Sponsorships
On August 6, 1997, President Clinton signed into law the Taxpayer Relief Act of 1997. Along with hundred of other provisions, the new law addresses the federal income tax treatment of corporate sponsorship income received by non-profit organizations such as SLA. The new law allows as tax-exempt the activity of soliciting and receiving qualified sponsorship payments.
A qualified sponsorship payment is defined as any payment made by any individual or entity engaged in a trade or business where there is no arrangement or expectation that the sponsor will receive any substantial return benefit other than the use or acknowledgment of the sponsor’s name, logo, and product lines in connection with the activities of the tax-exempt organization (SLA) that receives the payment.
Consequently, the following acknowledgments are permissible:
- Sponsor’s logos and slogans that do not contain comparative or qualitative descriptions of the sponsor’s product, services, facilities, or company.
- Sponsor’s locations, addresses, and telephone numbers.
- Value-neutral descriptions, including displays or visual depictions of the sponsor’s product line or services.
- Sponsor’s brand or trade names and product or service listings.
- Conversely, the law states that use or acknowledgment does not include advertising the sponsor’s products or services, including the following:
- Qualitative or comparative language about a sponsor’s products, services, facilities, or company.
- Price information or other indications of savings or value associated with a product or service.
- An endorsement.
- An inducement to purchase, sell, or use the sponsor’s products or services. (However, the distribution of a sponsor’s product to the public at a sponsored event—for free or for a charge—would not be considered an inducement to purchase, sell, or use the product.)
In addition to the interpretation of the tax-exempt sponsorship classification, it is important to properly classify in kind sponsorship transactions, whereby additional benefits are offered to the donor in conjunction with the sponsorship. Accounting examples specific to SLA’s chapters and divisions include the following:
- An organization provides a $500 sponsorship for one of your meetings. Your unit, in turn, provides signage acknowledging the organization’s sponsorship. The transaction is considered tax-exempt and the proper accounting for the transaction is $500 of sponsorship income.
- An organization provides a $500 sponsorship for one of your meetings. Your unit, in turn, places an acknowledgment of the organization’s sponsorship in the unit’s next publication. The transaction is considered tax-exempt and the proper accounting for the transaction is $500 of sponsorship income.
- An organization provides a $500 sponsorship for one of your meetings. Your unit, in turn, provides a verbal acknowledgment of the organization’s sponsorship at the next meeting. The transaction is considered tax-exempt and the proper accounting for the transaction is $500 of sponsorship income.
- An organization provides a $500 sponsorship for one of your meetings. Your unit, in turn, offers a free advertisement in one of your publications which is valued at $100. The transaction is partially unrelated and the correct accounting for this transaction is $400 of sponsorship income and $100 of advertising income.
- An organization provides a $500 sponsorship for one of your meetings. Your unit, in turn, offers a free tabletop exhibit to the sponsor. The exhibit space is valued at $100. The transaction is tax-exempt and the correct accounting for this transaction is $400 of sponsorship income and $100 of exhibits income.
- An organization provides a $500 sponsorship for one of your meetings. Your unit, in turn, offers a tabletop exhibit to the sponsor. The exhibit space is typically offered free of charge. The transaction is tax-exempt and the correct accounting for this transaction is $500 of sponsorship income and $0 of exhibits income.
- An organization provides a $500 sponsorship for one of your meetings. Your unit, in turn, allows the organization to make a presentation of its products and services at the meeting. The transaction is tax-exempt and the correct accounting for this transaction is $500 of sponsorship income.
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