If you are a for profit company, or an individual, generally any income you receive, from any source, is taxable. The presumption is that everything you do is taxable. But, if you are non-profit, which is to say, you meet to requirements set forth by section 501 of the Internal Revenue Code to qualify and not have to pay taxes, then, you generally don’t have to pay taxes on cash you bring in. For example, if you are a local soup kitchen and are a qualifying non-profit, and someone donates some money to help you buy soup, you don’t pay taxes on that donation. But, what about the Girl Scouts? They are a non profit. But, they don’t hand out soup for free-they sell cookies, and as far as cookies go, they are not cheap. Do they sell of those cookies tax free?
Interestingly, it is a bit more complicated than it might seem. First, nonprofits are sometimes required to pay taxes, despite being generally tax exempt. If a nonprofit engages in some business that brings in income that is not related to its core organizational mission, its mission that allows it to be tax exempt, then it may well pay taxes on that income. Imagine the soup kitchen that has existed in an inner city for a long time and has the mission to feed the needy. If it also rents out the top floor of its building to a local business, that income may be taxable. This income, called unrelated business income, is when nonprofits bring in income in ways not in line with the organizational purpose of the nonprofit. That income is taxable. So, what about those cookies? It seems like the Girl Scouts should be paying taxes on that cookie income, right? Well, no. The mission of the Girl Scouts is to “build[] girls of courage, confidence, and character, who make the world a better place.” They do this in a number of ways, one of which is to have girls sit in front of my local Walmart and try to get me to buy Girl Scout cookies. Anyone who has tried to sell something to a stranger, or even to someone they know, knows that that builds courage, confidence, and character. The Girl Scout cookie program works in a lot of different ways, including now online, and all of those ways are designed to teach girls valuable skills about running a business, help them develop character, and, in other words, promote the organizational mission of the Girl Scouts. So, generally, if a nonprofit is earning income in ways unrelated to their mission, they may well pay taxes on the proceeds of those sales. But, in the case of all that cookie cash collected by the Girl Scouts, they are doing that very directly and legitimately in the furtherance of the mission of the organization, so, that income is not unrelated at all–it is income generated as a result of pursing its mission. The Girl Scouts generate cookie income tax free, at least at the federal level.
So, is this good or bad? As always, it depends on who you ask. Many would say that if an organization, led by volunteers, wants girls to sell cookies to develop character, let them do it tax free. But, if you are Nabisco out there also selling cookies, it might feel a bit unfair to have to pay taxes on your cookie proceeds while one of your competitors does not pay taxes–a competitor, you might add, whose sales force uses it cuteness and tenacity to sell cookies, and also works for free. Indeed, this is why the unrelated business income rules were set up–to level the playing field between nonprofit and for profit organizations that are competing against each other.
But, regardless of where you come down on the Girl Scout cookie issue, Nabisco pays taxes on its cookies, while the Girl Scouts do not. So, if you have ever wondered whether those cookie sales are taxable to the Girl Scouts, now you know–they are not, because that cookie cash helps creates character.
