Nonprofit Taxable Activities, Production Complementarities, and Joint Cost Allocations

Robert J. Yetman

National Tax Journal, 2003, vol. 56, issue 4, 789-99

Abstract: Nonprofit organizations earn both tax–exempt and taxable revenues. Nonprofits may have a natural aversion to engaging in ancillary activities and, as a result, taxable ventures need to provide higher returns than alternative investments. A nonprofits’ ability to exploit production complementarities may increase the return to taxable activities and explain the extent to which it engages in taxable ventures. This paper uses tax return data to test the theory that complementarities encourage taxable activities. Complementarities can lower production costs and make it easier for a nonprofit to allocate joint costs from tax–exempt to taxable activities. I find support for both hypotheses.

Date: 2003
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