Unlike many nonprofits that are operating under the crushing weight of our economy, we can (attempt) to raise additional funds by focusing additional efforts on ad sales for our magazine. Since another salaried employee is outside our budget, we are curious if we, as a 501(c)(3) organization, could hire a commission-only sales rep for classified ad sales or add a commission incentive for the display advertising rep. These commission programs would only apply to ad sales and not fundraising, of course.
You may pay advertising sales reps on a reasonable commission basis without violating any federal tax law. (You can also pay fundraisers on a commission basis without violating federal tax law, but the professional fundraising organizations say it is unethical.) The net revenues generated by increased advertising sales will most likely produce unrelated business taxable income, but so long as the advertising is not deemed to be a substantial activity that jeopardizes your tax exemption, it can be a good way to raise extra income. (See Ready Reference Page: “Nonprofits Often Worry About UBIT.”)
You should be sure that you sell the advertising for its benefit to the advertiser, however, and not as a contribution to the organization. Many state charitable solicitation registration laws define solicitation to include selling advertising on the representation that some or all of the revenue will be used for charitable purposes. If the ads are sold as contributions, ad reps who are not employees of your organization may have to register as charitable solicitors. That would not be a good result.
For more information about charitable solicitation registration, consider purchasing our webinar - State Charitable Solicitation Statutes - Everything You Wanted to Know But Were Afraid to AskFor more information on the recording, visit our bookstore.
With pressure mounting on nonprofits to consider affiliations with other organizations, this workshop is designed to help you better navigate the world of mergers, acquisitions and affiliations. Unlike the corporate world, there are no financial "matchmakers" to help nonprofits identify successful partners for a merger. Learn more in our pre-recorded webinar.
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