Tax Tips Logo ImageISSUE:

As Bible Colleges and Seminaries contemplate alternative sources of revenue in these fast-changing times, could a “thrift store” that operates as a ministry and a money-maker be a viable option?



Marathon Bible College (MBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

The Controller at MBC called to ask about how the IRS taxes “thrift stores.”

“We have some space in a building on campus where we used to keep our bookstore inventory.  Now, most textbooks are electronic and we’ve moved our T-shirts, coffee mugs, etc. to a storage closet.  With that space freed up, we have been wondering what to do in there.

“MBC formed a task force of faculty, students, staff, and alumni to brainstorm about different ideas for alternative revenue sources.  One of the top ideas was to open a thrift shop that could also operate as a ministry.  The idea would be to have the store open six days a week and take certain donations of clothing, furniture, and household items.  We could also give away items as needs arose.  Part of the plan would be to have events in August and January where students could ‘win’ Monopoly money that could be spent to help furnish their apartments and/or dorm rooms.  As we think this through, would we have to pay taxes on net income from the store?”

We answered.  “That’s great.  The short answer would be that you would not pay taxes on the ‘thrift store’ income if you met the qualifications of the IRS’ ‘thrift store exception.’  Generally, I.R.C. Section 513(a)(3) excepts from unrelated trades or businesses any activity ‘which is the selling of merchandise, substantially all of which has been received by the organization as gifts or contributions.’  Substantially all would usually be considered at least 85%.  So, tracking, valuing, and receipting contributions is a very important function of your operations.  Also, note that up to 15% of the items sold would not have to be donated merchandise.  This can provide profitable opportunities.  Again, though, you must very carefully document that you meet the ‘85% donated merchandise’ criteria.  Further, you should carefully review your Gift Acceptance Policy and consider a separate section for the store.  Hope that is helpful.”

“Wow.  Yes.  We are excited about this and will certainly keep you informed.  Thanks!”


RULES:                                                                        .

From IRS Publication 598, Tax on Unrelated Business Income of Exempt Organizations:

Selling donated merchandise. A trade or business that consists of selling merchandise, substantially all of which the organization received as gifts or contributions, isn’t an unrelated trade or business. For example, a thrift shop operated by a tax-exempt organization that sells donated clothes and books to the general public, with the proceeds going to the exempt organization, isn’t an unrelated trade or business.



  • As the way we do business changes due to governmental restrictions, disease concerns, and technology, it may be a good idea for your institution to consider alternative sources of revenue.  These income opportunities do not need to be elaborate and – sometimes – may meet exceptions, exemptions, modifications to the UBIT rules.
  • IRS Publication 598, Tax on Unrelated Business Income of Exempt Organizations can be a great information and planning tool for your institution.
  • IRS Publication 526, Charitable Contributions can assist your team in the areas of valuation and receipting contributions of donated merchandise.
  • Also, for a more in-depth look at UBIT “stuff” review the 2014 ACT Report (Advisory Committee on Tax Exempt and Government Entities) EO Section – beginning on page 75.  That can be found at:–2014.pdf


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The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.

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