Should schools receive tax breaks? It's an easy-enough question, until you look at what a tax break is, and of course dive into the recurring puzzle of defining a school. Let's look at some of these points.
Public education through public district or public charter schools should be easy, except that many chater schools are privately-owned and run for profit. Since public schools do not receive privare money, then there is no tax implication for their income except that some ask parents for "donations", and some sell uniforms, books, meals and charge for activities and some run fundraisers such as dinners and silent auctions. So whether these should be taxed or not is an important question since the destination is public education but the income comes from private sources.
On the expense side, the question of whether public schools should pay tax on land, buildings, major capital items, minor capital items and every day "consumables", on services such as utilities and on the services of providers such as plumbers and cleaners. Typically, they are exempt from real estate related taxes, but still pay taxes on construction expenses, air conditioners, paper and markers, and on services. The government gives public schools money with one hand and claws back, in some cases as much as 18%, with the other.
So far, so not easy.
The world of non-public education is more complex. Non-public for-profit education is simple, right? They are businesses like every other business and should be treated the same. Yet. what if they offer scholarships? Should the funds raised be taxed? To be consistent, yes. Should the recipient be taxed since the scholarship is in effect income? The tax code says "yes" in some cases, although I do not know if or to what extent this is policed and enforced.
Non-public non-profit education is a combination of the above. The state has decided that the entity serves a public good so income (bequests, donations and fundraising) qualifies for tax relief for the source, and any operating surplus is not taxed. Depending on the jurisdiction, they may or may not pay tax on land, buildings; they will pay taxes on major capital items, minor capital items and every day "consumables", on services such as utilities and on the services of providers such as plumbers and cleaners. As with public schools, should they pay taxes on these things? The same scholarship questions also arise.
And yet many of these non-profits are wealthy, sometimes exceedingly so. The US government reported that in 2017, total college endowment (so not counting schools) was half a trillion dollars. Another more recent report lists 100 colleges with endowments of over one billion dollars; presumably there are more but 100 is a nice round number for a report.
Schools are not in the same league. One study lists only one school with more than a billion dollars and that is only just over the line; the next has less than half that. Should a wealthy or very wealthy non-profit school be tax-exempt in terms of donors and operating surplus? They do pay a small tax on endowment investment income and are unhappy about that. What about a non-profit school which transfers a large chunk of its income to an associated for profit entity?
What about a non-profit school which is badly or negligently run by its board, thus failing careful stewardship of donated funds? What about income from other activities such as renting out its facilities or selling uniforms? What about the school which spends more money annually on its rose garden than it does on professional development for staff? Or the school which flies its director around the country or around the world for prfoessional meetings and conferences?
One interesting possibility is to transfer tax-exempt status from the entity to the activity. Thus, scholarships and their funding would qualify, or field trips, tournament entries and instruments for the band and not just a blanket all-inclusive application. Another is to tie community outreach to tax benefits, for example "x" hours of professional development for local publiuc schools would result in "$y"relief, running local football tournaments or music schools or hosting events.
These are difficult questions and as in so many areas, lawmakers have chosen what may have appeared to be an easier solution or compromise. However the questions have not gone away.
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Further reading
https://commonslibrary.parliament.uk/research-briefings/sn05222/
https://www.washingtonpost.com/education/2019/06/14/how-wildly-expensive-for-profit-private-schools-are-different-wildly-expensive-nonprofit-private-schools/
https://www.theguardian.com/commentisfree/2018/aug/16/private-schools-charitable-status-strip-benefits
https://careertrend.com/for-profit-schools-vs-non-profit-schools-13639508.html
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