Explainer: Tax-Exempt Salt Lake Tribune

Yesterday, the Salt Lake Tribune reported that the Salt Lake Tribune has been in serious discussions about becoming a tax-exempt newspaper.[fn1]

This is kind of a big deal. I mean, it wouldn’t be the first tax-exempt newsroom, of course. NPR, for example, has been delivering news as a tax-exempt organization since 1971. And it’s not even the first newspaper (-like organization): ProPublica, a tax-exempt investigative newsroom, has been tax-exempt for more than a decade, and Voice of San Diego, which does the same type of investigative journalism in the San Diego region, has been exempt since 2005.[fn2] WNYC’s On the Media was talking about the potential of newspapers become tax-exempt around that same time, too.[fn3]

But if this happens, the Trib would become the first legacy newspaper to switch from a for-profit model to a tax-exempt, not-for-profit model. Which raises at least two significant questions: why and how. So let’s do an Explainer!

I Thought This Was a Mormon Blog. Why Do You Even Care About This?

A couple reasons. One is, I’m deeply invested in questions of tax exemption, and I find this a particularly fascinating story. Two is, the Tribune is an important voice in both the Utah and the Mormon landscapes. While I’m not a Utahn, what goes on in Utah continues to be critical to the church. And the Trib does excellent reporting on questions of Mormonism, both through its religion reporters (shout-out to Peggy Fletcher Stack!) and areas where its news reporting overlaps with things the church is interested in.

OK, Fine, Talk About the Tribune. Like, for Example, Why Would the Trib Consider Doing This?

To some extent, I think it’s a Hail Mary. Newspapers, which used to be hugely profitable, have seen their revenue and circulation decline precipitously over the last couple decades. We can get our news for free on the Internet, so maybe we don’t get a paper delivered anymore. And, where a newspaper used to be a great place to get eyeballs on your ad, internet advertising and the growth of Craiglist give people with things to sell another avenue for advertising.

A tax-exempt organization is going to shift away from advertising (and possibly circulation) to raise revenue. Instead, it will try to raise a non-insubstantial portion of its revenue from donors. Looking at ProPublica’s 2017 Form 990, in 2017, about $43 million of its $43.5 million in revenue came from contributions and grants, and the year before, about $13.8 million of its $14.5 million in revenue came from contributions and grants. If you can raise more than 95% of your revenue from donors, declines in circulation and advertising revenue become irrelevant (or, at least, less relevant).

Also, It Won’t Have Tax Expenses Anymore, Right?

About that: the Trib apparently loses millions of dollars every year. While book income and taxable income are distinct and largely unrelated concepts, I suspect that the Tribune isn’t paying much in income taxes right now. To the extent it owns real property, though, I suppose a tax exemption (if recognized by Utah) will get it out of paying property taxes on that property.

Any Other Reasons?

I mean, for better or worse, federal tax exemption is a marker of seriousness. So there’s always that. Still, I think the potential for receiving tax-deductible donations and bequests is the biggest reason, and it’s potentially huge. Remember when the Huntsman family bought the Trib in 2016? We have no idea what they paid, but I assume it was in the lots of millions of dollars. And you know who got those lots of millions of dollars? Digital First Media, the prior owners. None of the purchase price went to the paper itself.

Moreover, the Huntsmans went in assuming that they were going to have to subsidize the paper over the next decade or so.

If it had been tax-exempt, they could have donated the purchase price directly to the paper (and taken a deduction at the same time!). Any further money they put in would be tax-deductible.

Okay, I’m Close. But Any Other Compelling Reason?

One more, maybe. To qualify as tax-exempt, an organization can’t provide “private inurement.” In effect, that means that nobody can participate in the organization’s profits.[fn4] On the one had, that means the Hunstmans will effectively have to give up their equity ownership of the paper.[fn5]

And if nobody is participating in the organization’s profits, that means that there’s no pressure on the organization to make a profit. Any money it does make gets plowed back into its exempt purpose.

