I'm not a PTO officer (just a parent) but I've had some experience with selling script. It isn't UBI as long as the workforce selling it is volunteer. In IRS pub 598 it notes " The following activities are specifically excluded from the definition of unrelated trade or business. Volunteer workforce. Any trade or business in which substantially all the work is performed for the organization without compensation is not an unrelated trade or business." I hope this helps.
You'd probably have to sum the related items together. But, although you might typically lump together Amazon Associates program income with similar affiliate marketing agreement income from SchoolPop or SchoolCash, I would make an argument to keep them separate if you built your Amazon store to promote parenting books as noted above (even though you'll get income from sales of all sorts of books and other things Amazon sells). And if you were to sell scrip, I'd keep that as a separate program as well, because the whole nature of distribution and marketing the program is different.
I've seen lots of people on this board say they make thousands and thousands from scrip sales; haven't seen that with the affiliate marketing agreements on internet sales, but doesn't mean someone isn't doing it. I know I'd love to know how, if they are!
I was not aware of the $1000 threshold before UBIT applies. You are right - not many organizations would cross this threshold for one fundraiser. But what about the sum of all product fundraising they perform in a year? Perhaps it is still uncommon to make that much. I don't have enough experience to say, but I would hope that a PTO for a large school could cross that threshold.
> we stick pretty close to the typical
> fundraisers and activities that support our
> mission and goals
The IRS doesn't care if the fundraising is to support your goals (that they have made clear enough). What is relevant to UBIT is how the fundraising is conducted (and that part is not so clear). It seems to me that most all product sales fundrasing would trigger UBIT but that most PTOs are flying under the radar of the IRS.
Actually it does make a difference if the fundraising activity is related to your mission/goals. (Not the goal of raising money. The non-profit purpose for which you exist.)
For example, encouraging school spirit and teamwork is a natural part of our mission. Thus selling school T-Shirts to students and familes fits well with the goal.
One point on state level taxes. Every state is so different that it's worth a call to your state tax office to see if there would be any tax liability at the state level, but make sure you make it clear that you are talking about a tax on commission income.
The articles JHB provided are on sales tax liability on internet sales, and that's not an issue for you. Amazon collects and pays sales tax as necessary.
Yeah, theoretically this could fall under UBIT. But, that assumes you would make more than $1000 from this agreement. I know three different schools in high income areas with an average population of 750 that do things like SchoolPop, SchoolShare, etc., and the most any one school made in a year off these arrangements was $250. You're going to have to have a lot of people buy an awful lot of stuff from Amazon (and any other similar arrangements you may enter in to) to hit $1000 in commissions.
As for "loopholes"--in setting this up with another organization, we set up the store to promote books and other products that were of specific interest to our members. Since we were an educational organization, our argument was that this provided further educational opportunities to our members. (This theory was never tested by the IRS, as our revenue in a year never exceeded $150 from this venture.) As a PTO, you could feature books on parenting and early childhood education, as examples. This fundraiser would then fall within the educational mission of your organization, plus any of those books that are purchased get you a higher percentage from Amazon.
It would be great if someone who sells scrip could chime in to this discussion. That's most similar to what you are trying to do, and I've often wondered about UBIT on those sales. It has seemed to me to be one of the few fundraising things a parent group could do that would fall under UBIT--I'm hard pressed to figure out how selling grocery store scrip ties into educational goals. But, like JHB says, that in itself shouldn't kill the deal. Once this is set up, it's a very low maintenance fundraiser. I'd pay the UBIT in a heartbeat if I thought I could make that much money off it.
Finally, I get the impression you're thinking that stuff such as spirit wear sales would fall under UBIT. I've never heard of anyone paying UBIT on spirit wear sales, and I don't think it's because parent groups aren't on the IRS radar. I think that's legit--promoting school spirit is an important function of a school/parent group.
