For a California non-profit 501(c)(3), can it freely promote Amazon merchant products online with fancy widgets, showing their products, etc. to get a cut of the sale as a way of fundraising? Any advertising law applies to ban a non-profit for doing so for a for-profit company (Amazon)? Or, any tax implication?
This is likely to be construed as a co-venture agreement. Where the charity and the for-profit entity engage in sharing revenue for the charity promoting products. California fundraising laws are applicable to these situations.
The company is to disclose such activities to the Attorney General. The charity on the other hand is required to report such activities to the Attorney General as well.
Such fundraising ventures are perfectly fine as long as proper guidelines are followed.
Ripal Patel, Esq.
San Jose Business Attorney.
A non-profit can promote the sale of products on Amazon, but the issue arises whether the income is unrelated business income that is subject to the unrelated business income tax. The unrelated business income tax is at standard corporate tax rates.
The IRS has defined unrelated business income as "income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis of the organization's exemption." The fact that the income provides funds to the non-profit so it can meet its charitable purpose does not make it substantially related. "The activities that generate the income must contribute importantly to accomplishing the organization's exempt purposes to be substantially related."
If the gross income for the year (total income minus costs of goods sold) exceeds $1000, the organization has to file a form 990-T. Depending on the nature of the organization, it may be taxed at corporate rates or trust tax rates on the net unrelated business income.
The organization should review IRS publication 598 Tax on Unrelated Business Income of Exempt Organizations before setting up any fundraising activity. I also recommend that they discuss any proposed arrangement where substantial income is expected to be raised with an attorney, CPA or tax preparer experienced in preparing tax returns for nonprofit organizations, before proceeding with that activity.