Nonprofit Groups with Tax-Exempt Status Still Pay Taxes in Denver — but Soon That May Change

Nonprofit groups that have long been paying millions of dollars a year in Denver taxes on things such as purchases, hotel stays and even their employees soon could get some relief.

The City Council on Monday is expected to approve an exemption that would bring the city into line with tax exemptions offered to nonprofits by the state and federal governments.

After a three-year phase-in, Denver’s city budget would take a small hit — estimated at $11.8 million to $14.2 million a year, or about 1 percent of the city’s general-fund revenue. That is according to a range of estimates provided by the Denver Department of Finance.

But for the estimated 2,000 or so eligible nonprofit groups that stand to benefit, the new tax exemption in Denver would make more cash available for their programs.

“By aligning the definition of charity with federal law, this change would fully recognize the important contributions all of Denver’s nonprofits make to our quality of life,” said Mark Turner, the Colorado Nonprofit Association’s senior director of public policy. “Denver’s nonprofits work hard to be transparent and maintain public trust, and these savings would help them meet increasing demand for services.”

Nonprofits with a 501(c)(3) designation, which refers to a category in the federal tax code, generally are exempt from Colorado state taxes and local taxes in most areas. But home-rule cities such as Denver have the authority to decide which tax exemptions to grant nonprofits.

In Denver’s case, the city has exempted those nonprofit groups from paying property taxes. But except for charities that meet a very narrow definition, most have had to pay sales and use taxes, the lodger’s tax and the employer portion of the occupational privilege tax — also known as the head tax, costing $4 per employee per month.

With council approval, the new exemption would be applied gradually to groups with 501(c)(3) designations, starting with the smallest ones, to avoid an all-at-once budget impact.

Starting July 1, nonprofits with an annual income of less than $5 million would be eligible. Income eligibility limits would increase to $10 million at the start of 2019, with the remainder of nonprofits becoming eligible in January 2020.

The city finance department says each nonprofit would have to reapply for the exemption every five years.

Denver finance officials, including Chief Financial Officer Brendan Hanlon, proposed the nonprofit tax exemptions as part of a package that includes three smaller ordinance changes affecting the city tax code.

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