If Other People Can Make Money At What You Do…You Might Not Be A Non-Profit

I almost passed by a recent post by Lucy Bernholz on Philanthropy 2173 blog titled What Are Non-Profits For?

I’m glad I didn’t because her news that health clubs were challenging the YMCA’s non-profit status based on the idea that they were competing for customers left me a little incredulous. (my emphasis)

In both cases above the challenge comes because of who the organizations serve – in the YMCA case the membership is very similar to those folks who join commercial gyms, so why does one get tax privileges over the other. The argument raised in the case against free software is that such a resource might be used by commercial enterprises – so where’s the public benefit?

The nature of these challenges focuses on who might be benefitting from the services, not whether the services themselves are a public benefit. This is ironic from a nonprofit standpoint. For decades nonprofit managers and funders have been trying to build sustainable revenue sources for nonprofit organizations so they can survive. So much so, the Red Cross recently argued that its spending practices are trade secrets! BUT, at least in the logic of the two headlines above, if the organizations might serve those who can pay (one source of sustaining revenue) then they may not be nonprofit.

The other case she refers to is a situation where the IRS denied non-profit status to an open source software company because for profit companies might use their product.

While it doesn’t apply to all non-profits, one of the basic reasons often given for why we need non-profit organizations is that they often provide necessary and useful services that other entities won’t, in part because the opportunities for profit were low to non-existent.

In my experience growing up in the 1970s, the YMCA was offering services like swimming, exercise classes, weight rooms and summer camps long before health clubs and specialized exercise clothing were even on anyone’s radar.

The idea that the YMCA is a competitor with an unfair advantage in a niche they pioneered now that businesses can make money running yoga and kettlebell classes, is a little appalling to me. Rather the fact that these challenges have gained traction in different places around the country is what appalls me.

Does that mean that a gallery can open near a museum and challenge the museum’s tax exempt status because they are a competitor in art sales?

Or that if a movie chain notices that a demographic shift in their city has created a substantial demand for foreign films, they can demand that the a venerable art house movie theater be required to pay taxes?

I can understand the skepticism about the non-profit status of organizations like Roundabout Theater, but the vast majority of non-profits haven’t been competition to other companies–until apparently societal views shifted to make what they do worth pursuing.

I wondered if anyone was hearing similar rumblings in other lines of business.

About Joe Patti

I have been writing Butts in the Seats (BitS) on topics of arts and cultural administration since 2004 (yikes!). Given the ever evolving concerns facing the sector, I have yet to exhaust the available subject matter. In addition to BitS, I am a founding contributor to the ArtsHacker (artshacker.com) website where I focus on topics related to boards, law, governance, policy and practice.

I am also an evangelist for the effort to Build Public Will For Arts and Culture being helmed by Arts Midwest and the Metropolitan Group. (http://www.creatingconnection.org/about/)

I am currently the Director of the Grand Opera House in Macon, GA.

Among the things I am most proud are having produced an opera in the Hawaiian language and a dance drama about Hawaii's snow goddess Poli'ahu while working as a Theater Manager in Hawaii. Though there are many more highlights than there is space here to list.

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