Legal question about donated items

[Poimen]

I was informed by a well intentioned person that a church cannot sell or make a profit off of company donated items (i.e. soft drinks from walmart), but can ONLY give them away.

My wife's church is preparing for a fall festival and will probably receive much of their materials via donation.

I think this person has something mixed up. But I don't know the actual laws surrounding such.

BTW, we are in central Alabama, if that helps in determining legal jurisdiction or whatever.


Anybody know?

[DaJudge]

I was informed by a well intentioned person that a church cannot sell or make a profit off of company donated items (i.e. soft drinks from walmart), but can ONLY give them away.

My wife's church is preparing for a fall festival and will probably receive much of their materials via donation.

I think this person has something mixed up. But I don't know the actual laws surrounding such.

BTW, we are in central Alabama, if that helps in determining legal jurisdiction or whatever.


Anybody know?

Never heard of such a law. If that were the case, no church could have a yard sale or bazaar made up of donated items. I know of some local churches around here that have an yearly auction made up of stuff donated from Walmart, Target and Sears. They never have a problem. Sounds like bunk to me.

[Dr. Ron]

dajudge is correct....the well intentioned person doesn't have a clue about what they are saying.

There is no law that prohibits anyone from selling donated items. The only one that I know of is some food companies that donate "fresh" foods like bread, donuts , etc....can ask that you not so that you do not "compete" with them with their own products. I do know that is possible. I did have that issue witha bread company.

However, if a large corp. like Walmart donates, they will usually give you a statement telling you if you CANNOT sell the items.

[RamboPreacher]

the paradigm does apply if you are acquiring items from your local food bank for your church's food bank. in that case, then - no - you can't sell/resell any items from the foodbank. you can give it away though. and that's probably where they got that understanding.

[Pastor Bill]

This is true for certain programs, like in this area we have a program called CAP that will donate items (some food, some other things) and they provide them to be distributed freely, but you cannot sell the items, and they are very specific about this. If it is caught (because it does happen at times) that organization looses all support from the program, and I believe there may be some fines.

This may be where the person is getting the information, but it is only specific programs that do this, and they will be VERY specific when they do.

[Mike Vande]

I heard something about dealing with ministry items if you get out of the ministry, like a PA, etc. If you bought a PA tax-free, or had one donated that was claimed by the donor as a tax write-off, and declared it as a ministry asset, I had heard there were some encumberments to selling. But, it's like anything else, believe half of what you see and none of what you hear...

[dolfan]

The caution is due to churches' tax exempt status. Mistakes get made, but not often with any consequence. Still, you should know what you're doing.

For example, in Alabama, churches must collect and pay sales taxes on anything sold as a fundrasier. Churches and even registered 501(c)(3) corporations are NOT exempt from sales taxes in Alabama.

What of income taxes on gains realized from sales? Generally, these are tax-free. But, the catch is classifying what is "unrelated business income", which is taxable even for churches.

The tax on unrelated business income is taxable at normal corporate rates for such income. Religious organizations are subject to the tax. If a church has reportable unrelated business income, it must file a Form 990 tax return.

So, what's "unrelated business income"??

"Business income" is income from a trade or business activity regularly carried on by the entity and NOT substantially related to the performance of the group's exempt function or purpose, even if the group uses the profit from that revenue to further its exempt purposes and functions.

A 'business activity' specifically includes conduct such as selling goods or performing services. That activity is "unrelated", and thus generally produces generally taxable income, if the activity itself does not importantly contribute to the group's exempt purpose/function over and above the use of the income itself. In other words, a church that sells replicas of historically significant bibles does so for the purpose of revenue raising, but also because the product sold actually promotes its exempt purupose (religious education, for example). That activity is not "unrelated" and is, therefore, probably not taxable.

A church selling candy bars, though, may generate taxable income. Candy bar selling is not centrally important to the purpose of the church's existence and mission, at least not over and above the money generated and its use to accomplish that mission. So, that would move it over into more "unrelated business income".

BUT, there is a specific list of activities that, although probably unrelated, still gets a pass from the IRS, i.e., a church thrift store that sells donated items. Candy bar sales are not specified on this list, and the church usually buys those instead of receiving them as donations.

Hope this helps.

[Poimen]

THanks guys. This has been helpful.

The individual was remembering Food bank regulations.

BTW, the candy bar example was meant as a neutral hypothetical -- just an example.