NCPA - National Center for Policy Analysis

Making Profits in The Non-Profit Sector

March 18, 2002

Few Americans probably comprehend how big, how important -- and how fast-growing -- profit-making enterprises are to the nonprofit world. Because non-profit enterprises pay no taxes on most of their income, taxpayers subsidize those activities.

For example, Girl Scouts receives a quarter of its annual operating revenue from the sale of uniforms; Tickle Me Elmo still generates a handsome licensing fee for the Children's Television Workshop; and the shops, restaurants and parking garage and so forth of New York's Metropolitan Museum of Art produce $96.6 million of revenues. All of these profits are nontaxable because the enterprises are related to the organizations' missions.

  • By one estimate, profit-making activities contribute more than $60 billion a year to non-profit coffers.
  • Non-profit groups do pay taxes on commercial activities that are not linked to their mission -- although those are very few.
  • Some 10,000 charities in an Internal Revenue study in 1997 paid a total of $103 million in unrelated business taxes.
  • Experts report that business operations of non-profit organizations often mean the difference of operating consistently in the red and posting only occasional losses.

Lester M. Salamon, author of "America's Non-profit Sector," has estimated that in 1996, some 36 percent of money raised by non-profits came through government support. Some 54 percent came from commercial activities including user fees, and 10 percent originated from private gifts -- including individual donations and grants.

Back in 1980, however, government funds provided 48 percent of non-profits' support.

Source: Stephanie Strom, "Non-Profit Groups Reach for Profits on the Side," New York Times, March 17, 2002.

 

Browse more articles on Tax and Spending Issues