My background is in economics. I don’t have expertise on specific tax issues. In this post, I am asking high level questions about the plausibility of having non-profit organizations do the work that for-profit organizations normally do.

I’m sorry I don’t have any specific advice to offer.

Tiles for Smiles is a nonprofit organization dedicated to the advancement of Children with Cerebral Palsy. Our purpose is to provide schools, religious and other charitable organizations a resource to expand their fund raising activities by producing engraved tile, stone and any other product that can assist their efforts and financial growth. Through the production and sale of specialty craft items, and participation in local craft events, we will raise support, awareness and funding. Our intention is to grow to enable a greater level of financial assistance for local and national therapeutic centers along with organizations that support Children with Cerebral Palsy.

We are currently in our final stages with the IRS in consideration of our 501 tax exempt status and question 13 goes just like this –
Please explain how granting exemption to would not provide an unfair advantage by operating as an exempt organization, over for-profit competitors. Competition with commercial firms is strong evidence of the predominance of nonexempt commercial purpose for determining weather an organization can be classified as tax exempt. And if the conduct of a business with apparently commercial character is a taxpayer’s sole activity the fact weighs heavily against exemption.
All officers are non-compensated (volunteers) as we are a volunteer organization.

Any opinions on this would be very much appreciated.
THANK YOU
Peace
Tom P.

Interesting points. I agree that non-profits are able to effectively do many things. Your examples in health, education, and insurance are good.

I don’t understand why you think a For-profit sector is necessary. I don’t see any particular reason a non-profit couldn’t deliver luxury goods. The people wanting the luxury goods would just have to pay the cost of producing them.

Non-profit doesn’t mean non-revenue generating. It just means no profits being distributed to owners or shareholders.

I am interested in non-profit producers for two reasons.

First, from the consumer’s perspective, profits increase the cost of a good. The money paid to shareholders comes straight out of the customer’s pocket. It’s a cost. All else being equal, if a company wasn’t trying to earn a profit, it could lower its prices. If there was a way to get producers to work efficiently without bribing business owners, we would be better off.

Second, in my grand design for a better economy, I need to connect the cost of goods and services to the labor and raw materials used to produce them. If businesses are allowed to maximize profits, this connection is difficult to make. It would simplify my story if the for-profit sector could be dispensed with. I can work around this problem, it just takes more fancy footwork.

It seems like the answer has to be “from government”, but that’s not really an answer since the government isn’t really a thing in itself. Really, we would need everyone in society to chip in, either directly or through taxes, with no expectation of return for their money. Long-term, they may benefit from cheaper goods & services if they are customers of the non-profit manufacturer.

Eric

I think you and I have reached the same conclusion. It’s possible to set up a non-profit manufacturer. The question is where to find the startup money.

Most of the discussion so far has been about the “social mission” of non-profits. I don’t think this is applicable for what you’re talking about. And since you’re not targeting special tax treatment, is there any reason that the structure of current businesses can’t work?

In Ken’s blog, you raised the idea of the “rich nut” who wanted to start a non-profit brewery. I don’t see any barriers to him doing that on his own as a sole proprietorship with the intention to not take any money out of it. Profits could be set aside in a reserve fund or else re-invested. And he could tweak the prices up and down to target a net break-even.

Similarly, other business structures could be set up with charters that require the same sort of thing.

The trick then, as you noted, is finding the initial investment money.

Eric