Will This Impact Its Ability to Gather News?

Probably not negatively, at least if it can raise enough money. And it may provide the opportunity for it to do reporting with other news organizations. ProPublica famously partners with other newspapers to do its investigative journalism. And the Trib has already started to do inter-organizational stuff. For example, Ben Winslow, a reporter at Utah’s Fox 13, and Kathy Stephenson, a reporter at the Trib, have just launched Utah Booze News, a podcast about alcohol regulation in Utah. I follow Ben on Twitter (and you should too!), and he does the hard—and critical for democracy—work of going to hearings and reporting on what the legislature actually does. As a nonprofit, the Trib would not be in financial competition with other news organizations, and maybe could expand, lending expertise and reporters to bigger and broader stories.

What is This “Exempt Purpose” You Mentioned a Couple Question Ago?

To qualify as tax-exempt, an organization must be organized to pursue an exempt purpose, and it must use substantially all of its activities to pursue that exempt purpose. Under section 501(c)(3) of the Code, the list of acceptable exempt purposes is:

religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals.

What will the Tribune‘s exempt purpose be? I assume it will be educational purposes. That seems to be the best fit for journalistic enterprises.

Any Downsides?

Of course. The big one is, this may not work. The Tribune will have to convince people to donate. Anybody who listens to public radio knows that there is a lot of fundraising necessary to make a go of it. The Tribune will need to put together a compelling pitch, and ideally one that doesn’t just shift giving from, say, KUER to the Trib.

The Tribune‘s finances will become more transparent; it will have to file a Form 990 with the IRS every year, and that Form 990 will be accessible by anybody who wants to see it. It will lay out the paper’s revenues and expenses, its highest-paid employees, and other information like that.

And it will have to ensure that it follows all of the Utah rules governing nonprofits and federal rules governing tax-exempt organizations.

Any Big Rules You Have In Mind?

One. As a tax-exempt organization, it will no longer be allowed to endorse candidates for office.

Big Deal. I Mean, It’s Not Like We Need a Newspaper to Tell Us Trump’s a Terrible Choice for President.

True. Presidential endorsements don’t give a lot of additional information, because most of us follow the presidency fairly closely.

But there are all kinds of local races that, perhaps, we don’t have the knowledge or bandwidth to make an informed decision about. Like, I’ve lived in Chicago for 10 years now, and I still have no idea what the Municipal Water Reclamation District is, what its commissioners do, much less what the people running for commissioner stand for. And I’d be shocked if Utah doesn’t have similar offices. A newspaper endorsement provides at least a heuristic when, minutes before you go into the voting booth, you realize you forgot to look at one of the offices you’re voting for.

Still, the inability to endorse doesn’t mean it won’t be able to provide any information. Last year, the VoSD podcast invited all of the candidates for San Diego city council to talk to them, and ultimately provided a voter guide that didn’t endorse, but did report on their positions and priorities.

Okay, That’s a Bunch of Stuff. Anything Else?

Just that I hope this works. The Salt Lake Tribune is an important voice, both in its reporting on Utah and its reporting on the church. And moving to a nonprofit model strikes me as a fascinating move, one that, if successful, may well be replicated by other struggling local newspapers. And, although there is some precedent for tax-exempt newsrooms, in the print space, they’ve largely been investigative journalism, not ordinary newsgathering. (Note that local NPR affiliates tend to do both.) So good luck, Tribune!


[fn1] I think. The story wasn’t completely clear, conflating nonprofit status and tax-exempt status and flipping kind of randomly between the two. It’s a common mistake, but a mistake nonetheless, and I explain why on this Twitter thread.

[fn2] There are others, too, I’m sure; I’m just personally most familiar with VoSD and ProPublica.

[fn3] And was also conflating “nonprofit” and “tax-exempt.”

[fn4] It doesn’t mean that nobody can get money. Heck, I work for a tax-exempt university, and it is totally allowed to pay my salary.

