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A Taxing Debate in the States

Quick, what’s the biggest threat to the fraternal tax exemption? 

Most NFCA members would say congressional action to revamp the tax code and repeal a variety of longstanding exemptions in an effort to generate more revenue for the cash-strapped government.  But with federal lawmakers focused on the economic stimulus proposal, two wars, and an overhaul of financial services regulation, reform of the tax system may just have to wait.  I’m not saying we’re free and clear on the issue in 2009.  As long as the fraternal tax exemption is in place, the issue will always be on the table and we need to remain constantly vigilant.  But other more pressing issues may mean that tax reform gets delayed until 2010.

A more acute threat may come from the states.  Unlike Congress, states can’t print money.  They have to address their budget deficits – and more than 45 states are running in the red – the old-fashioned way, through tax hikes and spending cuts.  California has ordered many government offices closed every other Friday in order to cut the cost of state employee salaries.  Other states are looking to increase taxes on everything from personal income to tobacco.

Wisconsin legislators are seriously questioning the value and validity of the tax exemption for non-profit hospitals.  The media is eagerly jumping on the bandwagon by pointing out that the tax breaks that non-profit hospitals receive from the state far surpass what they give in “charity care.” 

Aloha to the Premium Tax Exemption

At least one state – Hawaii – is considering a bill that would require fraternals to pay premium tax on all or part of their book of business.  The bill (H. 1749) is part of a larger effort to increase the amount of premium tax paid by all insurers doing business in the state.  It is one of a handful of “revenue generator” bills introduced by the Speaker of the House, Calvin Say.

If enacted, Hawaii would become the first state to apply premium tax laws to fraternals.  Why is that so important?  After all, Hawaii is a small state and only a few fraternals write business there.  Chances are your society wouldn’t be affected, right?

While you may not feel any direct impact, the repercussions of enactment of H. 1949 could reverberate through the entire fraternal system.  You know the old adages about the “slippery slope” and the “domino effect.”  In the rather small network of state legislatures, it wouldn’t take long for lawmakers in other states to see the revenue potential in taxing fraternals.  And not just on premiums, but property, income, and every other aspect of the business that commercial insurers are subject to.

Your Association in Action

That’s why NFCA didn’t waste any time in putting together a task force of member societies doing business in Hawaii to develop a plan to stop this bill in its tracks.  We quickly took stock of our “on the ground” assets in Hawaii – how many lodges we have there, what types of fraternal activities they’re engaged in, what’s the value their volunteer service and direct financial contributions, what’s the impact of their community service on the lives of citizens, do we have any members that serve in the state Legislature or have close personal relationships with key lawmakers.  We then created a series of message points that will be crafted into a letter to Speaker Say and other public policymakers. 

We are in the process of retaining a local counsel to help us assess the seriousness of the threat presented by the legislation; explain the fraternals’ role in the financial and community service sectors; communicate our messages directly to state legislators and coordinate in-person meetings between lawmakers and local fraternal leaders.  Right now the threat is still very real, but based on the quality of our members’ community service outreach in Hawaii, we’re confident that we can show lawmakers that who we are and what we do is more valuable than a few extra dollars of tax revenue.

This type of awareness and quick response is one of the key reasons for belonging to NFCA.  We help fraternals do together what no single member could do on its own.  It’s sometimes hard to place a value on effective advocacy for the simple reason that if you do it right, many members may not even be aware of the association’s actions.  But I think it’s important that you realize that we’re working for you and with you in every state capital and on Capitol Hill every single day.

We’ll keep you posted on the outcome in Hawaii, and Wisconsin, and South Dakota, and in every other state where a threat to our organizational structure and our ability to deliver financial and fraternal services arises.  You can play an important role in this effort by participating in the association’s GATE grassroots program and by serving as an ambassador of the fraternal system for public policymakers across the U.S.

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