Taxing the Unheavenly Chorus: Why Section 501(C)(6) Trade Associations are Undeserving of Tax Exemption
Philip T. Hackney
Louisiana State University Law Center
May 16, 2014
Denver University Law Review, Forthcoming
Our federal, state, and local governments provide a subsidy that enhances the political voice of business interests. This article discusses the federal subsidy for business interests provided through the Internal Revenue Code (“Code”) and argues why we should end that subsidy. Under the same section that provides exemption from income tax for charitable organizations, the Code also exempts nonprofit organizations classified as “business leagues, chambers of commerce, real-estate boards, boards of trade, or professional football leagues.” Theory supporting tax exemption states that we should subsidize nonprofit organizations that provide goods or services that are undersupplied by the market. A charitable organization that assists the poor is a classic example of a service undersupplied by the market. Business interest group services, however, are found in abundance. Data shows that there is a significant bias in the interest group system in favor of business interests and away from interests such as labor, the poor, and the environment. Tax-exemption at federal, state, and local levels likely fosters at least some of this bias in our democracy. Rather than enhancing a pluralistic society, as some argue is a prime benefit of our tax-exempt system, tax-exemption for business interest groups enhances the voice of the powerful and detracts from the voice of the weak. Thus, because business interests experience little in the way of market failure and tax-exemption for such groups likely leads to a bias in our democratic system I argue we should end exemption for nonprofit business interests.
Number of Pages in PDF File: 40
Keywords: Trade Association, Interest groups, exempt organization, federal income tax, tax exempt, business league, business organization, business interest, collective action, section 501(c), section 501(c)(6), nonprofit organization, voluntary sector, independent sector, pluralism
JEL Classification: K2, K34, K23, L31, L30, L52, N40, N60
Date posted: May 18, 2014 ; Last revised: May 20, 2014
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