ABSTRACT
Despite its near-universal acceptance as a rationale for exemption, the relief of government burden theory fails on a number of fronts. The most essential inquiry for evaluating a particular theory of charitable tax exemption is whether it identifies a set of activities that are both worthy of and in need of the exemption. The first portion of this deservedness criterion appears to be easily met by the government burden theory since it requires the showing of a concrete quid pro quo. Nonprofit hospitals claim that they easily meet the government burden test by giving away billions of dollars of services for free each year. This argument contains a number of flaws, however. The difficulties that nonprofit hospitals face in satisfying a carefully-applied application of the government burden theory are likely to be encountered by entities in many other nonprofit sectors, particularly those like education and day care that have significant for-profit competition.
