The United States has a considerable culture of charitable giving, which contrasts that of many countries throughout the world. Much of the international community sees little need for a strong nonprofit sector, because they have comparatively more extensive tax and redistribution systems. However, with more limited redistribution and public service provision in the United States, a sizable nonprofit sector has emerged that is often considered supplementary to government. More than two million nonprofit organizations exist throughout the U.S. with a substantial portion of these offering services to improve social welfare within surrounding communities. Many of these organizations continue to exist by virtue of charitable contributions received from individuals and corporations who demand services at a level beyond government provision. In these instances, it is plausible to expect that greater financial support for nonprofit activity might alleviate some of the burden of government to provide particular services, thereby reducing the tax burden imposed upon residents.

The purpose of this paper is to determine whether (and to what extent) nonprofits influence state tax burden. This question is addressed using panel data of U.S. states from the U.S. Census Bureau along with nonprofit data from the National Center for Charitable Statistics (NCCS) over a time period of 13 years. Preliminary results suggest that a greater amount of contribution and program service revenue received by nonprofits within a state leads to a reduction in the state’s tax burden. These findings help to inform scholars and policymakers of the role of the nonprofit sector in supplementing government service provision and alleviating tax burden among the states.