Wow, this is eye-opening. What a scummy tactic.
Do they also claim tax write-offs for your donations?
Do they also claim tax write-offs for your donations?
But the other tangiable benefits are:
- Company makes big news about donating "$X million dollars to charity", which was really customers money
- Company holds on to $X in money until it's actually donated (which may be in a lump sum at the end of the year). In the meantime, they're earning interest or otherwise using funds.
It's an interesting situation, since the stores are not charities themselves. I don't know if you, the consumer, can write it off.
I don't know if there's a some kind of "pass through" loop hole that lets the consumer write off the donation, while the store funnels it to the charity, but themselves do not get dinged for the taxes on the income.
First, McDonald's takes the money and sets it aside, using their POS systems to segregate these funds from their traditional revenue. At the end of whatever time frame, they send the accumulated funds to the non-profit. The consumer can use these donations as a write-off by simply keeping their itemized receipt and showing the round-up.
Second, McDonald's could collect the funds as revenue, then make the donation as themselves. This is most likely not legal, since the consumer can also count the revenue as charitable donations, so it wouldn't make sense to have the same funds sent for the same purpose but tallied as a donation from two entities. However, this money would be revenue, then a donation, so it would have an impact against their legitimate taxable revenue/profits.
For example, let's say McDonald's earns $1b in revenue, including the consumers' donations of $10m and amount to a total profit of $100m.
Their profits without the donations is $90m. By donating the $10m from their $100m in profits, their lowering their taxable profits to $90m, making for the same tax obligation as if they didn't take the money in as income.
The only place for nefarious activity in all this would be the potential for earning interest from the donations in the time between receiving the funds and forwarding them to the charity. Curious how they would be able to justify those earnings, if they did something like that.
The issue in this case is that CVS committed to a donation to the charity, then had customers pay that money on their behalf, effectively.
Before special tax treatment comes into play, businesses in the United States are taxed on revenue minus expenses, i.e. their net income. Nothing about passing through charitable contributions for others affects their net income at all.
If you gave them $5 and they lit a 5 dollar bill on fire, they get a write-off because companies are taxed on profits, not revenue.
Now whether or not sales-tax gets involved on the donation I have no clue; there are thousands of different sales-tax jurisdictions in the US, so I'm not going to even speculate.
Yes, but not in the "We pay less taxes because of this" way that people think.
Pulling numbers out of the air here, but if they make $100 in sales with $80 in costs, they'll take an $80 deduction for their costs and pay taxes on the $20 profit.
If they make $100 in sales, plus accept $30 in donations for a total of $130 in revenue, and have $80 in costs, they'll send the $30 to the charity, take a $30 deduction in their taxes for the donation, another $80 deduction for costs, and finally pay taxes on the $20 remaining profit.
Obviously, it's far more complicated than that, and actual numbers will be wildly different, the point still remains that they do not get a tax advantage.
Businesses are not allowed to take charitable deductions for donations made using funds collected from customers for the stated purpose of donating funds to a charity (i.e., "round up for charity").
The money being donated is not the business' money to donate, ergo they are not the party making the donation and do not get the tax benefit of it. Technically, the customer gets the deduction, but for donations of a few bucks its not worth it for the business or the customer to bother with the donation receipt.
Note that this does depend on the language of the solicitation. If they say "we'll donate" they can take the deduction, but they must also gross up their own revenue to include the "donated" funds, so they get no tax benefit.
We're in agreement.
In the first case, the business gets a deduction because it records these deductions as revenue and is making a donation out of that revenue. That's where we agree, but this is the exceptional case, not the norm.
In the second case, which is the common case (i.e., round up for charity see for example https://www.taxpolicycenter.org/taxvox/who-gets-tax-benefit-...), the business does not get a deduction for the donation, but also does not record these donated funds as revenue because it is only acting as a collections agent for a charity.
Your first paragraph is misleading. There is no tax write off since the money donated is not revenue and is not deducted in the tax sense. It’s just pass along money. The business can write off the expense of the accounting though.