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Behavior of Nonprofit Organizations in For-Profit Markets: The Curious Case of Unprofitable Revenue-Raising Activities

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Author Info
Maxim Sinitsyn
Burton A. Weisbrod

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Abstract

When 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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Publisher Info
Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 164 (2008)
Issue (Month): 4 (December)
Pages: 727-750
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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200812)164:4_727:bonoif_2.0.tx_2-

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Related research
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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 - - - Boundaries of Public and Private Enterprise; Privatization; Contracting Out
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting

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This page was last updated on 2009-12-3.

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