill to tax nonprofit hospitals, similar to the one passed during the special session, but vetoed by the Governor.  This bill was negotiated with and is supported by nonprofit hospitals.

Two tax bills have been pre-filed:

  • Senate Bill 17, Gross Receipts for Certain Nonprofits, is intended to ensure that regardless of the type of corporation that has the management of New Mexico’s national labs, the labs will be required to pay taxes.  The bill preserves exemptions for 501(c)(3) and 501(c)(6) organizations.  There are 29 different 501(c) designations.  Does the bill leave the others 501(c) organizations vulnerable to being required to pay taxes?  New Mexico Thrives will pursue this question.
  • Senate Bill 49, Tax Reform, has two references to nonprofits: Section 37, p. 120 stating that donations to 501(c)(3)s are tax exempt; and Section 55, p. 151 stating that donations to 501(c)(3)s are exempt from Gross Receipts Tax.  New Mexico Thrives will follow the progress of this bill.

Federal Tax Update

The federal tax bill passed and nonprofits need to prepare for the ripple effects.  These will be seen in decreased donations, increased need, the state's efforts to tax nonprofits ("close tax loopholes"), federal efforts to reform entitlement programs, changes to payroll taxes and increased health coverage costs.

The National Council of Nonprofits says that the "New tax plan will 'substantially' hurt the work of charitable nonprofits in local communities."  They're calling this a time for collective action

Tax bill effects on nonprofits:

  • The basic exemption has doubled which means that fewer people will itemize their deductions.  It is estimated that annual charitable donations will decrease by $13-22 billion nationally.
  • The estate tax has doubled, which is estimated to mean a further loss of approximately $4 billion per year.
  • Unrelated Business Income Tax (UBIT) will be calculated separately for each business activity, nonprofits will no longer be able to use losses from one to offset the profits of another.
  • Federal revenues will shrink by at least $1.5 trillion, which means less money available to address our nation's needs.  If you receive federal funds or state pass-through funds, this will affect your funding for at least 10 years.

For more information, see National Council of Nonprofits, Federal Tax Reform