Often we tend to group nonprofits into one category. This is a mistake. All nonprofits are not the same. The US nonprofit sector is defined by Federal tax legislation. The tax code lists a diverse mix of nonprofit organizations conducting economic and social activity within the US economy. This can include the local country club, Kiwanis club, credit union, hospital, nursing home, chamber of commerce, child care center, foundation, college, professional association, church, Elks Club, cemetery, and even insurance company. Indeed, the Federal tax code lists over 27 types of nonprofit entities. All receive special tax exemptions and all are part of the economy. That is, all are doing business. But as you may notice not all are in the same line of business. Each of these organizations by tax code, behavior and business subsector are distinctive.
Most of the nonprofits registered by the IRS, which is required by all nonprofit organizations to receive special tax treatment, are charitable nonprofits defined under section 501(c)3 of the Federal tax code. These 501(c)3 nonprofits comprise over 70% of all nonprofits. Typically, these nonprofit organizations are what most people think of when they hear or use the word “nonprofit” or “charity.” These are the organizations where donors can deduct their donations on their tax returns. Yet even within this category not all operate similarly. Especially in terms of their source of revenue. For example, a nonprofit nursing home or hospital’s revenue derives mainly from fees charged to its users. The local soup kitchen or homeless shelter depend more heavily on donations to cover its cost of operation. All of the above mentioned nonprofits seek support but philanthropy impacts their outcomes differently.
Recognizing the diverse nature of nonprofits and the varied means by which they secure their revenue is important in how you view and judge a nonprofit organization. Not all require public fundraising to keep their doors open. Many operate more like a for-profit business in terms of revenue acquisition, salaries, overhead and administration, etcetera. Others like the local church or food pantry must make their “sales” revenue primarily via fundraising. Neither is better than the other. Philanthropy serves a role in both. So the next time you are approached by a nonprofit it helps to know what their product and outcomes are along with a breakdown in their revenue stream. Not all are the same.