The Salt Lake Tribune is Officially a Public Charity!

Photo by Cool Hand Luke [CC BY-SA 3.0], via Wikimedia Commons

This morning, the Salt Lake Tribune announced that the IRS had granted it tax-exempt status as a 501(c)(3) public charity.[fn1] And, while it’s not the first tax-exempt news organization, it says that it’s the first legacy newsroom that’s transformed from for-profit to nonprofit.[fn2]

This doesn’t come entirely as a surprise: six months ago, it announced its intention to become a nonprofit/tax-exempt organization, and I wrote an Explainer about it. So now that it’s real, what does that mean for the Tribune?

I don’t think we know yet. The paper hasn’t announced what changes it plans to make, if any. I stand by everything I wrote last time I wrote about this, but I’ll add a couple things now that it’s real.

Not Paying Taxes

Last time I wrote, I mentioned that being exempt from the federal income tax probably wouldn’t make a substantive difference to the Tribune; it was allegedly losing a lot of money anyway, which means it likely wasn’t paying taxes.

But just looking at federal taxes doesn’t paint the full picture; Ben asked the Utah Tax Commission, which confirmed that it was accepting the IRS’s designation as a tax-exempt entity. So what’s the relevance of that?

There are three potential consequences. The first is, an entity that is exempt from the federal income tax is also exempt from Utah’s corporate franchise and income taxes. The tax is a flat 4.95% of a corporation’s Utah taxable income, with a minimum $100 tax liability. This exemption likely doesn’t provide any more benefit to the Trib than the federal exemption, assuming, again, that it was losing money (though both could become important if, at some point, it becomes profitable).

The second is an exemption from state property tax. Utah law exempts “property owned by a nonprofit entity used exclusively for religious, charitable, or educational purposes.” So what does this mean for the Trib? I don’t know. In the first instance, I don’t know what property it owns. In the second, it’s an open question exactly what it means that the property is used for “charitable” purposes. Utah tends to read this property tax exemption narrowly—just because the Trib owns property doesn’t mean that property is exempt from property tax. That said, I’d be shocked if, for example, its newsroom didn’t qualify for property tax exemption. And that represents real financial savings to the Trib.

Finally, it probably also qualifies for an exemption from Utah sales tax. Under this exemption, sales from a charitable institution are exempt from sales tax if the sales are made in the conduct of its regular charitable activities, and it doesn’t have to pay sales tax if its purchase is part of its regular charitable function. I don’t know how strictly Utah construes this exemption, or how often the Trib buys or sells things that will now be exempt from sales tax, but it does represent a potential savings at least.

Funding: Donations

Theoretically, one of the big deals about being a public charity, exempt under section 501(c)(3) of the Code, is that donors can deduct the value of their donations in calculating their income tax liability.

But this isn’t perhaps as big of a deal as we make it out to be. You have to itemize your deductions to take a charitable deduction and, with the expansion of the standard deduction (to about $12,000 for an unmarried taxpayer and $24,000 for taxpayers filing joint returns), only about 9% of Americans itemize (down from about 33% prior to 2018). Are Utahns more likely to itemize? Maybe; a 10% tithe puts you closer to the itemizing. In 2017, 480,760 Utah tax returns had itemized deductions, out of a total of 1,325,780 returns filed from the state. The 36% of Utah itemizers was higher than the 30.6% of itemizers nationwide.

While we generally think primarily about the income tax deduction, it isn’t the only important tax deduction, though. Gifts to public charities also qualify for gift tax and estate tax deductions.

All of this deductibility will primarily benefit the wealthy, of course. That’s not to say that the nonwealthy shouldn’t donate to the Trib, but their donations are less likely to provide them with tax benefits.

In addition to individuals, corporations can deduct contributions to public charities. Also, perhaps most importantly, the tax law encourages private foundations to contribute to public charities.[fn3]

Funding: Advertising

Will the Trib still feature advertising? I honestly don’t know. Maybe not—the migration of advertising from newspapers to Craigslist has been one of the significant causes (though far from the sole cause) of traditional newspapers’ decline.

But the Trib could still have advertising. To the extent it does, though, it will have unrelated business income. Treasury Regulations specify that the sale of advertising produces unrelated business income, even if the periodical relates to the exempt purpose of the tax-exempt organization. And what are the consequences of unrelated business income? A tax-exempt organization is taxable on its unrelated business income at ordinary corporate rates (currently 21%), in spite of its exemption.

Changes in Content

I mentioned this last time, but it bears repeating: the one sure change in content is that the Trib will no longer be able to endorse or oppose candidates for office.

That doesn’t mean, of course, that it won’t be able to do political reporting. Or that it won’t be able to interview candidates. But it can’t make endorsements anymore.

That doesn’t seem like a big deal, of course. I can’t imagine that anybody who reads a newspaper needs the newspaper to tell them not to vote for Donald Trump. But, on the other side of the political spectrum, there are always small local races for positions most citizens have never heard of. Newspaper endorsements can do a lot to cut down on the cost for individuals of learning about candidates who do things the voters don’t understand. Now voters in Utah lose whatever shortcuts Trib endorsements provided; they will have to put in more effort to learn about the candidates in smaller races. And honestly, I don’t know if that’s a good thing or a bad thing. But it definitely is a thing.

