Many nonprofits miss out on opportunities that could help with their financial situation. Various tax incentives that are available to nonprofit entities often go under-utilized. During our recent webinar, “Tax Credits & Other Opportunities for Nonprofits,” we explored opportunities to reduce costs, fund community investments, and navigate evolving tax requirements.
Attendee polling revealed growing interest in New Markets Tax Credits (NMTC) and state tax compliance challenges, while also highlighting an opportunity for greater awareness around clean energy incentives. A common theme was clear to us; organizations that look beyond compliance may uncover valuable opportunities to strengthen both their mission and financial sustainability. This article will examine the responses to those polling questions, and we offer our insights on the responses.
Beyond Compliance
While there is a lot to consider for tax strategy, nonprofit organizations should not view it solely through the lens of compliance. There are a variety of opportunities to reduce costs, secure funding, and improve financial sustainability through NMTC, sales tax savings, unclaimed property management, and clean energy incentives. While regulatory compliance remains critical, nonprofits may be overlooking valuable funding, tax savings, and cost-reduction opportunities that can support mission delivery and long-term financial health.
1. Is NMTC an Option for Your Organization?
To lay the foundation for discussion, we asked attendees to identify the first question nonprofits should ask when evaluating whether an NMTC opportunity may exist. More than half correctly identified project location qualification as the most important starting point. To participate in the NMTC Program, the location must reside in a NMTC qualified census tract. Therefore, the project location is the gateway to accessing potential project funding and cost savings.
| What is the first question you should ask when evaluating whether NMTC is an option for your organization? | |
|---|---|
| How much does my project cost? | 21% |
| Is there any allocation available in the market? | 8% |
| Does my project location qualify for participation in the NMTC Program? | 62% |
| How will I pay for the project? | 9% |
Our Takeaway: For organizations considering facility expansions, renovations, or new developments, understanding geographic eligibility may be the first step toward securing NMTC funding.
2. What Are Top State & Local Tax Concerns?
Attendee responses revealed that nonprofit organizations face challenges across multiple state and local tax compliance areas. Three areas of concern that stood out were determining whether revenue-generating activities are subject to sales tax, determining if state exemptions may apply to a nonprofit’s purchases, and navigating state unclaimed property compliance and reporting rules. The poll also showed that some organizations have uncertainty around both sales tax and unclaimed property requirements.
The near-even distribution suggests organizations continue to struggle with an increasingly complex patchwork of state rules, exemptions, and reporting obligations for both sales tax and unclaimed property.
| Which area presents the greatest compliance challenge for your organization today? | |
|---|---|
| Determining sales tax exemptions on purchases | 24% |
| Understanding whether our revenue activities are taxable | 30% |
| Managing unclaimed property compliance and reporting | 29% |
| We are uncertain about both sales tax and unclaimed property | 17% |
Our Takeaway: State and local tax compliance remains a significant pain point, with nonprofits expressing comparable concern around taxable revenue activities, sales tax exemptions for purchases, and unclaimed property reporting.
3. Are Nonprofits Exploring Clean Energy Credits?
In 2022, the Inflation Reduction Act opened a door to clean energy credits for nonprofits. In addition to a significant Investment Tax Credit (ITC) opportunity, there are utility savings, domestic content bonus credits, and low-income community bonus credits to be considered. Despite this, our attendees notably are not taking advantage of these options with 65% reporting having no current plans for clean energy projects. Only 12% are currently claiming clean energy credits.
This is particularly noteworthy given the number of refundable clean energy tax credits available to tax-exempt organizations through direct pay provisions. Through our clean energy client work, we have found that many nonprofits have recovered 40% to 50% of project costs through available incentives and received a 100% return on their investment within five years in many cases.
| Which best describes your organization’s involvement with clean energy projects? | |
|---|---|
| Currently claiming credits on active projects | 12% |
| Evaluating potential projects | 14% |
| Considering projects within the next 2 years | 9% |
| No current plans | 65% |
Our Takeaway: Despite expanded federal tax incentives, most nonprofit organizations have yet to begin evaluating if a clean energy project would be right for their organization, suggesting a significant opportunity for future education and planning.
How Can Tax Opportunities Impact Nonprofits?
Whether discussing NMTC financing, sales tax opportunities, or clean energy incentives, nonprofit leaders are seeking ways to stretch limited resources further.
For example:
- NMTC projects potentially reducing project costs by approximately 15% to 20% depending on facts and circumstances.
- Clean energy projects generating both upfront tax credits and long-term utility savings.
- State and local tax reviews are helping organizations identify exemptions and reduce overpayments.
Organizations are increasingly looking for strategies that combine mission impact with measurable financial returns, making tax incentives and savings opportunities more relevant than ever.
How Forvis Mazars Can Help
Many nonprofits may qualify for tax savings and incentive opportunities that are often overlooked. Whether you’re pursuing clean energy projects eligible for Inflation Reduction Act benefits, evaluating state and local tax exposure, or exploring the New Markets Tax Credit program to finance expansion and community investments, professionals at Forvis Mazars can help identify opportunities, navigate complex requirements, and enhance available benefits while supporting your mission. If you have any questions or need assistance, please contact us.