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Program service fees for nonprofits

Program service fees constitute an important revenue source for many nonprofits. Nonprofit fees are associated with services -- may or may not related to their key missions -- and are billed to either the individual receiving the service (e.g, the parent with a child in daycare) or to a third party such as a government agency that supports such service (e.g., for public health). In recent years service fees from governments have become a major revenue source for nonprofits, which reflect the "complementary" relationship between nonprofits and government in that nonprofits collaborate as partners with government -- or even act as the extension of government -- to deliver public goods.

Sometimes fees are generated from activities beyond nonprofits' tax exempt mission. The profits may be considered unrelated business income (UBI) and thus subject to federal tax (UBIT). For example, a university may runs a pizza parlor that sells pizza to students and non-students alike. The pizza parlor is not tax-exempt because it is unrelated to the university's education purpose, even though the profits can be used to support the university's operation. However, a bake sale held by a social-service nonprofit can be tax exempt because the activity is not regularly carried on. On the other hand, activities that are directly related to a nonprofit's tax-exempt mission can rarely make break-even or general a profit. Therefore, nonprofits also rely on grant-making, donation, and other fundraising activities to seek additional revenue sources.

Nonprofit organizations vary in their service-fee reliance. Some (entrepreneurial nonprofits) are able to receive most of their funds from charging fees for services. Others (called donative nonprofits) have to rely more on private gifts or donations.


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Hubert H. Humphrey Institute of Public Affairs