"Donation" v. "Royalty"

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How the Big Beautiful Bill Will Affect Commercial Co-Ventures

As we students of cause marketing know, the traditional tip-off for a commercial co-venture is when the call-to-action is “you buy this, and we’ll donate that.” But companies may have concerns over providing “donations” to charity based upon the new tax provisions in the “Big Beautiful Bill” signed into law on July 4, 2025, which include a limitation on corporate deductions for charitable contributions.

Starting tax year 2026, corporations can deduct charitable contributions only to the extent such contributions exceed 1% of the corporation’s taxable income and only up to 10% of such income. IMPORTANT NOTE: This limitation only applies to corporations, not LLC’s or other business entities.

Because the tax deduction is a significant incentive for running CCV programs and because the “Big Beautiful Bill” may have taken away this incentive, what’s a corporation to do?

An option would be to characterize the payments made by the corporate sponsor as “royalties” or a “license fee” in return for the permission to use the charity’s name/logo.  Royalties and license fees are generally treated as ordinary business expenses which are deductible, without limitation, and are also exempt from the Unrelated Business Income Tax for charities.

However, characterizing the “donation” as a “royalty” or “license fee” could have other CCV implications:

  • This distinction needs to be spelled out in the contract with the charity, and you should still identify whether this payment is based on a per-unit sale.
  • You cannot impose additional contractual obligations on the charity beyond giving its permission to use its name/logo, such as distributing promotional materials or marketing your products.
  • You cannot advertise that “We will donate $X per product to XYZ charity” if the payment is contractually for a royalty or license fee.
  • You cannot publicize that you have “donated” $XXXX to charity as a result of this promotion.
  • You may still have to comply with CCV laws which do not necessarily make a distinction between “donations” or other payments to charity. For example, the New York statute is typical and defines a “commercial co-venturer” as including one “who advertises that the purchase or use of goods, services, entertainment, or other thing of value will benefit a charitable organization.”

Of course, consult tax counsel whenever making tax-related corporate decisions.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Attorney Advertising.

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