Tax-exempt status offers opportunities to students and benefits to communities
By Lisa Traiger
Nobody gets into teaching dance and running a dance studio solely for the money; there are dozens of less physically, intellectually, and interpersonally demanding professions to choose from. Ask any number of dance teachers and studio owners why they do it, and without pause they’ll say it was for love, not money. If, along the way, they earn a living and make a profit, that’s practically a bonus.
While most dance studios around the country operate as for-profit corporations, not unlike the local Starbucks or car dealership, some studio owners choose to incorporate as not-for-profit entities. That means the organization must fulfill a social purpose and benefit the community—in this case, by providing an education
In the United States, corporations—whether for profit or nonprofit—are overseen by each state, according to William Rattner, executive director of Lawyers for the Creative Arts (LCA) in Chicago. Each year Rattner’s organization helps hundreds of artists with legal issues that range from nonprofit incorporation to copyright advice, contract negotiations, and more.
“Setting up a not-for-profit corporation in any of the 50 states is very easy,” Rattner explains. “It can be done very cheaply, very simply.” But for most nonprofits, that’s only the first step. Being nonprofit does not make one tax exempt and eligible for deductible contributions and government grants. After incorporating as a nonprofit, one must then apply to the IRS for tax-exempt status, known as a 501(c)(3) for arts and other charitable organizations.
For tax exemption, says Rattner, “There’s a lengthy application form that goes into tremendous detail. You have to be certain about what you’re going to do and not do, and there’s a great deal that the IRS says you can’t do. They look at your governance, your purpose, how you operate, your board. It’s very complex and takes a long time to fill out and get it back from them. That’s the hard part.”
In many cities and states, organizations akin to LCA or Volunteer Lawyers for the Arts offer legal services on a sliding scale for artists and arts organizations, among them dance studios and companies. Some of those organizations might give advice on nonprofit incorporation and tax-exempt status; however, some businesses might be better off consulting a full-service lawyer with expertise in these areas. Budget size doesn’t affect nonprofit status: A nonprofit can be a small studio with a board of directors made up of parents and community members, or it can be a large independent or company-affiliated school with multiple locations, programs, and a board of directors with a national scope.
Big school, big budget
The Musical Theater Center (MTC) in Rockville, Maryland, serves about 1,800 students with classes in tap, jazz, hip-hop, ballet, voice, and acting. Executive director Rex Bickmore reports an annual budget of $1.3 million, 75 percent earned from tuition and ticket sales and 25 percent raised through grants from local government agencies, private foundations and corporations, and parents.
“We’ve never been able to meet the expenses” solely through tuition, explains Bickmore, a former dancer with The Joffrey Ballet and other companies and a one-time associate director of The Washington School of Ballet under its founder, Mary Day. He notes that the high cost of renting space in the Washington, DC, suburbs makes fund-raising essential: “Running as a nonprofit makes us eligible for funding and donations. If you’re not a nonprofit, your donors can’t deduct contributions they make to you. Also, if you’re going to receive funding from the county, as many organizations do here in Montgomery County [Maryland], you must be a 501(c)(3).”
MTC, which celebrates its 25th anniversary next year, didn’t go nonprofit until 1990. That switch has made a tremendous difference, says Bickmore. Among other pluses, donations enable MTC to offer about $15,000 annually in scholarships, according to Bickmore. Nonprofit status also allows the studio to offer a performing arts program that visits county public elementary schools on a regular basis.
Small school with a mission
“I believe that any child should have the opportunity to dance,” says Nela Niemann, artistic director of Blue Ridge Studio for the Performing Arts in Berryville, Virginia. “When I was growing up, especially the ballet classes were limited to the people who could afford it.” When she opened her studio, Niemann, mother of seven and the daughter of two teachers, vowed “not to turn down a student, regardless of ability to pay.”
But getting from her desire to serve her hometown community to a legal nonprofit entity was a challenge. “It’s a legal procedure that’s fairly complicated,” she says. “I [wanted] to go nonprofit to support the students and the scholarships. People are more likely to donate to organizations that are nonprofit.”
