Claim: Companies use their customers’ donations at the checkout to reduce their own tax expenses
Anyone who has been to a grocery store has likely been asked if they would like to donate a few dollars to charity at the checkout.
Some social media users spread misinformation about what happens to this change after customers leave the store.
“If you donate at the checkout, this company will use YOUR donation to fund YOUR tax deduction,” claims a meme shared on Facebook on May 4th.
But experts say this is wrong.
USA TODAY reached out to multiple accounts who posted the meme for comment.
Companies can ask for their own donations, but not those of their customers.
There are two ways businesses can raise money for charity through cashier campaigns: by donating a percentage of their income, or by encouraging customers to donate themselves.
The Urban-Brookings Tax Policy Center, a think tank based in Washington, DC, took up this claim after it went viral on TikTok in 2020.
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TPC reported that when a company donates a percentage of its own profits, it can deduct up to 10% of its pre-tax income per year. This charitable giving arrangement, often referred to as a “charitable sales promotion” or “commercial co-venture,” requires the company to register in a co-venture with the government.
Donations from customers at the cash register are not tax deductible for the company as the donation does not come from the company. According to TPC, the company only serves as a collector for charitable donations from its customers and is not entitled to any funds raised.
The meme doesn’t state whether it claims companies are using these funds to pay their own taxes or claiming them as their own deductions. Both are wrong.
Experts agree that stores cannot deduct customer donations
USA TODAY contacted several experts from various tax think tanks who confirmed that companies cannot use customer funds for tax deductions.
“The company would not include this (customer) donation in its business receipts or revenue, nor would it deduct the donation (at least if it is tax law). So the bottom line is that the meme is factually wrong,” said Garrett Watson, a senior political analyst at the tax foundation wrote in an email.
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Renu Zaretsky, an author for TPC, agreed that corporations cannot withhold their customers’ donations in accordance with generally accepted accounting standards overseen by the Financial Accounting Standards Board.
“A company (or an individual) can only claim one tax deduction on income,” she told USA TODAY. “A company cannot recognize a charitable donation made by a customer at a cash register as income because no transaction (exchange of goods or services for money) has taken place.”
Customers can deduct their donations from their own taxes
The tax advantage in this scenario goes to the donating customer.
The customer can use his receipt to make an individual deduction from his federal income tax. However, according to the TPC, only about 9% of households claim individual deductions, and those who do tend to come from households with higher incomes.
TPC said misinformation about box office charities could be financially damaging to the charities involved. Over the past three decades, box office campaigns have raised more than $ 5.3 billion for charities.
“Misinforming a younger, more impressive audience is bad for charities and for their understanding of tax policy,” TPC wrote.
Our rating: wrong
We are FALSE the claim that companies use funds that customers donate to charities at the checkout to offset their own tax expenses, as it is not supported by our research. According to tax policy experts, companies cannot withdraw funds they raise through charity checkout campaigns. Customers are entitled to use their own cash donations as single deductions for charitable purposes.
Our fact check sources:
- The Urban-Brookings Tax Policy Center, Nov. 4, 2020, Who will receive the tax breaks for these checkout donations?
- The Urban-Brookings Tax Policy Center, accessed June 9 TAX POLICY CENTER BRIEFING BOOK Key Elements of the US Tax System
- National Council of Nonprofits, accessed June 9, Commercial Co-Ventures and Cause Related Marketing
- Tax Foundation, accessed June 9, Garrett Watson
- The Urban-Brookings Tax Policy Center, accessed June 9, Renu Zaretsky
- Financial Accounting Standards Board, accessed June 9 through the FASB
- Urban-Brookings Tax Policy Center, Jan. 8, 2020, Could a redesigned tax deduction help more people feel comfortable with charitable donations?
- Engage for Good, accessed June 9, MEET AMERICA’S CHARITY CHECKOUT CHAMPIONS 2019
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