Hillsdale avoids new federal endowment tax

Home News Hillsdale avoids new federal endowment tax
Hillsdale avoids new federal endowment tax
Central Hall | Collegian

Hillsdale College will not have to pay a new federal excise tax on college endowments, at least for now.

As a part of the Republican tax package signed into law by President Donald Trump on Dec. 22, private, nonprofit colleges and universities must pay a 1.4 percent tax on their endowment’s yearly income. The tax, however, only applies to institutions with an endowment greater than $500,000 per student and more than 500 students. About 30 colleges qualify.

Hillsdale’s endowment was nearly $570 million by the end of 2017, according to Patrick Flannery, college treasurer and vice president of finance. That is about $378,000 per student. A $754 million endowment for Hillsdale’s approximately 1,500 students would qualify it for the tax.

Since September 2013, the college’s endowment has grown by 47 percent, and it grew by more than 14 percent in 2017 alone. Flannery said he could not provide an accurate prediction of when Hillsdale’s endowment could become taxable or how much it would pay if it were to reach that threshold.

Flannery told The Collegian in September that Hillsdale’s goal is to grow the endowment, especially for scholarships, to $800,000 over the next few years. The college’s fundraising and income benchmarks remain intact, agreed Flannery and Nancy Johnson, executive director of institutional advancement.

“The recent tax change hasn’t caused us to adjust our goal for the endowment,” Flannery said in an email.

The $500,000-per-student threshold for the endowment excise marked a change from the original House-proposed tax bill. That bill set the qualifying endowment size to $250,000, which would have made Hillsdale pay up to $700,000 a year to the federal government.

The Senate later amended the bill, upping the threshold. That change was included in the bill’s final version, after the chambers reconciled the legislation in a conference committee.

Hillsdale made news in early December, before the Senate first voted on the tax legislation, because of an amendment added by Republican Sen. Pat Toomey of Pennsylvania and Ted Cruz of Texas that would have exempted any college that refuses federal money, such as Hillsdale, from paying the tax no matter the endowment size threshold.

Although the amendment was later removed, the floor debate centered on Hillsdale, which has the largest endowment of the at least 10 schools in this category. Several Democratic senators inquired if the U.S. Education Department’s secretary, Betsy DeVos, has donated to Hillsdale’s endowment.

Original review of recent public records from the Dick and Betsy DeVos Family Foundation found no evidence a donation to Hillsdale College. According to documents later obtained by The Collegian, the foundation donated $35,000 to Hillsdale College as an unrestricted grant to its general fund in 2016. It donated to six other colleges and universities or affiliated organizations, as well.

Toomey received campaign donations from Betsy DeVos in 2010 and 2015, and her husband has donated to his campaign, as well. The senator’s spokesman, Steve Kelly, previously told The Collegian that neither Toomey nor his staff had collaborated with DeVos or her office on tax reform.

Since the tax exemption for colleges that do not receive government money was not included in the Senate or the House tax bills, it could not be added during the conference committee.