Improving Tax Treatment of Not-for-profit News Entities

"Taxes are what we pay for a civilized society." Oliver Wendell Holmes quote on IRS headquarters, Washington, DC. Photo credit: afagen on Flickr.

A couple of things became clearer at this week’s third and presumably final Federal Trade Commission workshop on the future of journalism (“How Will Journalism Survive the Internet Age?” June 15, 2010, at the National Press Club, Washington, D.C.). For a good summary of the meeting, see Fiona Morgan’s “A subtle victory for policy interventions in media at the FTC workshop” at New America Foundation.

FTC Chairman Jon Leibowitz made it clear that the commissioners are not inclined to reach for new antitrust exemptions for the news industry or recommend changes to copyright. Leibowitz called the commission “allergic to antitrust exemptions, as well as changes to expand copyright law.” He also stated rather forcefully that the “FTC will not support taxes to subsidize journalism or to fund any particular medium of journalism.”

The commissioners and staff present seemed to agree with nearly all of the speakers participating in the workshop, the Knight Commission on the Information Needs of Communities in a Democracy, and critics and observers elsewhere, that they don’t want government picking winners or influencing content.

Speaking for the Knight Commission, Charles M. Firestone of the Aspen Institute observed that, for local journalism, we are in a time of considerable experimentation and will be for the foreseeable future. In this environment, he said, “the Knight Commission preferred market forces to develop new business models.”

So what role is left as the FTC considers how government might support journalism?

Firestone and other speakers encouraged the FTC to let competition run, but said the commission might consider content-neutral measures that can support an environment for competition. One such area relates to tax treatment of journalistic organizations.

While the Knight Commission did not endorse any specific tax proposals aimed at sustaining journalism, Firestone presented three possibilities for equalizing or otherwise improving the tax  treatment not-for-profit journalistic enterprises. The proposals come from “Taxes,  Local Journalism, and Transition to the Public Sector,” a discussion paper prepared for the Knight Commission by Ohio State University law professor Stephanie Hoffer.

1.    Allow a full or partial (50%) deduction for the contribution of a journalistic enterprise to not-for-profit organizations. This would ease the transition of news businesses from a for-profit to a not-for-profit business model.

2.    Allow deferral of gain in the acquisition of a for-profit journalistic enterprise by a not-for-profit. Currently, tax law prefers exchanges between corporations over donation to a not-for-profit by allowing significant tax advantages for trading ownership interest in a news organization for ownership interest in another organization (aka, a stock swap). Allowing a deferral of taxable gain if the news organization goes to a journalistic nonprofit would put nonprofits on the same footing as for-profits.

3.    Allow tax exempt or reduced bond financing for the nonprofit acquisition of a news enterprise. Because a for-profit entity can deduct interest payments from its gross adjusted income, the overall cost of borrowing money is lower. Finding a way to lessen the cost of borrowing by not-for-profit news organizations would put them on more equal footing with their for-profit peers.

It’s not clear whether the FTC will include these or other proposals for tax changes in its final report, which is due out in the fall. And the issue of not-for-profit ownership of news enterprises should not downplay the vital role served by a vibrant, diverse and competitive for-profit journalism sector in American democracy, as the Knight Commission has recognized. However, addressing structural impediments in tax policy, through these or other measures, would recognize the growing role of nonprofits in the emerging media marketplace.

What do you think about these proposals? Would more permissive tax treatment for journalistic nonprofits have an appreciable impact on serving the information needs of communities? Is it a fair approach toward reforming media policy?