Learn About Tax Credit

Member Alert:  Community Foundation Tax Credit

In May, the Legislature passed the governor's tax reform package. This bill eliminates three charitable tax credits: public institutions, food banks and homeless shelters, and community foundations. The changes to the charitable tax credits are effective on January 1, 2012.

Creation of the Community Foundation Tax Credit 20 years ago was a major legislative accomplishment for CMF and our community foundation members. Over the lifetime of this credit, endowed assets of the community foundations have grown, due in part to this credit, to exceed $2 billion. Michigan was the first state in the country to have such a tax credit, and the stories of how it helped to grow endowed funds held by community foundations across Michigan are indeed inspiring.

As a result of this new Michigan legislation, community foundations and the other charitable beneficiaries of these charitable tax credits will be reaching out to current and potential donors throughout the balance of 2011 to help promote both business and individual giving.

Here is sample language that your community foundation can use to inform your stakeholders of this recent Michigan tax change and promote charitable giving in 2011 with current tax-credit donors, local charitable individuals, and businesses and professional advisors.

In the files below you will find:

• Talking points for yourself and your staff to use for presentation and announcements
• Sample letter for existing tax-credit donors
• Sample newsletter article
• Sample letter for business donors
• Sample letter for financial advisors
• Sample letter for nonprofits with agency endowments
• Sample document showing how the Community Foundation Tax Credit works

Talking Points and Sample Letters about Michigan Tax Credits [DOC]

Sample Letter: Community Foundations Give more for Less 2011 [DOC]

Originally signed into law December 29, 1988, the Michigan Community Foundation Tax Credit was designed to encourage individuals and businesses to build the permanent endowments of community foundations across the state.

The State of Michigan provides a state tax credit for gifts to certified community foundations in Michigan. Only contributions which are placed in a permanent endowment are eligible for the Michigan Community Foundation Tax Credit. Here’s the way it works for both individuals and corporations:

The law permits a taxpayer to reduce Michigan income tax or Michigan Business Tax liability by a credit of 50 percent of the amount contributed to a community foundation, subject to a maximum credit of:

• $100 for an individual filing singly (for a $200 donation)
• $200 for a married couple filing jointly (based on a $400 donation)
• $5,000, or 10 percent of tax liability before claiming any credits, whichever is less, for a resident estate or trust (based on a $ 10,000 gift);
• Tax credit is equal to the smaller of 50% of the amount contributed, 5% of the net MBT tax liability or $5,000.

Under the MBT the tax credit is not available to insurance companies or financial institutions. Review the community foundation tax credit tables for individuals and businesses for specific examples. This credit is in addition to those available for donations to Michigan colleges and universities, public libraries, public broadcasting stations and homeless programs. Your donation continues to be deductible as a charitable gift for federal income tax purposes.

Not all organizations that call themselves community foundations qualify for the tax credit. Only those community foundations certified by the Michigan Department of the Treasury as qualifying for the tax credit are eligible.

Impact of the Michigan's Community Foundation Tax Credit

Before the Michigan Community Foundation Tax Credit (pre-1988), there were community foundations serving only about one-third of Michigan. We now have 64 community foundations certified by the State for the tax credit covering all 83 Michigan counties.

The tax credit has been an important tool in the development of community foundations and permanent community endowments. Community Foundation assets have grown from $300 million in 1989 to over $2.5 billion in 2008. The growth of endowments covering the State has also allowed grantmaking by Community Foundations to greatly increase from $1.7 million in 1989 to more than $130 million in 2008.

This $130 million in grantmaking shows the great value of this public private partnership to the State. The State Treasury office that tracks this tax credit reports that the cost to the State in 2008 was approximate $3.5 million based on the 35,000 residents who claimed the credit on their state tax returns.