Behavior of Nonprofit Organizations in For-Profit Markets: The Curious Case of Unprofitable Revenue-Raising Activities
AbstractWhen nonprofit organizations in the U.S. engage in activities that are "substantially related" to their legal mission they pay no profits taxation, but profit from "unrelated business" (UB) activities is taxed. Since UB activity has no apparent justification other than to generate revenue, we attempt to explain why no profit is so frequently reported. We examine the accounting allocation of joint costs, such as depreciation, between the taxed and untaxed activities in six industries - including health, education, and the arts - and also the specific kinds of UB activities undertaken. We find evidence that the reported unprofitability of UB activity masks true profitability.
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Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.
Volume (Year): 164 (2008)
Issue (Month): 4 (December)
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Web page: http://www.mohr.de/jite
Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany
Find related papers by JEL classification:
- L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs
- L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
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- Guy David & Richard Lindrooth & Lorens A. Helmchen & Lawton R. Burns, 2011. "Do Hospitals Cross Subsidize?," NBER Working Papers 17300, National Bureau of Economic Research, Inc.
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