This information pertains to merchandise sales by divisions. Sales of small items (T-shirts, coffee mugs, etc.) are legally permissible only if divisions comply with all state and federal requirements. These requirements, outlined below, are strictly enforced by state and federal regulators. The consequences for noncompliance are severe.
State and federal laws strictly regulate sales and gifts by 501(c)(3) (charitable) organizations, which include your division. Prior registration may be required to make sales in many states. For that reason, online sales by divisions may be restricted depending on applicable state registration requirements. Sales may be made in person at specific locations and during specified periods, subject to those requirements. Sales of merchandise may be subject to unrelated business income tax (UBIT) if the activity constitutes a regularly carried on trade or business that is not substantially related to the division’s exempt purpose. Divisions must track and report such income as applicable. Other requirements govern how cash and checks from sales may be handled. A secure repository must be established. Division members should refrain from collecting cash and checks casually in more than one location.
Divisions should be aware that, due to the complex administrative and financial requirements, sales of merchandise may not be profitable and are typically only nominally profitable. Noncompliance with state and federal guidelines carries great risk, including fees, fines, violating division leadership fiduciary duties and jeopardizing tax-exemption status. For these reasons, all sales plans are subject to APA Office of General Counsel and APA Finance review.
For divisions that utilize APA accounting
Sales of small items are permitted, but divisions must take care to keep track of detailed information regarding plans to sell any items during the calendar year in which the sales are to be made. Relevant details include the number of items, the cost to the division of each item, the price the division plans to charge for each item, when and where sales will occur, and a revenue estimate.
If your division is interested, please contact your division engagement liaison, who will assist with facilitating the legal and finance review. Upon review and approval, APA accounting will work closely with you to complete and file state sales registration forms, provide you with the sales tax rate, remit the sales tax and ensure the sales are reported properly.
For divisions that do not utilize APA accounting
Divisions that do not utilize APA accounting are independently responsible for adhering to all federal and state financial regulations. Should you have legal questions pertaining to sales, please contact your division engagement liaison for assistance from the Office of General Counsel.