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Non Profits and Net Profit
If you've never worked in a nonprofit organization, you may be
surprised to learn that nonprofits actually have special concerns
when it comes to using a Website. Two key questions arise: can
a nonprofit sell merchandise online? and can a nonprofit solicit
donations online?
First, can a nonprofit sell merchandise online? For example,
if you are the marketing director for Sacred Desert Museum, can
you sell the same neat stuff you have in your gift shop on the
Internet? To get an authoritative answer, I talked with Blair
Frederich, an attorney whose clients include a number of notable
nonprofit organizations.
Frederich's answer is "yes." He adds, "the same rules for selling
that merchandise in a gift shop apply online." The IRS tells nonprofits
that there are two types of merchandise it can sell - related
and unrelated. Go to the Sacred Desert Museum Gift Shop (online
or in person) and buy a book about the history and future of the
Museum and no doubt a related, tax-exempt sale. But if you buy
a hot dog, because hot dogs are not related to Scared Desert's
mission, the Museum has to report that income separately.
If you're a museum visitor buying the bottled water on a 102
degree day, you could care less how the museum accounts for the
income. But if you're the museum's CFO, you know the IRS cares
very much about how you account for that revenue. For nonprofits,
selling this merchandise online is also a valuable marketing opportunity.
Doing so builds loyalty and may even advertise the organization.
Planned properly, for many nonprofits, selling limited merchandise
on their Websites is a no-brainer.
Question #2 -- Can nonprofits accept online donations? This answer
is more of a brain number than a no-brainer. Frederich explains
that not only does the IRS get involved in the answer, but so
do the attorneys general of all 50 states. The IRS has actually
issued an invitation to interested parties to offer their opinions
about what it should do. Really. The discussions among nonprofit
professionals at www.charitychannel.com
indicate the general belief that the IRS isn't going to upset
the money-cart here and make nonprofits unable to accept donations
online.
What the attorneys general will decide and try to enforce is
not clear. No attorney general wants an unscrupulous nonprofit
operating in its state, and each state is empowered to license
nonprofits that operate within its state. Of course, a Website
might be construed to represent "operation within a state" and
therefore require that nonprofits to be licensed in multiple states.
Like the IRS, the attorneys general, Frederich reports, haven't
made up their minds, either. Therefore, in the next year or two,
it's possible that various attorneys general will frown upon,
or file against, a nonprofit seeking and/or receiving donations
in a given state. Meanwhile, by the way, the superstar of online
fund-raising, The American Red Cross, raised $1.2 million online
during the Kosovo crisis.
So what's a nonprofit to do? Well, a wise man I know remarked
once about corporate counsel, "attorneys can only say no." Therefore,
ask a conservative attorney for advice and the safe answer is,
"Sell all the stuff online you want and count the money right,
but ask me again next year about soliciting funds online."
Alternatively, the rallying cry could be, "Remember the Red Cross."
The American Red Cross and countless other nonprofits are going
forth with online solicitation efforts. Who can blame them? In
one of the American Red Cross's major online successes, 25% percent
of the donors were first time givers. In the nonprofit biz, new
givers are the life blood of the organization. When new donor
numbers come in that high, its no wonder that so many charities
are pushing ahead with online solicitations efforts.
This article first appeared as a column written
by Dave Tedlock, NetOutcomes' president, for the Inside Tucson
Business and/or the New Mexico Business Weekly.
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