Michael Lissack schools-including MIT, Cal Tech, and Penn State’s main campus-now spend more on research than on teaching; these schools collect millions of dollars for work done under contract to commercial companies. This income is shielded from taxes, and the companies get a tax write-off. Don’t be misled by the word nonprofit. It does not mean these groups cannot earn a profit on their services. They make plenty of profit-although they don’t call it that. Under the federal tax code, nonprofit businesses may accumulate net income, so long as they don’t distribute it as dividends or stock. Where does the money go then? In many cases, to expand their em- pires. That means to build new buildings, expand services, acquire compet- itors, increase executive salaries, and hire high-priced consultants, among other things. As they’ve expanded, many large nonprofit organizations have moved beyond their core mission into commercial businesses that have little, if anything, to do with their exempt purpose. Under the tax code, nonprofits are allowed to operate commercial subsidiaries-so long as they pay taxes on that income, and so long as those activities don’t overshadow their exempt mission. One commercial nonprofit is the Hazelden Foundation in Center City, Minnesota. Hazelden, best known as a drug and alcohol rehabilitation cen- ter, gets 95 percent of its funds from patient fees, publishing, and invest- ments. Forty percent of Hazelden’s $42 million in operating revenue in 1990 came from providing treatment. The other 60 percent came from its booming publishing business. As large nonprofit organizations have matured, many have shed their traditional reliance on public contributions in favor of charging for their services. In 1991, about three-quarters of the revenues reported to the IRS by large nonprofits came from selling services-such things as books and ed- ucational and health services. Public contributions, dues, and government grants accounted for the remaining one-quarter of their income. A prominent retailer brings in $17 million a year selling expensive strings of pearls, faux tortoise rattan tables, and other unusual gifts through twelve million catalogs mailed each ear. The profit margin on goods sold is huge-sixty-five cents on every $1 taken in. If shoppers pay with credit
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