Can a non-profit group require a minimum donation for someone to receive a gift (in this case a yard sign) in the state of Michigan?

[LegalBugle]

What is the name of your state?

Michigan

I am part of a non-profit issue advocacy group. They want to distribute yard signs but money is tight. They are hoping to cover expenses by requiring a minimum donation of $10 if someone wants a yard sign. From the sound of it there will be economic circumstances such as unemployment where the minimum donation is waved, but generally it will be required. A person from the statewide group believes that legally this would still be considered a donation and a gift and not a sale.

But I'm skeptical. It seems to me like this should count as a sale, which then makes me concerned that this could threaten the group's non-profit status.

And there's another concern. Since the organization is based in another town, they're also hoping that I could buy signs from the statewide organization to keep for the local chapter, and then personally take donations from people at the doors. I'm reluctant to do this because regardless of how this works out legally this would put me in close proximity to other people during this pandemic and I live with people who work in healthcare and I've also just been very serious about avoiding unnecessary contact. However, other members in my local chapter may be willing and able to do this. My concern is that if they did would this count as them earning income that would then be subjected to a tax, even though they would not be receiving any more money than what they gave to the statewide organization?

EDIT: The people at the statewide group seem confident that they are right about what the law says. So if they are wrong some sources I can point out would be greatly appreciated. Thanks!

 

[Taxing Matters]

But I'm skeptical. It seems to me like this should count as a sale, which then makes me concerned that this could threaten the group's non-profit status.

What exactly do you mean by "nonprofit"? Not that many people use the term "nonprofit" to either refer to organizations that are tax exempt or to charities, but the term doesn't actually refer to either of those things. Michigan does have a nonprofit corporation act, so perhaps your organization is set up under that Act. But that still covers a lot of different types of organizations. Are you concerned about the organization no longer qualifying under the Michigan nonprofit corporation act?

If you are referring to an organization exempt from tax under the Internal Revenue Code (IRC), then what kind of exempt organization is it? There are over two dozen different types of exempt organizations. Generally speaking exempt organizations can sell things to raise money for their exempt activities and not put their exempt status at risk. But it matters what kind of organization it is and the details of the sales as to whether the tax exempt status might be at risk or whether the organization might face penalties by the IRS.

For example, a charity might sell things that are donated to it to raise money that is then sold to raise money for the charities exempt activities and that's perfectly fine.

However, if a charity is operating what is essentially a business activity then it must be sure that (1) it pays the unrelated business income tax (UBIT) on the business activity and (2) it needs to ensure that it is still getting most of its revenue from donations and exempt activity, not the unrelated business activity.

Your organization should consult an attorney who practices in the area of exempt organizations if it is exempt from tax under the IRC so be sure it understands what it can and cannot do as an exempt organization.

However, other members in my local chapter may be willing and able to do this. My concern is that if they did would this count as them earning income that would then be subjected to a tax, even though they would not be receiving any more money than what they gave to the statewide organization?

Again, the details of how that would work matter. What are the people distributing signs getting? Are they being paid at all for it?

 

[quincy]

Michigan has The Charitable Organization and Solicitations Act (MCL 400.271 et seq).

Following are links to information from Michigan’s Attorney General’s Office on charities and exempt organizations. You can see the requirements for your “advocacy group.

https://www.michigan.gov/ag/0,4534,7-359-82915_82919_80762-424784--,00.html

https://www.michigan.gov/ag/0,4534,7-359-82915_82919_80762-288903--,00.html

Many organizations accept donations of any size but, for a donation of $XX or more, the donor gets a gift (e.g., a tee shirt). This can encourage a higher donation but does not cut off those who can only afford a smaller donation.