Education

The Case for Taxing Colleges and Universities

Colleges and universities (the non-profit ones, anyway) don’t pay any taxes. Should they?

In today’s Martin Center article, Jenna Robinson makes the case that they should not be completely tax-exempt. Specifically, she argues that college property used for non-educational purposes should be taxed. She notes that “close scrutiny of university property in North Carolina reveals that many higher education entities in the state — both public and private — are engaged in considerable commercial activity.” For example:

The PNC arena in Raleigh is the home of NC State basketball. But it also hosts professional hockey games, concerts, and events such as Disney on Ice.

The Carolina Inn at UNC-Chapel Hill bills itself as “the only hotel on campus!” It provides event space for UNC Board of Trustees meetings and rooms for university visitors. But it also rents space for wedding receptions, parties, and meetings. Rooms start at $198 per night.

The Washington Duke Inn (owned by Duke University) has an 18-hole championship golf course, home of the Duke University Golf Club. Six PGA Professionals and one Master PGA Professional are on staff and available for group or private lessons.

The problem here is that local residents have to pay taxes to cover the costs of providing services for those commercial property uses. Taxing the schools for those expenses would be entirely fair.

It’s true, Robinson observes, that some schools make voluntary payments to their localities to help defray the costs they impose. They’re called PILOTs (payments in lieu of taxes). Duke, for example, pays Durham some $400,000 per year and Harvard pays Cambridge $10,000,000. But it seems those payments are light compared with what they’d owe if their property were assessed like other real estate is.

Robinson concludes,

The argument for granting non-profit entities exemptions from taxation is that they provide public goods. In the case of universities, the public good is education. But institutions that sell commercial goods in competition with private businesses are not providing public goods and should not be regarded as non-profit institutions while engaging in commercial activities. Nor should local taxpayers bear the burden of universities’ business ventures or unfettered expansion. Higher education’s commercial activities should be treated as what they are: big business. And taxed accordingly.

I agree. Higher education should bear its costs fully. So should students.

George Leef — George Leef is the director of research for the John William Pope Center for Higher Education Policy. He holds a B.A. from Carroll College (Waukesha, Wis.) and a J.D. from ...

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