“Running as a nonprofit makes us eligible for funding and donations. If you’re not a nonprofit, your donors can’t deduct contributions . . .” —Rex Bickmore, The Musical Theater Center
A parent of one of Niemann’s students volunteered legal services to help the school owner apply for nonprofit and tax-exempt status. Although Blue Ridge Studio would be able to request grants, Berryville, about 60 miles west of Washington, DC, doesn’t have a town or county arts council that funds nonprofit arts organizations.
Niemann’s studio is a one-woman operation: She manages, administers, and teaches about 140 students with a few part-time teachers to help out. She knows she hasn’t taken full advantage of development opportunities through grant writing and other fund-raising activities and hopes to one day hire an administrator to help with fund-raising. “There are grants that are more easily accessible to nonprofits. That’s an area I have not tapped into in the way I would like to. I know that there are funds available to nonprofit organizations like mine, dedicated to the arts.”
But in the meantime, she continues to say yes to students who want to dance, even when increasing numbers of parents come to her about their own layoffs and financial troubles. Niemann says that in 2007–08 Blue Ridge gave away about $10,000 in full or partial scholarships to needy students, and for the 2008–09 season that nearly doubled to $19,895. That amounts to about 16 percent of Niemann’s operating budget.
“The scholarships are solely need based,” she says. “I don’t have a difficult procedure for getting a scholarship. I might have a child who can afford to take one class a week, but not two. Others might be on half or quarter scholarships. Parents will come to me privately and express interest in a scholarship. I find out what is comfortable for them to pay. It’s as simple as that. Do I get taken advantage of? I imagine sometimes I might, but I don’t think I get taken advantage of very much at all.” And often, once parents are more financially secure, they are able to pay back scholarships or donate to the studio.
Dancing the difference
Students don’t have to be religious to attend Celebration Street Christian School of the Performing Arts, but the studio’s practices reflect the religious faith of the owner, Laura Ruiz. She and a cadre of volunteer teachers, who receive classes and offsite training for free in exchange for their time, instruct about 110 students in Roseburg, Oregon. “We say we dance the difference. That difference in our studio is that we pray before each class. That’s about all. We don’t do a lot of preaching, and people come to us who never go to church, have no interest in going to church,” says Ruiz. “But they know that their kids will be well dressed, that the choreography will not be sleazy, and that they won’t be yelled at or treated harshly in any way.”
For Ruiz, a former Walt Disney World dancer, and the instructors at her 11-year-old studio, teaching by example and in a religiously inspired manner is more important than attracting hundreds of students or winning competitions. Her older students perform in the community and at local functions, churches, nursing homes, and rescue missions, but she never charges for their services.
“I wanted our dancers, our studio, to be low production in the sense that if somebody wanted us to dance in front of the store on their street, our event would be high quality, but we wouldn’t need tons of lighting, backdrops, and props,” Ruiz explains. “Anywhere, anytime, when we get the call, we go to dance. We take dance straight to the community. We don’t charge. Sometimes we take ‘love offerings’ [donations] and if someone offers, we don’t say no.”
Celebration Street became nonprofit about five years ago, but before that, for the studio’s first few years, Ruiz didn’t pay herself. She says that more than 50 percent of the studio’s income is from tuition, but at times she and her teachers chip in to cover additional costs of costumes or other necessities. “All of the money goes right back into the studio. If we have a need, we put it in the newsletter and say we have some dancers who are having problems, especially in this economy, or we need some costumes for the recital. People will come through and write checks. It’s amazing how giving people are.”
Ruiz doesn’t do a great deal of grant-proposal writing, but she does approach local businesses and community organizations and often has found them willing to donate money or services. She has also found, among other advantages for nonprofits, that the local school system will distribute marketing flyers for classes and performances for free, a service not available to for-profit studios.
With about 10 percent of her students on full or partial scholarship, she notes that she expects full participation and model behavior. “We do ask sometimes that they help clean the studio. Other times the scholarship is a gift. It depends on the child’s situation. We do require that they be in class. We ask that they follow the dress code and sometimes even that’s a challenge, so we help by buying shoes and tights.” Otherwise, the nearest dance store is 60 miles away.
“It’s been quite the sacrifice,” Ruiz admits, to keep Celebration Street stable in the declining economy, “but when you see the kids and their parents, it’s a sacrifice that’s worth it. Sometimes they come from other studios and just ran out of money. Here we will scrounge, sacrifice, write a letter, anything we can do—but we will find a way to get those students in so they can continue their dance education.”