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Is it legal for a government agency (other than the IRS) to…

Is it legal for a...
Is it legal for a government agency (other than the IRS) to charge a
percentage of a tax-exempt corporation's income and call it a fee
instead of an income tax?
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Answered in 13 minutes by:
1/10/2018
Matthew Breecher
Matthew Breecher, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 287
Experience: Director
Verified

While the organization might have tax exempt status with the Federal government, that does not mean that they are exempt from all state and local taxes. However, most states have laws that exempt most income taxes for entities that received their determination letter from the IRS as to the tax exempt status. From my experience I know some states charge annual corporate fees based on revenue or income of the entity. The logic is that larger, or more profitable, entities should be able to pay the fee without it being a burden.

...

So, to answer your question, state and local governments are not mandated by the Federal government to exempt organizations exempt at the Federal level. Thus, they can charge taxes, fees, assessments, or require other charges for services as provided for by state law.

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Customer reply replied 1 month ago
The agency is the USDA Forest Service and they are charging a percentage of income received from adult groups but not youth groups. If we are exempt by the IRS are we also exempt by other Federal agencies?
Customer reply replied 1 month ago
Want to continue typing

The IRS is the only agency that can charge income tax. So, their exemption is for income tax and only income tax. Without knowing the details of what is specifically going on and how it is assessed, I cannot say for certain, but this sounds like a charge for services in an exchange transaction. Tax exempt status does not impact any other charges for services or payroll taxes. Thus, this sounds like a fee based on a "sliding scale" which is not an income tax as it is a direct exchange transaction. Hope that helps.

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Customer reply replied 1 month ago
Dear *****, I had to submit something to the president of the Barton Flats Camp Association, so I just used
the following language: "not only is the holder (of 20 year special use permit) paying a discriminatory, additional land use fee based on the AGE of older campers (holders are paying higher land use fees for older groups than for younger groups) but the Federal Government has exempted non-profit organizational camp charities (permit holders) from paying a percentage of revenue as outlined in U.S.C. Title 26 - INTERNAL REVENUE CODE, Subtitle A, CHAPTER 1, Subchapter F, PART 1 GENERAL RULE, Section 501(c)(3)
I hope this understanding will pass muster. THANKS FOR YOUR HELP

I understand your position. However, Title 26 does not govern what the USDA can charge, or how they charge their fees. Accordingly, having received tax exempt status does not exempt your organization from charges from other Federal entities. And, it appears the charge is an exchange transaction as it is for a permit. Thus, tax exempt status under Title 26 does not entitle tax exempt entities to exemptions from other fees or charges.

...

Also, you stated that the charge is discriminatory. As long as a charge is applied uniformly to the public, the charge can change based on the age of users without such a charge being discriminatory. Accordingly, fees can change based on age; in many cases, children are charged less than adults, those over 65 are charged less than those between 18 and 65. Such structured, or sliding scale, charges are allowable.

...

Let me know if that is clear enough.

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Customer reply replied 1 month ago
NO fee based on income is charged for youth groups, fee only to non-youth groups. You stated we were tax exempt at the Federal level and the USDA is a Federal agency. Our permits have been expanded to cover people of all ages, but
we are billed based on non-discounted land values for all adult groups (which are mostly 501(c)(3) groups) and
include senior citizens as well as anyone who is non youth

Your organization is exempt from income tax assessed by the IRS; it is not a blanket exemption from all other government charges, or payroll taxes. When I initially answered your question, I did not know what agency (Federal, State or Local) which was charging you a fee; and my answer was meant to be limited to the Federal level for income tax and not charges for services. So, again, your exemption is from Federal income tax. You still might have to pay state and local income tax, fees, or assessments. You will also have to pay any charges for services, such as those from the USDA.

...

I apologize my originally answer was not clear. And, unfortunately, your IRS exemption means nothing to other Federal agencies unless they adopt fees/charges which specifically provide for adjustments based on your 501(c)3 status; but nothing under the Coder of Federal Regulations requires other agencies to do so.

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Customer reply replied 1 month ago
Thanks for the info. Only problem is we are true non-profits, and such fees based on revenue deplete any funds we may have for maintenance. We have 38 buildings, a pool and amphitheater. Our utilities are enormous If we increase our fees people may not be able to come. The Forest Service personnel who email or phone us are permit administrators who are busy taking care of billing and assignments not relating to organization camps. Our bill in 2010 was under $1,000 our bill for 2016 was $18,000. our annual income is around $200,000

Yes, I understand you are a non-profit. And, you have been given tax exempt status by the IRS as a 501(c)3 as you have met the criteria. Thus, you do not have to pay Federal income tax on any annual profits; those profits can be retained to further your exempt purpose. But again, that does not mean you do not have to pay for other services, such as a permit from the forest service.

...

I would recommend trying to contact the USDA in order to discuss the fees. You might also try pressure via social media. I am sure that the USDA would not be happy to be in the news for raising fees so much without providing any discounts to tax exempt organizations. Simultaneously, it is reasonable to expect to have to pay for services and access.

...

As an aside, you are a tax exempt entity and I am sure there are grants available which your organization could apply for to help cover the rising costs.

...

I hope my answer helps. My advise is objective, based on the facts provided.

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Please let me know if you need additional clarification.

Matthew Breecher
Matthew Breecher, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 287
Experience: Director
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