Although contributions to these organizations are not tax-deductible, membership dues may be deductible as business expenses. Many people believe that nonprofits receive most of their funds from private contributions. Many organizations also receive funding from government, either in the form of outright subsidies or for providing services on a contract basis. The idea of the nonprofit sector may be abstract and poorly understood, but the sector's role in our society is tangible and easily recognized. Freed from the profit motive that dominates business and from the constraints of government, the nonprofit sector serves as a forum for the creation and dissemination of new ideas, an efficient vehicle for delivering social services, and a guardian of our environment, values, and heritage.
All nonprofits are exempt from federal corporate income taxes.
Nonprofits are, of course, not exempt from withholding payroll taxes for employees, and they also are required to pay taxes on income from activities that are unrelated to their mission. A university that owns a commercial office building, for example, would probably pay taxes on rental income. Similarly, private foundations pay substantial excise taxes on their investment income. The notion that churches, charities, and other organizations that operate for the public good should be tax exempt can be traced back through medieval England to ancient times, and has been taken for granted throughout U.S. history. When nonprofits were excluded from the first federal income taxes, for example, Congress didn't even debate the issue.