Are Adoption Fees Taxable Income to Your Group?

I’ve just spent a lovely afternoon perusing  tax codes (state and federal) and doing internet searches in hopes of hitting that one solid gold article with footnotes and references cited. No joy.  But I’ve come to a few conclusions I want to share with you.

Please note: I am  A LAWYER. I am not YOUR LAWYER. You’d be nuts to rely on random advice you read on the interwebbies, and although that’s never stopped many people, please let it stop you. Consult your own attorney, with whom you will have attorney-client privilege, and don’t assume that attorney-client privilege applies to random admissions you make in the comments. Capish?

States differ widely in how they treat 501(c)3 organizations. Some don’t make them pay tax on stuff they buy or sell. Some exempt them from paying tax on stuff they buy for the group’s use but requires them to pay sales tax on things like Tshirt sales. Others make you pay sales tax on everything. It’s totally a state thing.

SO, with that in mind — several states seem to believe that adoption fees are actually sales of dogs and that they are entitled to collect sales tax on those transactions.  That’s a problem for most groups.

Here’s my take on it: it is program revenue. Your group’s vetting and transport fees are program expenses, so good accounting practices would say you match the revenue with the expenses.

But here’s the deal — if it’s a program fee, it is NOT a contribution or donation. NOT. It’s NOT deductible to the individual.

If you still want to call it a contribution or donation, you’d better comply with IRS section 170 and make it clear that your adopter is getting something of value in return, i.e. the dog, and that ONLY the portion of the donation that exceeds the value of the dog is deductible. It’s like when you do a fundraising dinner and sell tickets for it. If the ticket costs $50 and the value of the dinner is $20, then only $30 is deductible to the individual.

But you don’t want to do that. It’s PROGRAM REVENUE, and you need to make it clear that it’s not a donation or contribution. For those of you who geek out on this stuff, it’ll be reported on line 9, not line 8.

So today, right now, go check your documents, website, and Facebook page and make sure you’re not talking about it being a “donation”. Never ever use that word again in relation to the program fee, okay?