August 8, 2023

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Churches, schools, and other religious organizations have traditionally hosted concession stands to fundraise, create strong communities, and foster fellowship at events.  This article sheds light on some best practices for those who desire to host a concession stand and who may have questions on how to lawfully do so.  

While the legal process of preparing and hosting a stand may seem complicated at first, a variety of resources and knowledgeable professionals in your local community should help make the process as seamless as possible.

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A. Properly apply for a permit/license to operate a concession stand and abide by relevant health and safety regulations.

1. Your local and state law will determine the permits you will need (and perhaps the exceptions you can apply for) to set up a concession stand.  

Relevant municipal and state law determines the requirements for hosting a concession stand, especially if you serve food and drinks. You can find this information by contacting the state/municipal health office or even the city clerk to determine what permits, requirements, and exceptions may apply to your organization. Information about your municipal and county health officers or city clerk can be easily found online. For instance, you could call the City of Houston’s Health Department at a dedicated phone number listed on its website to ask for more information about permits, requirements, and your specific concession stand. The City of Dallas also has a similar service on its website, and even offers a “contactless permitting process” that provides a step-by-step guide to what permits are needed, how to upload documents on the website, and the fees required. At the state level, the State of Texas’s Health and Human Services website has specific information on which phone numbers to call for general inquiries on regulations, as well as contact information for regional offices. Guidelines are also available for retail food establishments, food manufacturers, and public health sanitation programs, just to name a few.  

2. The permitting process is generally straightforward and clear.

While the permitting process varies by location, cities and towns generally have well-established procedures to apply for the permits needed for your concession stand. Take Houston as an example. The city provides a detailed and easy-to-digest guide on how to set up a mobile food unit in the city. The City of Houston’s Health and Human Services website contains information on the necessary permits needed if someone desires to sell or serve food outside of private parties and family gatherings. The State of Texas itself provides specific regulations and a website on how food establishments—including “temporary food establishments,” which may include your concession stand —may be permitted by local and state authorities. From the State of Alabama to the City of Los Angeles, states and municipalities often have clear instructions for operating a concession stand. In short, your local area should have ample resources concerning the permitting process.

3. Check whether you are exempted from permits and requirements.

While trying to determine the permits you need, also keep in mind that, in some situations and locales, you may be exempted from most (or even all) requirements. For example, the City of Los Angeles exempts any church or nonprofit organization from health permit requirements if the event and stands are only open to members and their guests and if it does not last longer than three days.¹ Similarly, the Texas Health and Human Services Department exempts 501(c)(3) nonprofits from its permitting requirements.² And in New York City, regulations provide the commissioner or board with discretion to promulgate rules exempting nonprofit organizations—including religious and charitable organizations—from city food vending requirements.³

Aside from local exemptions, be sure to check whether your organization has a long-term license to sell or provide food. In that situation, and depending on your locale, you may not even be required to obtain special permits for other events.⁴ Being permitted by a Texas city, county, or public health district, for instance, would also make one exempt from state requirements.⁵ Opting to sell prepackaged food will also avoid permitting requirements in some situations.⁶

Though the rules vary in different areas, your organization should actively look for the requirements and permits that may be necessary for your stand. And do not forget to look for applicable exemptions from those requirements.

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B. Think about tax-related issues related to your operation of the concession stand.

Because your stand sells food, drinks, and potentially other merchandise, there are a few tax questions that you should consider. As always, you should consult an attorney or an accountant to learn more about your specific situation and the potential tax questions surrounding your concession stand.

1. You may be required to pay Unrelated Business Taxable Income (“UBTI”).

The Internal Revenue Code acknowledges that a nonprofit organization may conduct business activities that would be appropriate for a profit-seeking entity.⁷ These business activities—like selling food and drinks—may not necessarily be related to your organization’s exempt purposes.  These activities may compete with other for-profit and non-exempt businesses.⁸ So, the Internal Revenue Code charges tax on income from such activities conducted by nonprofit, tax-exempt organizations.⁹

2. Take note of, and potentially apply, the exceptions to UBTI.

The Internal Revenue Code enumerates a number of exceptions to UBTI.¹⁰ To lessen or avoid UBTI, it may be ideal for you to staff the concession stand with volunteers, host the stand for the convenience of members (i.e., hosting a stand for food and drinks after a church event), and sell merchandise/concessions that were all donated as gifts from church members. And as always, if you have specific questions about whether your stand is exempted from UBTI, it is best practice to consult a lawyer or an accountant to get specific advice.

3. Be mindful of tax-related rules to preserve your nonprofit status.

The law is clear that any 501(c)(3) organization may operate a trade or business as a substantial part of its activities if the operation advances the organization’s exempt purpose and if the organization is not organized or operated for the primary purpose of carrying on an unrelated business.¹¹ Thus, it is crucial to make sure that running a concession stand “is in furtherance” of your organization’s purposes and that the organization’s “primary purpose” is not to carry on an unrelated trade or business.

