Monday, September 17, 2007
Social Entrepreneurship: Should it Receive Tax Exemption Benefits?
Google founders Larry Page and Sergey Brin have established a foundation which intends to devote employee time and one percent of Google’s profits and equity towards philanthropy with the hope that one day Google.org will have a greater impact globally than Google itself. Google.org is the philanthropic arm of Google and is the umbrella which includes the work of the Google Foundation, some of Google's own projects, as well as partnerships and contributions to for-profit and non-profit entities.
The difference between Google.org and other typically philanthropic entities is that Google.org will not receive a tax exemption as a charitable entity, and will conduct its operations for profit.
By choosing for-profit status, Google will have to pay taxes if company shares are sold at a profit — or if corporate earnings are used — to finance Google.org. Any resulting venture that shows a profit will also have to pay taxes. Shareholders may not like the fact that the Google.org tax forms will not be made public, but kept private as part of the tax filings of the parent, Google Inc. However, Larry Page and Sergey Brin, believe for-profit status will greatly increase their philanthropy’s range and flexibility. It could, for example, form a company to sell the converted cars, finance that company in partnership with venture capitalists, and even hire a lobbyist to pressure Congress to pass legislation granting a tax credit to consumers who buy the cars, as charitable entities are not permitted to lobby congress, except to a very limited extent.
The first project that Google.org has authorized is the production of an efficient hybrid car that utilized efficient gasoline consumption, ethanol consumption, and plug in electric use. This incentive program, known as RechargeIT, was launched in June, and provides $10M in research funding for the winners.
The question that I pose is whether these entities that are operating for a social good at a reduced profit margin should be allowed to benefit from the stated social goal of providing charitable services to the public, which typically receive charitable status und the Internal Revenue Code? If you think about it, these social entrepreneurship are arguably creating more social good, than say a large donation to a University or a Church, and could be considered to be bringing more quality back to the lives of all people; however, because they are operating for a minimal profit, they are not entitled to any tax relief. While I don’t know what the answer should be, I think that it is an interesting piece, and should be embraced by all, whether it receives for tax exemption or not. Way to go Google! Continue to show the captains of industry how to properly steer their ship in order to effect the greatest good for the world as a whole, and not just for their own pocketbooks. And, as I’m sure that Google will see, the combination of good work with an industrial backing will in fact increase their utility in both a financial and personal happiness sense.
The New York Times has also written an article on the formation of Google.org, and the philanthropy being asserted by Google. Read the full New York Times article here.