Non Profits: Not All are Charities

As we get to the end of the year, we wish all of you a happy and relaxing holiday season. It is also the season of giving, where we contribute to our favorite causes, often represented by charities we donate to. We often use the words non-profit organizations and charities interchangeably. However they are NOT the same. 

Did you know that the National Football League (NFL) was classified as a non-profit organization for almost five decades?

While most charities are non-profits, not all non-profits are charities. Organizations become non-profits when they are classified by the IRS as exempt from paying taxes on the contributions and investment income they receive. 

 In fact many tax-exempt nonprofits are organized for the explicit purpose of advocating for the interests of the members, and NOT for social causes and the greater good which we associate charities with.

In this post we go into the differences between nonprofits and also focus on a nonprofit (not charities) whose dealing with the City of Cupertino, and the use of our tax dollars raises serious questions.

Different Kinds of Non-Profit Organizations 

The IRS has published guidelines describing the tax treatment for various kinds of nonprofits. 

Charities or 501 (c)(3) exempt organizations are typically what comes to mind when we think of nonprofits. 501 (c)(3) exempt organizations can be large organizations like the American Red Cross or local organizations like the West Valley Community Services who assist those in need in our neighborhood.

Another class of non-profit are business and trade leagues whose tax exemption is covered under IRS Section 501 (c)(6). These organizations are organized to advocate for the interests of their members. The National Football League (NFL) was a 501 (c)(6) exempt non-profit for about five decades before giving up its non-profit status in 2015!

Locally, the Cupertino Chamber of Commerce is a 501(c)(6) exempt non-profit, which advocates for its members. Out of the about 2400 registered businesses in Cupertino, less than 10% are dues-paying members of the Cupertino Chamber of Commerce.

Cupertino Chamber of Commerce & the $16,000/year Ghost Contract

For as far as anyone in the City Offices can remember, the Cupertino Chamber of Commerce has been sending a bi-annual invoice for $8000 ($16,000 per year) to the City of Cupertino. Under normal business practices the invoices are paid by the City for services delivered under a contract agreed upon prior to the delivery of the services.

However, the City staff is unable to locate any such agreement or contract against which the Chamber of Commerce was invoicing the city and getting paid for many years! After further investigation, the City Council was informed that the payments were made under a verbal agreement which no-one can reproduce. 

To summarize, there is:

• NO Definition of the service the Cupertino Chamber of Commerce performs for the city
• NO Criteria to determine whether the Chamber is fulfilling the terms of the contract for their invoices to be paid
• However the City has paid hundreds of thousands of dollars to this organization whose charter is to lobby for its dues-paying members, without any contract in place.

Councilperson Kitty Moore ‘s scrutiny of a  line-item during the review of the City’s spending led to the discovery of these payments. These annual payments are in addition to the membership dues which the City pays to the Chamber, or the more than $60,000 paid by the City to the Chamber to run the ILoveCupertino website, or other concession the city provides like the free use of City facilities.