April 23, 2014
Concern over possible changes to UBIT

Associations depend on passive royalties to carry out their missions

By John H. Graham IV, CAE | 10/09/2013

As Congress begins to weigh tax reform, ASAE is particularly concerned about possible changes regarding unrelated business income. Adjustments to UBIT might force associations to make drastic changes to their business models. Here is an excerpt from a letter by ASAE CEO John H. Graham IV, CAE, to the ranking members of the Senate Finance Committee and the House Ways and Means Committee, sent this week:

In 2011, there were 70,330 trade and professional associations on record with the IRS. These organizations employ 1.2 million people, generating an annual payroll of nearly $47 billion. Despite their tax-exempt status, associations are by no means exempt from all taxes and, in fact, contribute substantially to national, state, and local economics across the country. Included among the taxes associations pay are federal payroll taxes, state and local taxes, real estate taxes, personal property taxes, sales and use taxes, franchise taxes, taxes on lobbying activities, and taxes on unrelated business income (UBIT).

A look at some of the fastest-growing industries in the world today includes sectors such as alternative energy, biotechnology, electronic commerce, and Internet publishing. These developing economic sectors provide strong clues as to where we will see new trade and professional associations forming in the years ahead.

For the past year tax reform has been debated in Congress and in living rooms and town halls across the country. Associations are closely watching the tax reform process to see how their organizations might be affected by the first overhaul of the tax code since 1986. Potential changes to the UBIT statute are of chief concern to the association community. Depending on various changes that may be considered, associations could be forced to make stark changes related to their activities and income sources, and may have difficulty continuing the work they do in communities across the country. Most associations depend on income from passive royalties to advance their tax-exempt purpose, and changes in this area could have broad and negative ramifications for the entire association community.

Associations contribute in direct and significant ways to U.S. economic stability and growth. Government statistics show that associations are good employers, paying above average wages, and enabling the continuing education of many American workers. In fact, associations are the primary source of post-college education and skills for the country’s workforce. As you finalize the difficult work of reforming the tax code, our request is that you consider the positive impact of our sector before making any changes to the tax code that would negatively impact our work.

As a community, association executives are facing an uncertain but promising future, and I hope that you will share our goal of associations advancing America.

Graham is the TRENDS 2012 Association Executive of the Year.


Association TRENDS