Delaware Nonprofits and Supporters Should Remain Concerned and Voice Their Opinions to their State Legislators

Summary. The Delaware General Assembly continues to review legislation that, if passed, will significantly impact all Delaware nonprofits and houses of worship. Section 4 to House Bill 240, related to taxes on personal income ("Section 4 to HB 240"), eliminates itemized deductions, which will effectively exclude charitable deductions from being taken on individual state tax returns. Innovincent and others have previously summarized the main problems regarding Section 4 to HB 240 in its current form. Following debate on Wednesday, June 21, the Delaware House Revenue & Finance Committee approved HB 240 by a 7-4 vote. It now moves to the House for full discussion.

While other parts of HB 240 and other related bills are beyond the scope of this alert, Innovincent believes that a carefully crafted amendment to HB 240 could effectively strike a balance between the budgetary issues otherwise encompassed by HB 240 and the charitable deduction issue in Section 4 to HB 240 that may unintentionally cripple the Delaware nonprofit sector. We offer for consideration a proposed amendment, as discussed below, to cap rather than eliminate itemized deductions, while excluding charitable contributions from that cap. The cap amendment may be a compromise way to generate revenue without risking the benefits of charitable contributions in the process.

Call to action. All nonprofits should continue to review Section 4 to HB 240 and determine how it will impact their operations and budget. Additionally, nonprofits should gather, summarize, and share the extent that they rely on individual contributions and how a 20% or higher decrease would impact them. Nonprofits and other interested members of the public should also continue to contact their legislators and voice their concern.

The Delaware General Assembly is currently reviewing legislation that, if passed, will have a significant impact on all Delaware nonprofits and charitable organizations. As discussed herein, House Bill 240, related to taxes on personal income ("HB 240"), contains a provision (Section 4) to eliminate itemized deductions. This provision seeks to impact only those taxpayers who itemize their state returns, or about a third of the Delaware tax filer population. While this may have some positive effect on the state treasury, Delaware nonprofits and the communities they serve will be impacted adversely by this legislation. As such, Section 4 to HB 240 should not become law in its current form.

The elimination of the state charitable deduction in Section 4 to HB 240 will negatively impact individual charitable giving in Delaware. When comparing outcomes in other states that passed similar legislation, Section 4 to HB 240 could result in Delaware charitable organizations such as nonprofits and houses of worship collectively receiving anywhere from $30 million and $60 million less from individual donors in FY18 than FY17. Consequently, these groups will likely be forced to lean more heavily on the State in the future and reduce services to the communities and constituents they serve, offsetting any potential revenue gains since local governments will be forced to pick up the slack with their own funds and resources.