Federal law looks at the size and extent of the business and the activities that are in furtherance of your organization’s exempt purposes.¹²

Translating this into practice, if a 501(c)(3) organization maintains a “charitable program” commensurate or proportional with its financial resources, its exempt status will not be revoked and UBTI will be charged.¹³  

While each case will be different, always keep in mind that your organization’s primary purpose should not be the operation of the concession stand (or any other business activity unrelated to your organization’s purpose). That is a simple rule to follow, especially if the concession stand is hosted only in certain situations and your organization does not substantially operate on the profits of the stand.  

4. Depending on your locale and the location of your concession stand, you may be required to collect sales tax, but you may also be exempted from it.

Approximately 44 states collect sales tax.¹⁴ It is collected upon the sale of tangible property—for your concession stand, that would mean the sale of food, drinks, and other merchandise. Like permitting and licensing requirements, the collection of sales tax depends on your local laws.¹⁵ There are states that offer broad sales tax exemptions for religious organizations and other 501(c)(3) nonprofits; there are other states that generally do not offer a sales tax exemption.¹⁶

Besides general exemptions and item-specific exemptions, certain fundraisers are also exempted from sales tax—though a few more conditions apply.¹⁷  

In sum, you may be required to collect sales tax on sales of food and drinks at your concession stand. But in certain circumstances, you may be exempted from doing so. Remember that this is highly dependent on the state in which you operate. To learn more about the sales tax exemptions available in each state, consult Napa Legal’s Faith and Freedom Index. Be sure to understand your state’s sales tax laws and consult an attorney if you have questions.

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C. Think about potential conflicts of interest that may arise with the concession stand.

As you know, your organization must be organized and operated exclusively for religious, charitable, or other exempt purposes.¹⁸ Conflicts regarding nonprofit purposes generally center on the financial benefits board members or staff may receive from the nonprofit organization.¹⁹  In the context of a concession stand, the most likely issue would be a board member or other person involved with the organization offering paid services – such as a board member’s catering service being hired to service the concession stand.

If you have concerns about possible conflicts of interest or private inurement related to your concession stand, check out Napa Legal’s Introduction to Private Inurement and Private Benefit consult with an attorney.  

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D. Conclusion

In summary, always keep in mind the following points, regardless of where you are located:

• Cities and towns generally have clear instructions on the permits and requirements needed for your concession stand. Do not hesitate to contact your local authorities to get started on the permitting process and to ask about available exemptions.

• Because you are selling food and drinks at your concession stand, you may be required to pay UBTI. But there may be a way to be exempted from UBTI by (a) staffing the concession stand with volunteers; (b) hosting the concession stand for the convenience of your members and congregation; and (c) selling goods that have been donated and contributed by members of the organization.

• Always remember that the primary purpose of your organization is not to operate a concession stand or any other for-profit business activity. Maintaining this perspective while operating your concession stand will help preserve your tax-exempt status.

• You may be required to collect sales tax when you sell food and drinks. But exceptions apply in certain states and localities. For the most conservative approach, plan on hosting your concession stand on church grounds for the convenience of your congregation or at a fundraising event that follows your state’s sales-tax exemption rules to avoid collection of sales tax in states that offer limited exemptions.

With these general practices in mind, your plan of hosting a concession stand should be successful, and the concession stand should prove valuable to your organization’s goals. As always, do not forget to consult an attorney or accountant for any specific issue that may arise concerning your concession stand. Though this process may seem complicated at first, do not get discouraged — religious organizations have long hosted successful concession stands that are similar (possibly identical) to the one you are planning. The process should be straightforward, and local resources and attorneys should provide the specific information you need.

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¹ See page 2 of LA County Health Code Requirements.

² See Texas Department of State and Health Services website.

³ See Section 17-320 of New York City’s Rules and Regulations for Mobile Food Vending.

⁴ See Brotherhood Mutual Legal Assistance website.

⁵ See Texas Department of State and Health Services website.

⁶ See Texas Food Establishment Rules (noting that establishments offering “prepackaged foods” are not “food establishments”).

⁷ 5 Cal. Transactions Forms--Bus. Entities § 24:143.

⁸ 26 C.F.R. § 1.513-1.

⁹ 5 Cal. Transactions Forms--Bus. Entities § 24:143; 26 C.F.R. § 1.513-1. Note that the IRS instructs that a tax-exempt organization that has $1,000 or more of gross income from an unrelated business must file a Form 990-T. Moreover, the organization must pay estimated tax if it expects its annual tax to be $500 or more. Remember, federal regulations are clear on who owes UBTI: any “disregarded entity, domestic, or foreign organization exempt” under federal law must pay UBTI if its gross income is $1,000 or more from the unrelated trade or business. \

¹⁰ For the purposes of your concession stand, income may be excluded from the definition of an “unrelated trade or business” and would thus not be the basis of UBTI if the following conditions are met:

• Substantially all of the work in operating the trade/business is manned by volunteers;

• The trade/business is conducted primarily for the convenience of its members, students, patients, officers, or employees; and

• The trade/business sells merchandise, substantially all of which the organization received as gifts or contributions.

