Most private nonprofit universities are enjoying tax exemptions. This is based on the Internal Revenue Code, illustrated in Section 501(c) (3). However, to qualify for the federal income tax exemption, the university must meet various criteria such as:
- Have a solid racial nondiscrimination policy
- The school must maintain records that support its compliance with the policy.
- The policy must be publicized annually, i.e., using a broadcast media, running ads in a school newspaper, or posting on the school’s official website on the homepage.
- The daily operations of the school must be carried out in a nondiscriminatory manner.
Tax exemptions bring several advantages which include:
Limits LiabilityWhen a university has a tax exemption, creditors and even courts have limited access to the organization’s assets, which protects every individual from persona liability. The directors, founders, and even employees are not liable for the institution’s debt. As a result, if someone sues the school due to debt or injury since the university doesn’t pay tax, personal assets cannot be taken.
Gives More ControlBy eliminating university taxes, nonprofit can remain with their mission and maintain as much control as possible. As a result, even though they are tax-exempt, they get income from the sale of services and products, which is crucial in meeting mission-related goals and objectives. Control also allows the university to establish a formalized structure with specific job roles and descriptions. This helps to attract more skillful and professional employees.
Better Distribution of ProfitsUnlike for-profit universities where the shareholders will generously benefit from a profit, the income for universities that don’t pay doesn’t go to shareholders or investors but rather in repaying loans and making the school better. So in cases where the income exceeds the expenses, under the tax exemption code, the university will be bound by law to reinvest its money into the services or programs it provides. This reduces the chances of profits going into an individual’s pocket.
Funding SourcesSuch essays club institutions can use convectional fundraising, donation, or grants to raise enough money to operate. Since the money is not taxable, it goes to meet their day to day operations and objectives. It also works to allow the organization to continue to achieve its general purpose of providing a service or benefit to its primary audience.
Benefits the Local EconomyApart from students, residents who live close to the university benefit from the amenities such as art galleries, library, gym, theatres, and concerts in that school. Such activities and services offered by the higher education institution work to strengthen communities and contribute to economic stability.
Offers Greater Incentives to Meet a Student’s NeedsTax exclusions allow the school to use the money to reduce the running cost. Since such schools operate on a nonprofit basis, it offers affordable services where students, even those from a financially disadvantaged background, will afford to get an education. This eliminates the chances that only the rich can afford to get a higher education.
Several advantages come about when a private nonprofit university is exempted from paying taxes. Overall, the money generated goes into bettering the learning institution and boosting the local economy.