Is the Church Coffee Shop a Business or Ministry?
Josh, a church planter, envisioned connecting with the young, hipster crowd through Commons, a thriving coffee shop open daily from 6 AM to 9 PM. Situated as a ministry of Journey, the church he founded, Commons serves fair-trade coffee, hosts poetry readings, live acoustic music, and offers gluten-free snacks and crepes. All proceeds from Commons contribute to building wells in Africa. As Commons flourished, requiring additional baristas, the IRS took notice, raising questions about its tax status. Is Commons considered a business or a ministry?
IRS Tax Classification: Ministry or Business?
The key issue revolves around whether Commons functions as a business or a ministry in the eyes of the IRS. If categorized as a business, Journey would be liable for taxes on its revenue. For most organizations, an activity qualifies as unrelated business (and thus subject to unrelated business income tax) if it meets these criteria:
Trade or Business: The activity aims to generate income through the sale of goods or services.
Regular Operation: It is conducted with frequency and continuity, akin to commercial enterprises.
Not Substantially Related: The business activity does not primarily serve the tax-exempt purpose of the organization.
Implications for Commons:
Commons operates as a trade or business by selling goods (coffee and snacks) regularly throughout the week. While profits support charitable causes, this does not affect the business classification under IRS rules. Therefore, Journey may be liable for unrelated business income tax based on Commons' revenue.
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