A situation centered on a local nonprofit group being hit with a fine from the state tax commission led to a discussion among lawmakers Wednesday on Utah's tax policies.
The legislature's Revenue and Taxation Interim Committee was briefed on an ordeal involving the Spanish Fork Kiwanis Club and its effort to sell food at the Spanish Fork Rodeo to raise money for scholarships. After the club sold food last year, it was served with a fine from the state tax commission for failing to pay taxes on the money the club made from the sales.
Sen. Deidre Henderson, R-Spanish Fork, the Senate chair of the committee, brought up the issue. She said she is worried such actions by the state tax commission may deter organizations from doing charitable work in the future.
Henderson wondered if changes needed to be made to Utah's tax rules, to ensure that activities such as this are given greater clarification in the law to allow groups to avoid a fine.
It was explained to the committee by one of the legislature's attorneys that state law says charitable organizations and religious groups receive a tax-exempt status in the state. The tax commission has interpreted that to mean organizations that are registered as a 501(c)3. Under that interpretation any other organization, nonprofit or not, would still need to pay the tax.
According to Henderson, the local Kiwanis club was using the national Kiwanis organization's 501(c)3 status, but had not registered any status with the state. Since no designation had been made the state recognized the local group as a 501(c)4, which is why the group was being fined by the state.
Henderson said the group has looked at changing that status, but has found such a change would cost about $1,000 -- money the group would like to put toward the scholarships it gives away.
Some ideas were floated among the committee to fix such situations.
Sen. Curt Bramble, R-Provo, said one option that could be considered would be to set a dollar limit for such activities. Bramble said a proposal could be crafted to say that if an organization does a fundraiser and only raises a certain amount or less, then that money could be left as tax exempt and the organization would be free of any penalty.
No action was taken by the committee to address the issue, but legislative solutions for the situation may come forward in the future. For now it appears the best option for nonprofit groups to raise money and do so without facing a tax fine would be to make sure they are registered as a 501(c)3 with the tax commission.