Research Friday: "Really, How Many Nonprofits Are There?"
Welcome to Research Friday! As part of a continuing weekly series, each Friday we invite a nonprofit expert from our academic faculty to highlight a research report or study and discuss how it can inform and improve day-to-day nonprofit practice. We welcome your comments and feedback.
Really, how many nonprofits are there?
Oy, such an easy question to ask. This is one of those common questions that doesn't have an easy answer. Part of the problem is that so many organizations fall under the umbrella of "nonprofit," which is a big stew of everything that isn't a government agency or registered as a business. This term includes informal and unincorporated associations that operate almost entirely off the regulatory radar screen. "Nonprofit" includes member-serving organizations, as well as the public-serving ones that we usually associate with the term. Some organizations are only known in their neighborhoods, some make themselves known only to the state, and some only keep up their federal paperwork. Often the best we can do is count within various categories and hope the number we come up with is close to how many nonprofits there actually are.
In Arizona, unincorporated associations sometimes register with the Corporation Commission or successfully apply for federal charitable exemptions. However, if they do not register with these bodies, and they do not have any employees, we won't easily know about them. They are the "dark matter" of the nonprofit universe — probably numerous, but almost always missing from our count-'em-up descriptions of nonprofit activity.
But are small, unstaffed associations really what you meant when you asked how many nonprofits there are? These days, incorporation is standard for formal nonprofit organizations of consequence. It has become "the thing to do." So, the Arizona Corporation Commission is a place we can look to for Arizona-incorporated nonprofit organizations. Here's their online listing for a nonprofit I incorporated a few months ago. The Corporation Commission's current statistics, as of April 20, 2011, lists 40,961 nonprofit corporations. However, although you can't see it on the linked page, about one in four of these corporations is in some stage of delinquency or dissolution, often from failing to pay an annual fee or file an annual report. Or, maybe they stopped operating and never told anyone? Anyway, the state of Arizona lists around 31,000 nonprofit organizations in good standing. Which number would you choose: 40,961 on the rolls, around 31,000 in good standing, or some number in between?
To further complicate things the term "nonprofit" is used by states, but not the federal government. However, the great benefit for many nonprofits comes from registration with the federal Internal Revenue Service (IRS), so that their income will be exempt from federal taxes. The feds call these the "tax-exempts." The public-serving ones often apply for a federal charitable exemption. This is a great benefit because it allows nonprofits to accept contributions that donors can deduct from their itemized income taxes. The ones that get this exemption, which are recognized in §501(c)3 of the Internal Revenue Code, are called "public charities." So, are those the ones you meant when you asked the question? Many nonprofits are on both the state and federal lists, but others appear on only one.
Okay, so how many tax-exempts are there? Bookmark this link — you're going to want it someday, and it's virtually impossible to find from the irs.gov homepage. From there you can download an Excel file named "Arizona A-Z," or click here to download it directly. This file, currently for January 2011, includes 23,821 tax-exempt organizations with an Arizona address that have made themselves known to the IRS. Sort by "Subsection Code," and you will see that Arizona has only one organization exempt under §501(c)1, which includes charities that get their exemption from an Act of Congress. The biggest group, however, are the 18,351 §501(c)3 public charities.
However, about 1,000 private grantmaking foundations, like the Virginia G. Piper Charitable Trust, are part of the public charities group. Did you mean to include them when asking about nonprofits? Maybe not. You probably did mean to include churches, temples, and the like, but they are mostly missing because they have a special deal where their charitable exemption is automatic. Further, they do not have to file annual reports with the IRS. How many such congregations are there in Arizona? Around 3,000 voluntarily report to the IRS, but I have seen estimates that more than double that number. The big problem with congregations is not in knowing how many there are, but instead in not knowing how much of our charitable contributions go to them. In the ASU Lodestar Center's recent Scope of the Sector report, Brintha Gardner and I estimate that about 40 percent of Arizona's individual giving goes to its congregations, but this giving is mostly invisible since churches are not required to file reports.
Small tax-exempts have also traditionally not had to file annual reports with the IRS. So, like the state Corporation Commission list, the federal list of exempt entities has the problem of retaining dead or dormant organizations because they have not developed a good way of obtaining proof of life. This changed this past year, with small organizations now required to file a very, very short "I'm still here" e-postcard. We haven't seen the fruits of this policy change yet, but it will soon help us know how many federally recognized nonprofits are really operating. Alas, churches and other congregations are still exempt from even that simple report.
I'm sorry... did I answer your question? As far as I can tell, probably around 50,000 Arizona nonprofits, all told, soup to nuts. Give or take 10,000 either way. Answering this deceptively simple question includes a big element of educated guesswork due to the problems of defining, finding, and actually counting them up.