If a for-profit company produces a charity booklet and donates all proceeds to an exempt organization, is the sale of the booklet exempt from Texas sales tax?

Subject

Charity Booklet Sold By A Nonexempt Business — Donating All Proceeds Doesn't Exempt The Sale

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9309L1257G12

Plain-English Summary

A nonexempt entity in the business of selling beauty products was putting together a booklet about beauty care for women recovering from breast cancer. The entity planned to sell the booklet on its own invoices, but intended to donate 100% of the proceeds to a newly established exempt organization (a foundation). The taxpayer asked the Comptroller three questions about whether the booklet could be sold tax-free.

On the first question — whether the booklet qualifies as an exempt writing — the Comptroller pointed to Texas Tax Code Section 151.312, which exempts periodicals or writings published or distributed by a religious, philanthropic, charitable, historical, or other similar organization not operated for profit (excluding educational organizations). The letter notes that although the booklet itself states it is produced by the exempt entity, the taxpayer's own inquiry treated the taxable (nonexempt) entity as the publisher. Because the taxable entity is the one distributing the booklet, the act of publishing the booklet is controlling — and donating all the proceeds to an exempt entity does not exempt the sale.

On the second question — whether the booklet could be sold tax-free even though it would be sold through a for-profit cosmetics business — the Comptroller responded that, presuming the foundation is an exempt entity (other than an educational organization), a sale of the booklet by a taxable entity will not void the exemption if the exempt entity itself either publishes or distributes the booklet.

On the third question — whether promoting beauty aids generally (rather than one company's specific cosmetics) would affect exempt status — the Comptroller said general promotion of beauty aids would not affect the exempt status of the brochure. However, it cautioned that specifically promoting the products, locations, or phone numbers of a private for-profit firm in a brochure published by an exempt entity could endanger the exempt organization's exempt status.

What This Means For You

If your for-profit business wants to sell a "charity" item and donate the proceeds: This letter makes clear that generosity alone does not create a sales tax exemption. The exemption under Section 151.312 depends on who publishes or distributes the writing — not on where the money ends up. If your business is the one distributing the item through its own invoices, the sale is taxable even if every dollar of profit goes to charity.

If you want the exemption to apply: Structure the arrangement so the exempt organization itself is the publisher or distributor of the writing. Per this letter, if the exempt entity publishes or distributes the booklet, the exemption survives even if the actual sale transaction runs through a for-profit retailer.

If your charitable publication also mentions products or services: General, non-specific promotion of a category (like "beauty aids") does not jeopardize the exemption, according to this letter. But naming a specific for-profit company's products, locations, or phone numbers in material published by the exempt entity risks the exempt organization's own exempt status — a separate and potentially more serious issue than losing a tax exemption on one sale.

Q&A

Q: Does donating 100% of a booklet's sale proceeds to charity make the sale exempt from Texas sales tax?
A: No. The letter states that "the fact that the taxable entity donates all proceeds to an exempt entity will not exempt the sale."

Q: What Texas Tax Code provision governs the exemption for booklets like this?
A: Section 151.312, which the letter says "exempts periodicals or writings that are published or distributed by a religious, philanthropic, charitable, historical, or other similar organization that is not operated for profit," excluding educational organizations.

Q: Who has to be the publisher or distributor for the exemption to apply?
A: The exempt organization. The letter explains that "as it is distributed by the taxable entity, the act of publishing the booklet will be controlling," meaning the nonexempt entity's role as distributor defeats the exemption regardless of who authored the content.

Q: Can the booklet be sold tax-free if it's sold through a for-profit retailer like a cosmetics company?
A: Yes, according to the letter — presuming the recipient foundation is an exempt entity (not an educational one), "a sale of this booklet by a taxable entity will not void the exemption if the exempt entity either publishes or distributes the booklet."

Q: Does mentioning beauty products in the booklet affect its exempt status?
A: General promotion of beauty aids does not, per the letter. But it warns that "specifically promoting the products, locations, phone numbers, etc." of a private for-profit firm in a brochure published by an exempt entity "may however endanger the exempt status of the exempt organization."

Original ruling text

Date: September 15, 1993

TO: KEITH WOMMACK, MANAGER, ***

FROM: KEVIN KOLLER
TAX ADMINISTRATION DIVISION

SUBJECT: *
TAXPAYER NO. *

*, a nonexempt entity in the business of
selling beauty products, is in the process of putting together a
booklet addressing beauty care for women recovering from breast
cancer. They will sell the booklet on their own invoices, however,
100% of the proceeds will go to a newly established exempt
organization, * (***) Foundation.

Question 1) Does this booklet qualify as an exempt writing?

Response. Section 151.312 of the Texas Tax Code exempts periodicals or
writings that are published or distributed by a religious,
philanthropic, charitable, historical, or other similar organization
that is not operated for profit, but exluding educational
organizations. The booklet itself states that it is produced by the
exempt entity which would make it's sale exempt, however, your inquiry
is stated as if the taxable entity is the publisher. As it is
distributed by the taxable entity, the act of publishing the booklet
will be controlling. The fact that the taxable entity donates all
proceeds to an exempt entity will not exempt the sale.

Question 2) If it does qualify as an exempt writing, can the taxpayer
sell it tax free even though the booklet will be sold through
* Cosmetics?

Response. Presuming that the *** Foundation is an exempt entity,
other
then an educational organization, a sale of this booklet by a taxable
entity will not void the exemption if the exempt entity either
publishes or distributes the booklet.

Question 3) If it does qualify as an exempt writing, does the fact
that it also promotes beauty aides, not specifically ***'s
cosmetics, affect its exempt status?

Response. The fact that it generally promotes beauty aids will not
affect the exempt status of the brochure. Specifically promoting the
products, locations, phone numbers, etc..of a private for profit firm
in a brochure published by an exempt entity may however endanger the
exempt status of the exempt organization.

NOTE: Previous Accession Number 93070169L.3 and/or 9307169L