An Update for Nonprofits About Federal Privacy Legislation

While nearly all snakes hibernate, the length of time they hibernate depends on where they live. Snakes living in Minnesota need to take a much longer slumber than their Texas cousins. Similarly, some of us feel the need to take a longer break from political news than others. In case you’re just coming out of a peaceful torpor, let’s get you up to speed on the legislative issues you need to know about.

Responsible Use of Data

The most immediate legislative challenge is the California Consumer Privacy Act (CCPA), which was passed quickly with limited debate in mid-2018 and will become effective in less than eight months on Jan. 1, 2020. CCPA introduces new privacy requirements, and while nonprofit organizations do not literally fall under the jurisdiction of the CCPA, we are an unintended casualty.

Virtually every nonprofit uses outside data sources to reach potential donors, as well as carry out their vital missions. Those data sources and the data partners who provide this data are subject to the California law. In fact, a company that has information on as few as 50,000 California residents (out of 40 million) must comply with CCPA.

One of the legislation’s most troubling aspects is that much of the data the act would require to be disclosed to consumers is not meaningful, nor understandable to the typical consumer. In other words, data companies would be burdened with enormous amounts of bookkeeping and disclosures, with little tangible benefit to consumers.

The Nonprofit Alliance (TNPA) has been lobbying the California Legislature to amend, or ideally delete, many of the most onerous provisions of the CCPA before they take effect in January. This effort has involved working with coalitions of interested parties in California, along with TNPA taking positions on its own to protect the interests of the nonprofit community.

Also, TNPA has been working with key members of the U.S. Senate and House to support federal privacy legislation that would preempt California or any other state privacy laws that may be enacted, with a balanced and responsible national standard. Senate Majority Whip John Thune (R-SD) said it well, by stating his support for a “robust, transparent, bipartisan national privacy law,” which would preempt the California statute.

With the Jan. 1 effective date of the CCPA just around the corner, TNPA has increased its lobbying efforts on Capitol Hill. Specifically, on Apr. 10, TNPA conducted a national fly-in where nonprofit executives and their corporate partners from across the country traveled to Washington, D.C., for a day of meetings in both the House and Senate. A second fly-in is scheduled for June 12, and a third fly-in will be held in September.

Charitable Tax Deduction

The 2017 Tax Reform Act and, specifically, the increased standard deduction, reduce the tax benefit to many middle-income Americans who make charitable contributions.

By doubling the standard deduction from approximately $12,000 for married couples filing jointly to $24,000 (or for individuals, from approximately $6,000 to $12,000), the Tax Policy Center estimates:

• The number of itemizers dropped from 37 million in 2017 to 16 million in 2018.
• The number of middle-income households claiming a charitable deduction declined from 17% in 2017 to likely less than 6% in 2018.
• The 39% of households earning $86,000 to $150,000 that itemized in 2017 likely decreased to about 15%.

There is a predicted $12 to $20 billion decrease in charitable giving, a direct outcome of the disincentive to itemize donations under our new tax laws, which translates to many, many $10 to $1,000 gifts that Americans make to their favorite causes every year.

To remedy this situation, identical legislation—The Universal Charitable Giving Act—was introduced in both the House and Senate. The House Bill (H.R. 3988) was introduced by Congressman Mark Walker (R-NC), while the Senate Bill (S. 2123) was introduced by Senator James Lankford (R-OK).

Under the legislation, a married couple filing jointly, who use the standard deduction, could deduct up to $8,000 for charitable contributions (one third of the $24,000 standard deduction), while a single taxpayer using the standard deduction could deduct up to $4,000 for charitable contributions (one third of the $12,000 standard deduction), on top of the standard deduction.

Before this can gain any ground in Congress, we’ll need to see the fiscal price tag associated with this act revised by the Joint Committee on Taxation. In late 2017, when the new tax laws were being finalized, this universal charitable deduction was considered and the price tag of revenue that would not be collected in taxes was calculated at $221 billion over 10 years. Taking $221 billion out of the federal treasury is an impossible sell.

Since the Joint Committee on Taxation does not disclose its methodology in its revenue calculations, we will never know for sure how it came up with a “price tag” of $221 billion over 10 years. Nonetheless, most neutral observers believe the $221 billion figure is extremely high; perhaps double of what the actual cost to the treasury would be. So the first step is some real work to figure out more realistic budget estimates.  Then the political conversation can begin in earnest.

The Repeal of UBIT on Nonprofit Employee Benefits

TNPA is also working on legislation to provide relief from a significant new tax burden created by the 2017 Tax Reform Act—the new Unrelated Business Income Tax provision (UBIT).

This new provision will cause nonprofits to divert their time and resources away from their missions to calculate and then pay a new 21% UBIT imposed on transportation and parking benefits that tax-exempt groups provide to their employees. Administratively, the new tax is excessively burdensome, particularly on smaller nonprofits, which do not already employee CPAs or tax attorneys.

Fortunately, legislation to repeal the UBIT provision has been introduced by Senators James Lankford (R-OK) and Chris Coons (D-DE), along with Representatives Mark Walker (R-NC) and Tom Suozzi (D-NY). Momentum for repealing the UBIT provision is growing on both sides of the aisle, and we are hopeful Congress will move to repeal this legislation this year, so that nothing distracts nonprofits from their core missions.

There’s nothing wrong with a good nap, but the list of pressing issues is enough to keep many of us up at night. We recommend that you stay tuned in to ensure that you have the information and lead time necessary to remain in compliance with our changing federal and state laws.

Editor's Note: This article is featured in NonProfit PRO's May/June issue.