This is an exciting move by the Trib. I’ve heard people throwing around the idea of legacy news organizations changing into tax-exempt newsrooms for at least the last ten or fifteen years. Now that it has happened, we’ll be able to see how this bodes for the future of news collection.


[fn1] I found out in a tweet from Ben Winslow. Who you should really follow, if you have any interest in the Utah legislature or administrative happenings in Utah. And who somehow sent the tweet at 6:21 am, Utah time.

[fn2] It’s important (to me, at least) to note that nonprofit status is different from tax-exempt status. Nonprofit status is a state law status, subject to laws that govern, among other things, the obligations of the board of directors and the things that the entity can do. To be tax-exempt for federal purposes, an entity must be a nonprofit for state-law purposes. But mere state law nonprofit status doesn’t guarantee that an entity will be tax-exempt, much less tax-exempt as a public charity.

[fn3] If you listen to as much NPR as I do (go, WBEZ!), you’ll hear the words “family foundation” a lot. These private foundations are big funders of certain types of charities. It’s not worth going too deeply into the rules that govern foundations, but basically, they’re set up by wealthy individuals who also fund them. The wealthy individuals get an immediate deduction for contributions to the private foundation, but the private foundation doesn’t actively engage in charitable endeavors. Instead, it distributes its money to public charities. To try to ensure that private foundations don’t just sit on their tax-exempt money forever, the tax law requires them to distribute at least 5% of the value of their assets annually. There are rules about what distributions count, and the big one is, distributions to public charities (like the Trib is now) count.

Comments

  1. nobody, really says:

    Of course the Tribune will still feature advertising. There’s plenty of advertising on PBS and NPR, they just don’t have a “call to action” in the advertising. Unless, of course, they are selling tickets for Blue Man Group or Riverdance.

    The problem now, of course, is that an article that would take two minutes to read will now take seven, due to a “Pledge Break” of three paragraphs, inserted every other paragraph.

  2. The trib actually announced last week they’d be stopping endorsements… https://www.sltrib.com/opinion/commentary/2019/10/29/george-pyle-no-more/

  3. Is a subscription a charitable donation for tax purposes?

  4. It’s not. You can’t take a deduction if you get something back with the same value as your supposed donation. (If you overpaid for the subscription, the amount in excess of the subscription price could be treated as a deductible donation.)

  5. A Turtle Named Mack says:

    My suspicion has been, relevant to your fn3, that the Tribune has made this move in anticipation of a major donor (family foundation, or something similar). They may have been approached by a party, or multiple entities, that wanted to make a sizable or regular contribution, and this move facilitates those contributions. No evidence for that, just a hunch, but I don’t think the Tribune goes through this effort unless something was already lined up.

  6. The Trib is obviously struggling. If it were to disappear, it would be a sad day for Utah, since the Deseret News has turned into a wimpy right-wing rag. Its ownership determines what sorts of journalism can and cannot appear in its pages. The Trib’s independence has been a great benefit to the community. I would encourage any Deseret News subscribers reading this to do what I did: drop your subscription to the DN and subscribe instead to the Trib.

  7. I value the Salt Lake Tribune and I both subscribe and (now) donate. I’m watching this move. It makes good sense. That is, from what I know and have heard second- and third- hand, there was not a way to run the SLT as a profit-making enterprise.

    The key question, which someone might know but for us outsiders only time will tell, is whether the 501(c)(3) move is a last desperate no options play, or is an intentional well-planned move to a donation model?

    As one watcher, playing with 4 or 5 or 6 fewer zeroes in dollar amounts, I have an instinctive feeling that I would rather bear losses as a charitable donation than as a business loss. That doesn’t square with various tax law limitations and requirements, and I’m still exploring my reasoning.

  8. sally acorn says:

    the trib will burn in the fires of oblivion in it ignorance it superficial decay of morality it is a sin be for the god of man

  9. Layoffs Are Coming says:

    They better learn to code

  10. LAC, thanks for stopping by. I’ll confess, I don’t get what you’re saying, or how it’s related to the fact that the Trib is now tax-exempt, which is what the post is about.

  11. Sam,
    Have you not been on twitter in the last five years? How have you not come across the “learn to code” hashtag? If you are downsized, you don’t have to worry very much, because you can always learn to code.

    It is my understanding that the previous owners sold off all the physical assets of the newspaper and the Trib only owns in online properties. The JOA expires next year, and I am very curious how the negotiations are going with the Church. I would actually hope that the JOA is abandoned and the Trib as a physical paper goes away. Online only distribution is the future of journalism. Only people over 50 actually require a paper delivered to their driveway each morning.

    I wonder if maybe the Deseret News could also reorganize to a similar nonprofit status? The Trib will now be very similar to the Church. They can become allies for religious liberty. Churches and newspapers are a public benefit and neither should be taxed.

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