The law permits a nonprofit organization to receive corporate sponsorship income tax free if the sponsorship is linked to a specific event that is held once per year. It is acceptable for PTA to receive payments structured as royalties which is a percentage of gross sales or to enter into sponsorship agreements with businesses, including e-commerce businesses. Under new regulations, it is acceptable for PTAs to agree to an exclusive sponsorship. An exclusive agreement is one which prohibits competitors of the sponsor from selling at the event. The portion of the payment which reflects the exclusion element is taxable.
For the payment to qualify, there must be no arrangement or expectation that the business will receive any substantial return benefit for its payment. The PTA may not enter into a partnership with a business. Partnership implies sharing in the profit and loss of the business and would result in unrelated business income and tax liability.
The PTA should acknowledge publicly the royalties or sponsorship. The acknowledgment of thanks can list the corporate sponsor’s name, logo, address, telephone number, and products.
PTA May
Hang a banner on the school campus with permission of the school principal per district policy.
Hang a banner where an event is being held after a Facilities Use Permit (PTA Use of School Facilities; Facilities Use Permit Addendum) is approved.
Place an acknowledgement in an event program book.
Announce event sponsors to the audience.
Acknowledge the sponsorship of a particular event in the PTA newsletter or school newsletter, if school district policy permits.
Distribute samples of the sponsor’s products at the sponsored event (if school district policy permits) or if a Facilities Use Permit (PTA Use of School Facilities; Facilities Use Permit Addendum) allows sponsored product distribution.
The PTA may provide a hypertext link from the PTA’s website to the sponsor’s website. PTA must be cautious in how this link is established. It is possible that the existence of a link might cause the sponsorship payment to be considered as unrelated business income, particularly if the link is in the form of a moving banner. A link would more than likely be seen by the IRS as retaining the passive character associated with corporate sponsorship, while a moving banner is more likely to be considered advertising. The duration of the link should correspond to the terms of the contract with the sponsor.
If PTA provides a Web link to an e-commerce business, a disclaimer must be included on the PTA website. For example:
“PTA does not endorse, warrant or recommend any of these products. PTA will receive a small percentage of every sale. If you decide to purchase any products, we thank you.”
An e-commerce business should be seen as a fundraising company acting as an intermediary or buffer between retailers and consumers.
While the PTA obviously would put some effort into promoting the use of electronic shopping, in order to do so without risk, the following conditions must apply:
- Use of the program must be entirely at the discretion of the user;
- Unit cannot have control over whether or not anyone will use the site;
- Unit cannot have control over whether or not they are entitled to any of the proceeds; and
- Unit cannot release member information to a third party.
A variety of e-commerce retailers, also known as charity malls, are donating a portion of purchases made through their sites in exchange for the goodwill the charity can generate. The charity mall allows customers to use the charity mall’s home page as a portal for shopping at any number of participating stores. For each online purchase, the PTA would receive a percentage of the sale. Working with the e-commerce business in this way, the PTA is less likely to be characterized as conducting a business, and instead, is simply receiving royalties.
Each fundraising opportunity must be evaluated individually.
Businesses Should
Understand PTA policies and procedures, especially in relation to noncommercial, nonsectarian, and nonpartisan policies;
Not violate PTA policies, positions and goals;
Exclude all websites that sell or feature firearms, tobacco, liquor, or adult content material;
Have a written policy that supports education opportunities;
Offer benefits to PTA;
Encourage participation in PTA;
Protect the privacy and security of users:
- Prohibit framing, the possibility that a third party is monitoring the transaction, when users are interacting with merchants;
- Have privacy seals from the Better Business Bureau and Trust; and
- Require individuals to provide only minimal information, such as name and e-mail address;
Not require mandatory registration or membership in order to participate in the program;
Ensure that program interface is clear, functional, and easy to use;
Structure payments to the PTA as royalties;
Specifically identify the unit as a separate and distinct entity receiving the royalties, rather than just listing the school site;
Provide a complete accounting for determining the share of royalties on a monthly basis;
Require a minimal amount of effort from the PTA in promotional activities;
Be seen as a fundraising company acting as an intermediary between retailers and consumers.
Note: Purchases made through e-commerce generally will not result in tax-deductible charitable contributions, unless the purchaser can demonstrate that the amount paid for the item exceeded its fair market value and that the excess payment was intended to be a gift to the PTA.