¹¹ 26 C.F.R. § 1.501(c)(3)-1(e)(1).

¹² 26 C.F.R. § 1.501(c)(3)-1(e)(1).

¹³ 5 Cal. Transactions Forms--Bus. Entities § 24:143. For instance, the IRS has previously found that UBTI applies where the non-exempt business activity constitutes 50 percent of the organization’s annual income. Rev. Rul. 60–86, 1960–1 C.B. 198. In another example, the IRS did not revoke an organization’s tax exemption despite the business activity constituting 75% of the organization’s gross receipts, though it did charge UBTI. Rev. Rul. 57–313, 1957–2 C.B. 316. Similarly, the IRS previously found that a religious broadcasting organization could broadcast an insubstantial amount of commercially-sponsored programs without losing its exempt status, but the revenues not related to its tax-exempt purpose were subject to UBTI. Rev. Rul. 78–385, 1978–2 C.B. 174. On the other hand, the IRS recently ruled that a church’s operation of a coffee shop did not qualify for tax-exempt status. The coffee shop was indistinguishable from other secular, for-profit coffee shops and was overly commercial such that the religious purpose was minimal. https://www.irs.gov/pub/irs-wd/201645017.pdf. In a similar vein, courts have been more willing to deny exemption when there is “excessive unrelated trade or business income.” 5 Cal. Transactions Forms--Bus. Entities § 24:143. Indeed, the Supreme Court has previously explained that the presence of a single non-exempt purpose, “if substantial in nature,” will destroy a claim for exemption regardless of the number or importance of truly exempt purposes. See Better Bus. Bureau of Washington, D.C., v. United States, 326 U.S. 279, 283 (1945) (“In this instance, in order to fall within the claimed exemption, an organization must be devoted to educational purposes exclusively. This plainly means that the presence of a single non-educational purpose, if substantial in nature, will destroy the exemption regardless of the number or importance of truly educational purposes.”).

¹⁴ Frank Sommerville, Sales Tax Issues For Churches.

¹⁵ Florida, for instance, has promulgated regulations exempting religious ministries from collecting sales tax if the concession stand is at an established place of worship where they regularly conduct nonprofit religious services. See Florida Department of Revenue, Sales and Use Tax on Concession Stands. To qualify, the church must hold a valid Florida Consumer’s Certificate of Exemption as a religious institution with an established physical place for worship. See Florida Department of Revenue, Sales and Use Tax on Concession Stands. Texas  generally exempts collection of sales tax if the sale of food, drinks, and other items are made “by a church or at a function of a church.” 34 TAC §3.293(g)(1).

¹⁶ For example, California has only very limited sales tax exemptions availabnle. Annotation 165.0138 (“Sales by and to Churches. In California, there are no sales tax exemptions for churches arising from their nonprofit status or because they are exempt from income tax.”). That said, California regulations still offer “tax-exempt sales of meals” if: (a) you sell the food at a social or other gathering you conduct; (b) you furnish the meals to raise funds for your organization’s functions and activities; and (c) you use the proceeds to carry out those functions and activities. California Department of Tax and Fee Administration, Nonprofit Organizations.

¹⁷ For example: In Florida, “sales made at a concession stand” are exempt from sales tax if: (a) the organization holds no more than two fundraising events during any 12-month period; (b) each fundraising event is held for fewer than 31 consecutive days; (c) the location of the concession stand is not on the same premises of other businesses required to collect sales tax; and (d) Florida sales tax and any discretionary surtax is paid on the cost of taxable food, drinks, supplies, and other items sold at the concession stand. See Florida Department of Revenue, Sales and Use Tax on Concession Stands.  Texas allows “two one-day tax-free sales or auctions each calendar year” in which the nonprofit organization is not required to collect taxes on the sales price of taxable items sold for $5,000 or less. 34 TAC §3.322(h)(2). Additionally, no taxes are required to be collected from that one-day auction—regardless of price—if the item sold is manufactured by the organization or is donated to the organization and is not sold to the donor. 34 TAC §3.322(h)(2).

¹⁸See Understanding Conflict of Interest and Your Church.

¹⁹ Jan Masaoka, Nonprofit Conflict of Interest: A 3-Dimensional View.

The IRS has the power to levy fines and taxes to certain persons—called “disqualified persons”—who exercise control or influence in the organization if they engage in an abusive transaction to the detriment of the nonprofit organization. See Raul Rivera, Federal Law Disqualifies Church Leaders. See also 26 CFR § 53.4958-3. These persons are defined in IRS regulation 26 CFR § 53.4958-3.