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Taxable Web site advertising vs. Qualified Sponsorship Payments

If a company pays to support your organization on your Web site, is it taxable? Actually, mentions that look like an advertisement are taxable as unrelated business income unless they can qualify as Qualified Sponsorship Payments (QSPs). A QSP is a payment (whether in money, property, or services) by a business to an exempt organization without an arrangement or expectation that the business will receive any substantial return benefit.

Advertising (subject to tax) is defined as any sponsor recognition or message that contains qualitative or comparative language (e.g., “sponsor’s product is better than competitor X’s product”); price information (or other indications of savings or value); an endorsement; or an inducement to purchase, sell, or use the sponsor’s products or services.  Logos or slogans that are an established part of a sponsor’s identity are not considered to contain qualitative or comparative descriptions.  A single message that contains both advertising and an acknowledgment is advertising.

Active website links must be continually monitored by the organization to ensure when viewers click on the link it does not go to anything that is considered advertising.  If so, it will be considered advertising and subject that revenue to tax.  If a link is not active, it currently will not cause the ad to be taxed.  However, if the ad fits the advertising definition listed above, it will be considered taxable even if the link is not active.

If you have concerns about Web site ads vs. QSP, let me know and I can look at it for you.

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