[fn5] The article says they’re considering transferring ownership to a nonprofit board. Query whether they’d get a tax deduction for the transfer of their stock.

Comments

  1. A Turtle Named Mack says:

    Ok, I’m going to rattle off a couple of questions that are surely silly and/or uninformed, and if they are too much so, just delete this comment and move along.

    -While this new status might not impact the gathering of news, what limitations (beyond political endorsement) might it have on the reporting of news? I imagine it might be possible to run afoul of certain statutes when reporting news that might be politically unflattering;
    -I know nothing about this, but wonder if the Deseret News (through its connection with the Church) enjoys some of the benefits of tax-exempt status – even if only in the management of properties. Would this change make the Salt Lake Tribune more competitive in the area?

  2. Interesting questions. To the first: it probably has minimal direct limitations. Tax-exempt organizations can be as critical as they want of people in office, they just can’t endorse or oppose candidates. On the margins, there may be a question (Trump allegedly filed his 2020 papers almost immediately upon being inaugurated, but the limitation cannot mean tax-exempt media can’t be critical of the sitting president), but broadly they’re okay.

    There is always the risk of being overly-conservative (=risk-averse, not politically conservative) to avoid alienating potential donors. But news organizations face a similar incentive today to not alienate potential advertisers. I assume they’d put some kind of firewall in place to prevent that from being a problem.

    The DN almost certainly doesn’t benefit from the church’s tax exemption. There are limitations on a tax-exempt organization essentially using its exemption to benefit a for-profit subsidiary. I don’t know for certain, though.

  3. A Turtle Named Mack says:

    Thank you, Sir!

  4. It makes a lot of sense that even if they didn’t get a tax benefit when they bought it, the Huntsmans would get a benefit if they set up a new board and donated the organization they just bought to it. They should be able to write off what they paid for it.

  5. I am following with interest.

    I suspect it is easier to put together a group of wealthy individuals and organizations willing and able to make substantial and ongoing gifts, than to put the same group together to fund a long-term long-shot business proposition that will lose money for years. It’s an interesting question whether the strict numbers work out better (that probably depends on whether there IS any long term prospect within a reasonable financial horizon). But the decision making and risk taking dynamics are very different and I’d rather be selling a foundation than a loss business, in these circumstances.

    I’m also interested in watching the reciprocal gift model of contribution vs business model of paid subscription. Turning some portion of nondeductible subscriptions into deductible contributions might turn into a significant shift in how we finance the news. Or might fizzle because on an individual level “free” is better yet.

  6. Sebastion Grober says:

    The Tribune lost all its physical assets in the JOA negotiations before the Huntsman’s took ownership. So they won’t have to pay any property taxes, they only have to rent their building, which is apparently too big after the most recent cuts in staff.

    Also, I am curious how organizations like NPR are allowed to make money from ads inserted into podcasts? This American Life hasn’t asked for donations on its podcast for a few years. Public media is making a good amount from podcast advertisers.

  7. I hope it works, because the Deseret News has become a pro-Trump rag with an opinion page that looks a lot like Fox News. Ugh.

  8. Rockwell says:

    @sebastion, “I am curious how organizations like NPR are allowed to make money from ads inserted into podcasts?”

    This is addressed in the OP: the money made cannot be give to investors or owners, it must be used to further the purpose of the non-profit.

    “To qualify as tax-exempt, an organization can’t provide “private inurement.” In effect, that means that nobody can participate in the organization’s profits.[fn4] On the one had, that means the Hunstmans will effectively have to give up their equity ownership of the paper.[fn5]

    And if nobody is participating in the organization’s profits, that means that there’s no pressure on the organization to make a profit. Any money it does make gets plowed back into its exempt purpose.”

  9. Old Man says:

    Wally,
    If you frequent the comments on articles you’ll find that pro-Trump folks hate the Desnews.

  10. They’ve been not for profit for awhile, might as well make it official.

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