Sponsorship vs. advertising: What’s the difference for a nonprofit news business?

A sponsorship is not the same as advertising — and if you’re running a nonprofit news organization, it’s important that you know the difference to avoid owing taxes or running afoul of the Internal Revenue Service (IRS).

My disclaimer, as usual, is that I’m not a lawyer, so if you are unsure whether your sponsorship revenue will pass muster with the IRS, please consult a non-profit attorney. (Note: LION members qualify for pro-bono advice from Lawyers for Reporters).

That said, here’s what every nonprofit news leader needs to know about the difference between advertising and sponsorship in non-legal language.

A nonprofit sponsorship is best thought of as a corporate donation.

The line between sponsorship and advertising can be very blurry, but if you think of your sponsors as corporate donors, you will be on the right track.

A sponsoring business gives your organization money because they believe in your mission. More than that, they want the wider community to know that their business believes in your mission. So you provide the business with the opportunity to be called a sponsor in your various communications, and you agree to put their logo on your materials. It’s like you are saying, “Hey, we are partners working together to educate or support the public.”

The sponsoring business gets a charitable deduction for its sponsorship because the IRS treats it like a donation. That’s good for them, but there arelimitations. For example, if a sponsoring company sells beer at your event, they still have to pay tax on the profit from those beer sales, and in most cases, they also have to subtract any profit from their charitable tax deduction.

As for your bottom line, the IRS rules around sponsorships are equally important.

That’s because sponsorship revenue is tax-exempt, but advertising revenue generally is not, and that means (with a few, narrow exceptions) that you’d have to pay taxes on anything the IRS considers advertising, even as a nonprofit.

If you want to avoid that tax bill, you can only identify a sponsoring business through its logo, tag line and contact information. You cannot offer promotion for any of its products or services, because that counts as advertising.

Here are a few examples of what counts as a sponsor message:

✅ We’d like to thank our sponsor, Budweiser, the King of Beers.

✅ Sponsored by Target. Expect More, Pay Less.

✅ Brought to you by Ace Hardware, The Helpful Place.

And here are a few promotions that cross the line into advertising:

❌ Brought to you by Budweiser. Have you gotten your NBA throwback Bud yet? Time’s running out!

❌ Sponsored by Target. Check out our Spring Sale, March 1–15!

❌ We’d like to thank our sponsor, Ace Hardware. Mention us and get 15% off your next purchase.

Still confused? Here are some rules of thumb to help you remember the difference between advertising and sponsorship.

Advertising

• The advertiser provides money in exchange for a specific benefit (clicks, sales, etc.). The advertiser expects to earn revenue directly from their investment in advertising.
• The advertiser can say anything about their product, limited only by your organization’s own values and rules. For example, you may say no to cigarette ads, but that is up to you and has nothing to do with how advertising is regulated.
• Advertising is not tax deductible for the advertiser.
• Advertising is taxable as an unrelated business activity (though you should consult your attorney if you think the advertising is a related business).

Sponsorship

• The sponsor is essentially a corporate donor who is providing money because they believe in your mission and want to be associated with it.
• The sponsor’s brand benefits from the relationship with you.
• The sponsor does not get any direct value — no promise of clicks or sales.
• The sponsor is not allowed to advertise any specific product (no listing of products, discounts, coupons, etc.)
• Sponsorship is tax-deductible for the sponsor.
• Sponsorship is tax exempt for you.

Jo Ellen Green Kaiser contributed this post to LION Publishers. A coach for the first round of LION’s GNI Startups Bootcamp, Jo Ellen spends her time consulting with independent nonprofit and for-profit news media. Schedule a free first consultation with her at https://calendly.com/jgksfconsulting/zoom-meeting