Did your auditors point towards a specific IRS Reg., publication, or ruling? I don't believe that the determination of whether an item is immediately consumable is dispositive.
IRS Publication 598 specifically reads, in part, "Eating facilities in the museum help to attract visitors and allow them to spend more time viewing the museum's exhibits without having to seek outside restaurants at meal time. . . . Thus, the museum's operation of the eating facilities contributes importantly to the accomplishment of its exempt purposes and is not unrelated trade or business." (p. 4) It seems to me that the same rationale could be used to support selling water and snacks.
IRS Publication 598 also provides examples of items in a museum shop (p. 6), with no reference to consumption.
It would interested to learn what source or precedent your auditors are using vis a vis the consumption issue.
-Robert Vosburgh, Jr.
In a message dated 11/9/2004 12:02:19 PM Eastern Standard Time, Andrea Mercado <[log in to unmask]> writes:
>In the 1990's we specifically checked on this with our auditors. Their answer was: if it is consumable right then and there (single candy bars, bottles of water, etc) it was UBIT. We were carrying gift packs of chocolate bars, bags of coffee, and large tins of attractively packaged goodies. Someone technically could have eaten a whole 12 pack of chocolate on-site, but that was not what it was designed for. So, all was okay with the UBIT gods, and we did not have to track it. AND we put an educational blurb on it, why it benefited our mission, our organization....
>Our bookkeeper did not like that we carried food products, since it is still taxed differently (in our state), so he had to do a monthly tax adjust for those sales. Just added another step for him!
>
>Andrea Mercado
>Collection Manager
>
>Log House Museum, Seattle, WA.
>Issaquah Historical Society, Issaquah, WA.
> ----- Original Message -----
> From: Brian LeMay
> To: [log in to unmask]
> Sent: Monday, November 08, 2004 9:32 AM
> Subject: Foodstuffs in Museum Shops Subject to UBIT?
>
>
> In general, what are the tax implications of selling food items in one's museum shops? Were the packaging to include the museum's logo and information about the institution, would it be considered a promotional item, or would it be viewed as related to the educational mission of the organization, or would it be subject to unrelated business income tax?
>
> - Brian LeMay
>
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