May 18, 2010
Panera Bread Donations? - Pay What You Want Restaurant Opens
My colleague Dan Kelly brought to my attention an MSNBC report that a nonprofit foundation associated with the Panera Bread Co. has opened a store in the upscale St. Louis suburb of Clayton with a novel business model - pay whatever you want. The restaurant's motto: "Take what you need, leave your fair share." Cashiers will tell customers what the normal price would be if asked, but remind them they do not have to pay. They direct customers to put anything they want to give into a donation jar. The stated plan is to see whether the restaurant, named St. Louis Bread Co. Cares, can be at least self-sustaining and, if it is, to open additional locations. The for-profit company will not be covering any of the costs of the new store. Any excess funds will go to community organizations, according to a St. Louis Post-Dispatch story on the same topic.
The story does not mention the foundation's name, but a Guidestar search reveals both a Panera Bread Foundation, Inc. and a Panera Bread Company, both listed as section 501(c)(3) public charities. The latter organization is coded as being involved with children and youth services and appears inactive, with no Forms 990 available. The first organization at first glance looks like a typical corporate foundation, with the 2008 Form 990 reporting about a million dollars in contributions to over 200 exempt organizations, except that it is a public charity based on over 50 percent public support reported. It is not clear if either entity is the one referred to in the article, although the President of the Panera Bread Foundation, Inc. (and until recently CEO of the for-profit company) is named as the person in change of the unnamed foundation mentioned in the media stories.
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I'm putting together my notes that I will use when getting the inevitable questions from CPAs and other organizations (in the course of my teaching) as to what are the EO tax consequences here . . .
First off, I always get nervous when 501(c)(3)'s have a "donation" jar, but it would seem that this location has bested the two issues at hand re dealing with putative donors --
a. 170(f) requires that a "donor" who makes a payment of greater than $75 and gets goods/services in exchange (in this case the food) be told that there is only a charitable contribution to the extent their remittance exceeds the fair market value of what they have received back. This is likely a non-issue as how often does someone make a Panera "purchase" in an amount exceeding $75?; and
b. By not advertising who the 501(c)(3) owner/operator "is" (and thus not trumpetting the fact of their 501(c)(3) status) it is unlikely that regulators would perceive that there is a representation being made by which the public would think that their payments equated to a tax-deductible contribution and thus being induced unfairly to participate. (Of course, State/local regulators in such instances may required a specific enunciation as to who is doing the "solicitation" and an affirmative statement as to lack of tax-deductibility in accord with the preceding point.)
Second, as to UBIT consequences: in the absence of donated labor being a material factor for labor in this operation (or the purpose of the operation being serving workers who themselves are from a charitable constituency being trained or otherwise served) the sales revenue will constitute receipts from an unrelated trade or business since the exempt entity here is selling goods that are not donated (and doing so regularly). If anyone sees another possible exception, let me know!
Posted by: Eve Borenstein | May 19, 2010 9:00:57 AM
I just tweeted about this and whether there are any associated tax issues - the article I read said that employees often tell customers what the price would be normally in a for-profit store.
Posted by: Archana | May 19, 2010 11:13:05 AM