Already Taxed to the Tutu, Arts Now Mugged by Congress

Psst!--fiction writers: Want to create a truly despicable villain?

For openers, you want some ruthless individual who refuses to play by the rules. But don’t stop there--you might just wind up with a scrappy anti-hero like Axel Foley in “Beverly Hills Cop” or “Dirty Harry” Callahan.

No, set up this dastardly character in a position where he can force everyone else to go by the book--his book.

Now, just one more twist and you’ve got the ultimate miscreant: After this devil has written the rules by which all must abide, let him change the rules, then penalize everyone for doing exactly what they had been told before.

Is this someone even Snidely Whiplash could hate?

Unfortunately, I can’t take credit for this bad guy. In fact, he already has a name:

Congress.

Under the guise of tax code revision, Congress is exploring ways to milk even more money out of the nation’s beleaguered nonprofit arts organizations.

They are talking about taxing more of the revenue that arts groups get from merchandising promotional T-shirts, coffee cups, key chains and posters, renting costumes, sets or equipment, selling or renting mailing lists, car washes--that sort of small potatoes stuff.

What’s happening, as outlined in a report issued last week by the American Arts Alliance (representing 350 U.S. arts groups), is that the Internal Revenue Service may severely restrict its definition of “related” business income and, therefore, what qualifies for a tax exemption.

Guidelines already are fairly strict about what is and isn’t subject to the Unrelated Business Income, or UBI, tax, which first came along in 1950 to protect for-profit businesses from possible unfair competition from nonprofit groups.

The rationale for the UBI tax is that if a ballet company decides to open a pizza shop to raise money (even though ballet rarely has anything to do with pizza) and if the dancers don’t have to pay a tax on their pepperoni, they well may threaten a Shakey’s down the street. Just because an activity provides money to a nonprofit organization doesn’t make it tax-exempt.

But now the House Ways and Means Committee thinks it’s time for a new look at the UBI tax (which affects all nonprofit groups, not just arts companies). Of course, if it weren’t for a national deficit of $150 billion--that’s a lot of violin strings--the feds might not be quite so desperate to break into the piggy banks of orchestras, opera companies, museums and such.

These groups are so flush with cash nowadays that half of America’s professional opera companies ended 1986 in the red, as did two-thirds of this country’s major professional orchestras.

What really stings arts groups is that any further tax burden would come on top of drastic cuts in the amount of government money they get through the National Endowment for the Arts under Reaganomics.

Further, the Tax Reform Act of 1986 reduced or eliminated many deductions for individual and corporate donations to charitable groups, thus reducing the private sector’s incentive to give.

Now, having told the nation’s arts groups to look for other ways to raise funds, Congress would hit them up for taxes on whatever frosting may be provided by product merchandising and other retail activities.

But why stop there? Think of all the revenue that could be tapped from a canine tax imposed on Seeing Eye dogs. And surely there’s a way to tax the Red Cross for each pint of blood it collects.

Understandably, arts officials are pretty frustrated, even here in Orange County, the private enterprise capital of the country.

“We’re not here to line our pockets; we’re here to serve the public,” said Newport Harbor Art Museum director Kevin Consey. “What do they think we use the money for? To go off on vacations to Tahiti? We plow the money directly back into programs, exhibitions, school visits for children. All of our income at our bookstore goes back into public programming. What’s the concern?”

The concern of some private business owners, as noted, is that nonprofit organizations have an unfair advantage. But that’s nonsense. It shouldn’t matter whether the Pacific Symphony opens its own croissants-and-discount-furniture boutique, as long as any profit supports its musicians and facilities.

And the nation’s arts groups aren’t even asking that the Unrelated Business Income tax be eliminated. They simply don’t want it any stiffer than it already is.

The tax-exempt status granted to nonprofit arts groups, far from a direct gift, is only a token, indirect subsidy. But it’s an important one that says America values cultural endeavors and the organizations that promote arts.

If there are abuses, like the art collector who donates a $20,000 painting to a museum and takes a $3-million tax write-off, and the museum gives a pumped-up receipt, that’s when Congress can send for the pit bulls at the IRS.

But meanwhile, if we start treating--and taxing--arts groups like every other business, we’re saying that art is no more important to our “pursuit of happiness” than the unalienable right to buy wing-tips at Kinney’s or pick up a fajita pita at Jack-in-the-Box.

Ralph Waldo Emerson, that famous American rabble-rouser, once said, “Art is the path of the creator to his work.”

Congress, it seems, would make that path into a toll road.