Cover Story: Safety Line
“No matter what the source of contributions in the nonprofit sector, those contributions don’t appear regularly like sales do. And so we all experience cash flow difficulty. When a grant’s late, for instance, we manage month to month a lot of times,” Woods says. “But having a revenue-generating business like this, it creates a continuous cash flow that doesn’t really exist in our sector. That’s been extremely positive for us.”
Good Measure Meals also gives the organization opportunities to talk about its mission to a new market of potential supporters. Woods says many of Good Measure Meals’ customers have become passionate supporters of Open Hand and take part in a program that allows them to donate to Open Hand the cost of meals they won’t eat if they’re going out of town. Those donations are treated as cash contributions.
What about taxes?
Mission fit also helps at tax time. If the activities of the for-profit venture contribute to the organization’s mission, it doesn’t have to pay unrelated business income tax (UBIT) on the revenue it generates.
According to Allen Bromberger, partner at New York law firm Perlman & Perlman, which works extensively with the philanthropic community, UBIT is a tax imposed on income from a trade or business that is regularly carried on and does not contribute to the accomplishment of the organization’s tax-exempt mission in an important way other than through the production of income.
“If a nonprofit conducts a business that does not directly contribute to the accomplishment of its tax-exempt mission, it has to pay a tax on the net income from that business at normal corporate tax rates,” he says. “But if the activity contributes directly to the accomplishment of the organization’s mission, it is not subject to the tax. Moreover, passive income, such as royalties or dividends, is not subject to UBIT. And other activities, such as the sale of donated merchandise, activities carried on solely by volunteers or activities carried on for the convenience of members, are also exempt.”