Unrelated Business Income Tax & State Sales Tax

One area where chapters and councils should exhibit caution is when considering the revenue derived from unrelated business, which may not be tax exempt and require filing of a 990-T with the IRS and payment of Unrelated Business Income Tax (UBIT). This sale of goods and services may also have state sales and use tax implications as well.

Generally speaking, the IRS defines an activity as an unrelated business (and subject to unrelated business income tax) if it meets three requirements:

  • It is a trade or business
  • It is regularly carried on
  • It is not substantially related to furthering the exempt purpose of the organization

For TU chapters and councils that generate gross revenue from unrelated business in excess of $1,000 – even if the funds raised are used for the purpose of funding the mission – that revenue would be considered taxable and a 990-T must be filed with the IRS reporting that income.

Common examples of revenue that a chapter or council might generate which may qualify as UBIT are:

  • Sale of chapter or council logo merchandise and gear like hats, fly boxes, shirts etc…
  • Sale of advertising in the chapter or council newsletter or website
  • Chapter or council fishing or fly tying classes for which there is a fee to participate
  • Chapter or council fishing trips for which there is a fee to participate

Often the key to the above is if those activities are “regularly carried on” by the chapter or council. A one-time fundraising event might not be considered “regular” but an annual fundraising event, monthly gear sales at chapter gatherings or seasonal clinics or classes would likely qualify as such.

In all cases, it is best for a chapter or council to seek the advice of a professional tax adviser or certified public accountant.

READ: IRS Rules Governing Unrelated Business Income (UBIT)

State Sales & Use Tax

Likewise, a chapter or council may be required to pay state taxes on revenue generated from the sale of goods or services.

Every state has different regulations related to nonprofit exemption from state sales tax. While some states provide for blanket exemptions from sales tax to nonprofits, others require annual filings and reporting and still others exempt revenue for a limited number or type of sales activity.

The best recourse is to work with a local tax professional or accountant to determine the requirements in your chapter’s or council’s state.

*Trout Unlimited, its staff, affiliates and officers do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice.