The Value of A Tax Exemption

Posted on April 12, 2012. Filed under: Uncategorized | Tags: , , , |

Why are nonprofit organizations permitted to file for tax exemption status?

According to the Internal Revenue Code, such exemptions provide value to society because the organizations are dedicated to charitable, religious, educational, or other purposes that benefit American citizens. But do all of the activities of tax exempt organizations actually benefit our society?

For instance, consider Yale University. Last week, its faculty passed a resolution that “expressed concern” about its new Asian venture with the National University of Singapore. The project certainly benefits Singaporean citizens, but does it benefit American citizens as well?

Although the venture will create Yale’s first college campus outside of New Haven, it isn’t the University’s first major development initiative outside of the Elm City. A few years ago, Yale purchased a 136-acre campus in West Haven and Orange from Bayer Pharmaceuticals to serve as a science and medical center.

The purchase undoubtedly strengthened Yale’s scientific capabilities. However, it pulled an extremely valuable piece of real estate off of the towns’ real estate tax rolls. Did that transaction benefit American citizens?

Likewise, consider Governor Malloy’s recent decision to strengthen the University of Connecticut by enticing Jackson Labs to relocate from Maine and help UConn develop a nanotechnology center. Our own blog questioned the value of that deal at a time of extreme government austerity.

No one doubts that our academic institutions contribute significantly to our state’s economy. But should they continue to enjoy tax exemption status when they engage in activities with questionable benefits?

Contributed by Michael Kraten, PhD, CPA, Accounting Professor at Providence College and President of Enterprise Mgt. Corp.


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