Hartford Business Journal

24 Hartford Business Journal • July 15, 2019 • www.HartfordBusiness.com Opinion & Commentary OTHER VOICES Nonprofits must prepare for the worst By Sondra Lintelmann Dellaripa T here is no industry more rigid, more entrenched and more archaic than the nonprofit sector. There, I said it. Of course that's a wild generalization, but I defy anyone to tell me that the ma- jority in the nonprofit sector are nimble, innovative and forward-thinking. Evidence the recent shock by nonprofits at the loss of top-level executives from United Technolo- gies Corp., as well as their fear of the possible loss of the state of Connecticut's annual $25 million grant program that supports social-service agencies as part of Gov. Ned Lamont's "debt diet." The Hartford Business Journal June 24 article, "With UTC's pending merger and HQs relocation, nonprofits eye charitable-giving impact," heralded what possible impact the company's merger and move might have on their philan- thropic giving. It quoted a number of well-known, knowledgeable people regarding the possible loss of corporate and individual gifts. The question the article posed was whether or not this would happen. The bigger and more important questions are: What are non- profits doing to insure themselves against such market and economic changes? What are they doing to mitigate the potential losses and gains not only from corporate geographic moves, but changes in mission interest and giving guidelines from corporate leadership? What are nonprofits doing to balance their philanthropic revenue streams and create fluidity in shifting their approach as the ground moves before them? I have worked with many nonprofits that are unprepared — yes, even dismis- sive — of their need to create a stable, diversified and sustainable funding base. I can't always blame the executive directors, as too often this comes from the top — the governance directives of the board. Short-sighted and fearful reliance on one strong funding part- ner (such as the Hartford Foundation for Public Giving and state of Con- necticut) has no good outcome. The lack of investment in the continu- ous development of a pipeline of new donors creates a choked-off income stream. Overreliance on corporate giv- ing (which nationally makes up only 5 percent of all charitable giving) sets a weak foundation for the organization, one that is at risk of being undermined by exactly the types of decision-making UTC has deployed. According to the Giving USA report, nationally nonprofits received over $410 billion in 2017 through philanthro- py. Over 70 percent of that came from individuals, not corporations. Another 16 percent came from foundations and 9 percent from bequests. This report tracks decades of giving trends. And yet even with this data, clearly defining the widest pipeline of donors as individuals, nonprofits time after time first think of cor- porations in their appeals. It's mind boggling and one of the biggest frustrations of our client work. Yes, it's a con- cern when corpo- rate funders leave, change their giving directives, or choose to place their investments elsewhere. And yes, we should be concerned. But nonprof- its should also be prepared by having already established a diverse funding strategy, having a strong funnel for acquiring new donors consistently, and having reasonable expectations of the shelf life of all corporate gifts. As the American author Zig Ziglar so eloquently said: "Expect the best. Prepare for the worst. Capitalize on what comes." Sondra Lintelmann Dellaripa is president and principal consultant of Harvest Development Group in Middletown, a nonprofit consulting firm. EXPERTS CORNER CT budget, tax changes impact small employers By Cynthia Galamgam G ov. Ned Lamont has signed a two-year budget that increases taxes by about $340 million for the next fiscal year alone. While Connecticut's projected defi- cits for fiscal years 2020 and 2021 were nearly $4 billion when Lamont took of- fice, the state's projected revenues have increased. Along with the pending tax increases, that has reduced projected deficits over the coming fiscal years. A number of the tax changes includ- ed in the budget, along with another Department of Revenue Services bill (House Bill 7373), will impact small and midsize employers. Here are some highlights: Pass-through entity tax changes The pass- through entity (PE) tax credit, which can be used to offset personal income and corporation business taxes, is be- ing reduced from 93.01 percent to 87.5 percent of the PE tax paid. These changes are generally ap- plicable to tax years beginning on or after Jan. 1, 2019. This reduction negates — at least in part — the federal tax benefit that the PE tax was originally designed to create. In effect, this change means that owners of a pass-through entity doing business in Connecticut will be pay- ing tax on the same income more than once to the state of Con- necticut. Also, be fore- warned — Connecticut has a poor track record of limiting tax credits (i.e., corporation business tax credits, which historically could offset 100 percent of the tax due in some cases are now limited to as little as 50 percent). Another change is the inclusion of guaranteed payments to owners in the PE tax base. By including guar- anteed payments, the pass-through entity tax will increase, but partners will hopefully be able to realize a greater federal benefit, provided the PE tax deduction can be used to reduce federal income. As noted, taxpayers must increase their PE estimated tax payments to compensate for this increase in pass- through entity tax due. To ease the administrative burden on taxpayers, entities with less than $1,000 in annual PE tax liabilities are no longer required to make quarterly estimated payments. Lastly, relief is provided to taxpay- ers who underpaid their 2018 tax due to the enactment of the PE tax, provided the tax is paid within one year of the due date. In addition, penalties and interest do not apply to additional tax due as a result of the decreased pass- through entity tax credit reduction described above. Sales and use tax changes Effective Oct. 1, 2019, the definition of "tangible personal property" (TPP) will include electronically accessed canned software, except when pur- chased by a business for its own use. TPP has also been modified to include digital goods (electronic audio, visual, or audio-visual works, reading materials, or ringtones). In effect, these changes increase the tax on electronic down- loads from 1 percent to 6.35 percent. Taxpayers who license, sell or purchase "digital goods" and/or elec- tronically accessed canned software need to ensure they are familiar with these rules. In addition, several new services, subject to certain limitations, become sub- ject to the 6.35 percent sales tax effective Jan. 1, 2020, including dry-cleaning and laundry, inte- rior design, and motor-vehicle parking. Other tax changes Significantly, the capital base tax, a levy on a business's net worth or capital holdings, will be phased out over a four-year period beginning Jan. 1, 2021. This change typically impacts large C corporations, but is a benefi- cial change for Connecticut overall, particularly for the state's bioscience industry. The $250 business entity tax will also be repealed as of Jan. 1, 2020. Cynthia Galamgam is a senior manager in the state and local tax group in Hartford at accounting and consulting firm CohnReznick. The lack of investment in the continuous development of a pipeline of new donors creates a choked-off income stream. These changes increase the tax on electronic downloads from 1 percent to 6.35 percent. Sondra Lintelmann DellaripaEditor Cynthia Galamgam

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