Tax Policy Information

Why Universities are tax exempt

Northeastern, like many universities, is a non-profit, tax-exempt institution that uses property and other resources for charitable purposes such as education and research. Nonprofit universities do not pay state or federal income taxes or property taxes. Federal exemptions are described in section 501 of the Internal Revenue Code (IRC), allowing for organizations formed for educational purposes to benefit from the exemptions. There are certain qualifications, such as the necessity to refrain from contributing to campaigns. Similarly, charitable organizations are exempt from state property taxes because the local and nation wide benefits.

Some of the benefits universities provide that qualify the university for these tax provisions are:

Education

Northeastern provides rigorous educational experience for some twenty-thousands students each year from around the world and right here in Boston. This educational experience, which includes experiential learning, prepares our students to be productive tax paying members of society. The education that Northeastern provides is an important public service for our city, state and nation.

Research

The research that universities provide is invaluable. Northeastern is dedicated to “use-inspired” research that is focused on solving complex problems of our society, locally, nationally, and on a global scale. Northeastern and other research institutions are producing innovative discoveries in the science fields, and making significant contributions in, business, law and humanities as well. This use-inspired research is translated into products and companies that not only serve society’s needs, but also foster economic growth.

Public Service

Northeastern is determined to be engaged with the local urban community, providing services to the neighborhoods. We offer programs in Service Learning, which combines cooperative education and community service. Through this and similar programs, students engage directly with community members and businesses. Many of our students also have co-ops though out the world that are in public service fields.

Economic and Workforce Development

Northeastern’s co-op program has enabled many partnership with industry, which has resulted into full time employment for our students. Use-inspired research is another way in which Northeastern advances the economy. More broadly, the educational value drives up wages and salaries. Tax-exempt states allows for a better ability to educate and serve students and the community, fostering a better work force. Resources at Northeastern aid graduates in finding job opportunities.

PILOT

Despite Northeastern’s tax-exempt status, we do provide the City of Boston with a Payment in Lieu of Taxes (PILOT). In addition the University pays over a $1million property taxes on some property that is not used for nonprofit purposes. At the same time, the university conducts countless programs that benefit the city and especially the neighborhoods near campus.

Northeastern and twelve other Boston-area universities compensate the city through the “PILOT” program. The program began in 1985 for the purpose of helping the city pay for essential services, such as snow removal, that the universities utilize. Participation is not required by law, and institutions that do so are acting voluntarily. Northeastern does contribute to the City of Boston through this particular medium, donating an amount based on property size, assessed value, usage, and proposed construction costs, according to a city guide for tax exemptions. Ultimately, however, this amount is only a suggestion, and universities can give more or less than the proposed donation. Northeastern University participates in the PILOT program along with others means of compensating the City.

In 2009 Mayor Menino created a PILOT Task Force and charged the organization with examining the current PILOT system and the non-profits in Boston. In December 2010, the PILOT Task Force submitted a final report and recommendations.

The Association of Independent Colleges and Universities in Massachusetts (AICUM), believes that it is important to notice how little land the non-profits take up in Boston comparatively and also the other taxes they are responsible for. According to Boston Municipal Research Bureau, the non-profits occupy less than 5% of the land in Boston. The taxes non-profits do pay to Boston should be discussed:

“It’s also worth noting that tax-exempt does not mean tax-free. Boston’s hospitals and colleges pay full real estate taxes on property not related to their charitable missions and in addition contribute some of the largest PILOTs in the country. Last year, Boston University and Harvard paid the city $16.9 million in property taxes and PILOTs. Combined, these payments place them among the top 10 taxpayers in all of Boston. Northeastern University, Boston College and the city’s teaching hospitals paid an additional $6 million in direct taxes. These tax payments are above and beyond the more than $14 million in PILOTs that Boston’s colleges and hospitals contributed to the city last year.”

In addition to the taxes Northeastern is required to pay to the city of Boston, we do contribute to the PILOT program.

Charitable Deduction

Under current law, taxpayers in a certain bracket are able to receive a tax benefit of 33 or 35 cents for every $1 donated to educational institutions or other charities. These charitable donations for universities help fund essential programs, such as research and financial aid, at Northeastern and other universities across the nation.

The charitable deduction helps garner the funding to increase institutional aid to provide financial assistance to students, which is critical for college affordability. Also, institutional funding for research is crucial for innovation, economic development and job creation, both regionally and nationally.

As part of his jobs and deficit reduction proposals, President Obama has proposed “capping” the current write-off for itemized charitable contributions at 28 percent for joint-filers with an annual adjusted gross income of $250,000 ($200,000 for individuals) or higher. Capping the charitable deduction would severely limit charitable donations, having a significant affect on universities and these vital programs.

For more information on this webpage, visit Council for Advancement and Support of Education (CASE).

Conclusion

Northeastern University, like all universities, is subject to tax law and as a result, the office of Government Relations monitors state and federal tax legislation that might have an impact on higher education. It is our hope that policy makers will continue to value the benefit of the nonprofit status of institutions of higher education given all the benefits universities like Northeastern provide to the public.