Product Fundraisers for Booster Clubs: Margins, Tax, Inventory

Order-Taking vs. Inventory Sales

Order-taking is the better choice for most clubs. Inventory sales need tight counting, discussed below.

The Real Margin

Vendors quote profit as a percentage of retail price. The club’s net is what remains after everything else:

Net = retail sales - cost of goods - shipping - processing fees - unsold or damaged goods - any costs of prizes the club pays

An illustration, using assumed figures rather than any vendor’s actual terms: a club sells 600 items at $20 retail under a contract giving the club 40 percent of retail.

That is 36 percent of what families spent. The club should compare that figure with a direct donation ask: many families would rather give $20 than buy a $20 item.

The Vendor Contract

The board reads the whole contract before signing. Points to check:

1. How the club’s profit is calculated and whether it changes with volume
2. Minimum order quantities and any penalty for missing them
3. Shipping and handling charges
4. Delivery date and what happens if it slips past the promised date
5. Damaged, missing, and incorrect items: who pays and how to claim
6. Returns of unsold inventory, if any
7. When the club pays the vendor (ideally after collecting from buyers)
8. Online store fees and who processes the cards
9. Who is responsible for collecting and remitting sales tax
10. The seller prize program, if any, and what it costs the club
11. Automatic renewal or exclusivity clauses
12. What the vendor may do with family and student contact information

Sales Tax

Whether the club must collect sales tax on product sales varies by state. Some states exempt certain school-related sales; others tax them like any retail sale. Texas, for example, allows qualifying exempt organizations two one-day tax-free sales or auctions per calendar year and has separate rules for food sold by booster clubs and other school support organizations (Texas Comptroller Publication 96-122 (external site)). The club confirms the rule in its own state before setting prices, because uncollected sales tax becomes the club’s debt. See Sales Tax for Booster Clubs and the state pages.

Unrelated Business Income

Selling cookie dough is not itself an educational activity, so in principle the profit could be unrelated business income. Federal law excludes two situations that cover most booster club sales (IRS Publication 598 (external site)):

• The volunteer exception: a trade or business in which “substantially all the work” is performed without compensation.
• The donated goods exception: selling merchandise substantially all of which was donated to the club.

A sale run entirely by unpaid parents and students fits the volunteer exception. A year-round store with a paid manager may not. See Unrelated Business Income Tax for Booster Clubs.

Seller Prizes and the Individual Credit Problem

No part of the sale’s profit may be credited to a student’s fees, trip, or account. Tying a family’s share of the proceeds to what that family sold is the individual account arrangement the IRS has treated as private inurement since at least its 1993 guidance on booster clubs (CPE text (external site)). See Fundraising Rules for Booster Clubs.

Vendor prize programs (small items awarded to sellers at sales levels) are common. The IRS has not published guidance addressed specifically to them. The cautious approach:

• Prizes come from the vendor’s program, not from the club’s funds in proportion to sales.
• Prizes are small items, never cash, gift cards usable as cash, or credits toward any fee.
• Program-wide rewards (a pizza party for the whole team when the sale reaches its goal) are preferred over individual rewards.

Students should never be pressured, sent to sell door-to-door, or used as the club’s sales force. Students sell to family and known contacts, with an adult involved, and no student is ranked publicly or penalized for selling little or nothing.

Food Sold at School

Federal competitive food standards (the “Smart Snacks” rules) apply to food sold to students on the school campus during the school day, defined as midnight before until 30 minutes after the end of the official school day. Each state decides how many exempt fundraisers a school may hold, and exempt fundraiser foods may not be sold in the food service area during meal service. Alabama, for example, allows up to 30 one-day exempt fundraisers per school per year, bars sales from one hour before to one hour after meal service, and allows foods not meant to be eaten at school, such as cookie dough, to be sold at any time (Alabama State Department of Education (external site)). A candy sale to students at lunch can violate these rules; distributing preordered cookie dough after school generally does not. The district’s food service office knows the state’s limits.

Collecting Money and Controlling Inventory

1. Number every order form and record which seller took which forms.
2. Collect payment with each order. Checks are payable to the club. An online order page keeps cash out of students’ backpacks.
3. Count turn-ins with two people. Match money to order form totals and have both counters sign a tally sheet.
4. Deposit promptly and give the treasurer the tally sheets.
5. Reconcile to the vendor invoice before paying the vendor. Order quantities, invoice quantities, and money collected must agree.
6. Track delivery. Sort by seller, have each family sign for pickup, and log anything missing or damaged for a vendor claim.
7. For inventory sales, count at every step. Beginning stock plus items received, minus items sold, minus damaged items, must equal ending stock. Investigate every difference.

See Handling Cash at Booster Club Events.

Spirit Wear and the School’s Logo

Spirit wear uses the school’s name, mascot, and logo, which the district controls. The club gets written permission before ordering, follows any district licensing rules, and keeps the approval with its records. See Booster Club Name, Logo, and Identity.