Chapters of the College may be receiving two different types of revenue from corporations: corporate sponsorship income and exhibitor fees. The rules for receiving these two types of revenue on a tax-free basis are quite different. It is important to be able to distinguish between the two types of revenue and to know the rules that must be followed for each.
In general, exhibitor fees are received in exchange for granting booth or tabletop space at some type of exhibit or show. An exhibitor show typically involves more than one corporation showing or giving information about its products. The corporate fee is paid to rent the exhibit or tabletop space; the fee pays for the privilege of using the space to show or talk about its products.
The Internal Revenue Code specifically exempts from taxation the rental of display space to exhibitors at a qualified convention or tradeshow. A qualified convention or trade show is one that is sponsored by a 501(c)(3) or 501(c)(6) organization, and at least one of the purposes in sponsoring the show is the education of its members. The show must be designed to achieve that purpose through the character of a significant portion of the exhibits or the character of conferences and seminars held at the convention or meeting. As long as the exhibits themselves are educational to members or are conducted in connection with educational conferences, the rental of exhibit space will not be considered taxable income.
A corporate sponsorship payment is made by a corporation to support some aspect of chapter activities. A chapter might solicit a corporate sponsorship payment to sponsor an educational program, a lunch or a coffee break. The payment is made by the corporation to support the work of the chapter and not to rent exhibit or tabletop space. There may be more than one sponsor for a particular event.
Corporate sponsorship income is subject to more complicated rules. In general, the chapter is permitted to give the corporate sponsor an acknowledgment of its participation, but is not permitted to provide advertising for the sponsor. Acknowledgments can include the corporate sponsor's name, address, phone and fax numbers, logo, slogan, and lists and pictures of products and services. The effect of the acknowledgment must be as a sponsor of the chapter event or activity, rather than promote the sponsor's products or services.
There are limitations to acknowledging corporate sponsors' contributions. These limitations include:
- "Calls to action" must be strictly avoided. For example, the XYZ Company sponsors the continental breakfast, and adjacent to the coffee, a display sign reads, "Stop by our booth to learn about our products." The "stop by our booth" is a call to action and needs to be eliminated from the acknowledgment.
- Endorsements or inducements to purchase, sell, lease or rent a corporate sponsor's products or services must be avoided.
- Displays or signs that include the prices of corporate sponsors' products or services are not permitted under the rules governing corporate sponsorship income.
- Acknowledgments of corporate sponsors must be "value neutral." For example, during the annual meeting luncheon, while thanking the corporate sponsors the chapter president says, "We want to thank all of our corporate sponsors for their support of our meeting. They certainly have very fine products." The second sentence in the president's acknowledgment would not be considered "value neutral" and should be avoided.
Acknowledging corporate sponsors' contributions to chapter meetings and events is an important activity. Generally, chapters' acknowledgment of corporate sponsors is limited to a list printed in the annual meeting program brochure. However, the rules governing corporate sponsors' contributions permit chapters to provide corporate sponsors (or their representatives) with meals, free golf at tournaments, and so forth. If these types of "acknowledgments" are extended to corporate sponsors during chapter meetings, corporate sponsors' financial contributions are still counted as acknowledgments and not advertisements.
The rules governing corporate sponsorship income also allow chapters to publish acknowledgments in newsletters. Appropriate corporate sponsors may be a good source of funds to help offset the costs of producing newsletters. Potential corporate sponsors may include pharmaceutical companies, physicians' professional liability insurance companies, large statewide banks, investment companies and real estate companies that deal with physicians' offices.
