Can a nonprofit culinary arts school own tax-exempt property and sell food to the public for profit? Is there a law regarding the percentage of revenue from tuition as compared to the percentage of revenue from food sales to determine how much taxes, if any, would be owed?
If you are asking about exemption from real estate taxes, you are asking a question of state law that varies in every state. Usually, however, a nonprofit school can qualify for local exemption. Some states require at least a small amount of subsidy for the program, usually coming from contributions, but I am not aware of any state that would weigh a percentage of tuition versus sales in making the determination.
At the federal level, charities do not have to pay tax on income generated from activities related to their exempt purpose, and a culinary arts school could sell meals to the public without taxation if they were produced by the students as part of their training. The sales would be treated the same as admission tickets from an exempt drama or dance group, payments for stuffing envelopes in the sheltered workshop, or football or basketball tickets for the university’s games. The issue is not whether the sale is profitable. (Division I sports can be hugely profitable.) The issue is whether the sale is related to the exempt purpose of the organization. This type of sale would not be deemed unrelated business taxable income and would not be subject to unrelated business income tax (UBIT). (See Ready Reference Page: “Nonprofit Often Worry About UBIT”)
May 15, 2013
1:30-3:00 PM ET
In today’s challenging times, few nonprofit organizations can afford boards that are not performing up to their potential. Yet many executive directors and individual directors express frustration with their boards. Engaging in effective board self-assessment is a constructive way to improve board performance. Learn how to gain the support of board members for this process and do it in ways that will reap important benefits. Learn More
Weekly question and answer
Notice of each full edition
and its free stories
Report on 501(c)(3) electioneering
What our readers say about Nonprofit Issues
Once again you've tackled a tricky question and explained it so we all can understand the issue.--M.V.
Thank you for your informative and keen advice on nonprofit matters. I believe it's a unique and concise place to get answers to this often wispy area called nonprofit. --R.T.
Have a question?
Other ways to
Talk to the Editor
Next Conference Call:
Tuesday, June 4, 2013
Participate in this bi-monthly telephone seminar conference call and ask your questions directly to Editor Don Kramer.
Access the entire site
($9.95/24 hours, $17.95/3 months).
Full Day Program
A well-received full-day program that covers the current hottest topics in nonprofit law. Qualifies in Pennsylvania for Continuing Education credits.
Don is available for programs and speaking engagements ranging from a one-hour presentation to a full-day primer on nonprofit law. Contact us if you are interested in having him speak at your program.