1998 Report on Charitable Solicitation by Commercial Fundraisers


Supplement Re: Donations of Personal Property

Thrift Stores and Vehicle Donation Programs

INTRODUCTION

In November 1999, the California Office of the Attorney General released the Summary Report on Charitable Contributions by Commercial Fundraisers for funds raised during calendar year 1998. That report dealt with charities and their commercial fundraisers that solicit primarily by direct mail and telephone.

This supplement, required by Government Code section 12599(i), deals with a different sort of fund raising - the public's donation of used personal property to charity and the resale of that property by for-profit thrift stores or commercial fund-raisers operating vehicle donation programs for the benefit of charity. This supplement sets forth the revenue reported by commercial fund-raisers for calendar year 1998. Because commercial fund-raisers are not required to report revenue raised until the year following the fundraising activity, 1998 is the most recent year for which the Attorney General has complete data.

In issuing this report, the Attorney General's goal is to provide information that Californians may find useful in evaluating future charitable solicitations of used personal property.

THRIFT STORES

Thrift stores sell used clothing or other goods (called "salvageable personal property" in the statutes) to the public. Charitable organizations that solicit items from the public operate some thrift stores directly. Charities that operate their own thrift stores file annual financial reports listing revenue and expenditures. These reports are available for public review at the Attorney General's Registry of Charities and Fundraisers in Sacramento or at the charity's principal office. (Note: Some thrift stores are operated by religious organizations, which are not required to file financial reports with the Attorney General.)

Other thrift stores are operated by for-profit vendors that obtain all or part of their merchandise from charities or social welfare organizations that solicit the clothing or goods from the public. These for-profit vendors either receive a management fee or commission from the charity, or purchase the goods from the charity at a negotiated price. Under California law (Government Code section 12599), for-profit vendors that obtain a majority of their inventory from charities or social welfare organizations are commercial fund-raisers and must register with the Attorney General's Office. Commercial fund-raisers also must file annual financial reports.

Charities that operate their own thrift stores incur the overhead and other expenses of a retail store. After thrift store expenses are paid, the charity uses its earnings for such things as management expenses and charitable program services. Charities that solicit used items and sell them to for-profit vendors do not incur the expenses of operating retail stores. Charities that sell used goods to for-profit vendors may or may not earn more money than charities that operate their own thrift stores. There are advantages and disadvantages to both types of operations.

This report contains specific information about the two types of charity thrift store operations. The information is based on reports filed by the commercial fund-raisers and has not been audited or modified by the Attorney General's Office.

In 1998, for-profit thrift stores operators that purchased goods from charities reported total revenue of more than $57.5 million. Of the total, $14.6 million (25.39%) was paid to charitable organizations. See Table #1, pdf

In 1998, for-profit thrift store operators that paid a fee or commission to charities reported total revenue of over $7 million. Of the total, $856,416 (11.61%) was paid to charitable organizations. See Table #2, pdf

VEHICLE DONATION PROGRAMS

In California, the solicitation of vehicle donations to charity has increased during recent years. These solicitations result primarily in the donation of automobiles, and are administered both by charities directly and by commercial fund-raisers who contract with charities to solicit on their behalf.

According to financial statements filed in 1998 by commercial fund-raisers registered with the Attorney General's Registry of Charities and Fundraisers, approximately $31 million in gross proceeds were raised through vehicle donations solicited for charitable organizations. Of the total, about 33.59% or $10.4 million, was distributed to the charities. The remaining funds were retained by the commercial fund-raisers for payment of expenses and fees. The 1998 figures represent an increase in gross proceeds of approximately 30% and nearly a 77% increase in distributions to charity compared to the last report which covered calendar year 1997. See Table #3, pdf

The vehicle donation process usually begins when a donor responds to an advertising campaign. The donor will be asked questions about the vehicle. A vehicle usually is accepted, unless the cost of towing exceeds the value of the vehicle. After the vehicle is picked up from the donor, the fund-raiser either arranges for resale of the vehicle to the public or to a parts wholesaler, depending on the condition of the vehicle.

Donors are responsible for notifying the Department of Motor Vehicles of the transfer of registration. Failure to transfer the registration has subjected many donors to subsequent penalties and expenses for donated vehicles, most often accrued parking violations.

A significant problem for purchasers of donated vehicles has been the working condition of the vehicles. Unscrupulous resellers have sold vehicles that fail to operate soon after they are driven off the sellers' lots. Because donated vehicles do not need to pass vehicle emissions tests at the time of donation, purchasers should ensure they receive valid smog certificates from the reseller at time of purchase.

Donors of vehicles usually claim tax deductions. Advertising campaigns for vehicle donations sometimes explicitly promise "maximum tax donation" and "highest value." The actual amount that can be deducted is determined by the IRS and the state Franchise Tax Board, not the solicitor. According to the IRS, a taxpayer may deduct the fair market value of the donated vehicle. Additional IRS reporting and documentation requirements may apply to donations of property.

The Attorney General's Office has received complaints about tax deduction promises made by fund-raisers and their subsequent failure to provide documentation to donors. Donors are ultimately responsible for the deduction taken and may not rely on the representations contained in solicitations to support their income tax deductions.

Business & Professions Code section 22930 requires a nonprofit organization engaged in any solicitation or sales solicitation for charitable purposes, or a commercial fund-raiser, to provide a donor of a motor vehicle, aircraft or vessel with a receipt within 90 days from date of donation. The receipt must describe the donated property in terms of its model, age, level of use, including, but not limited to, the mileage, in the case of a vehicle, its condition, and whether a visual inspection by the nonprofit organization or commercial fundraiser, or a representative of the nonprofit organization or commercial fundraiser, indicated that there were any readily apparent defects that would materially reduce the value of the property. If the donated property is sold prior to the issuance of the receipt, the receipt must also include all of the following:

(1) the date the property was sold; (2) if sold to a dismantler, the amount paid to the nonprofit organization or commercial fund-raiser for the property, and; (3) if the property was altered subsequent to the donation and the alteration affected the value of the property, a statement that the property was altered and whether the alteration increased or decreased the value of the property.

The purpose of this report is not to discourage such donations. The report seeks only to present some of the problems associated with vehicle donations and practical information, both for donors of vehicles and purchasers of donated vehicles.

SPECIFIC FINDINGS

Table 1 - Thrift Store Operations: Goods Purchased From Charity, pdf
This table lists each charitable organization that solicited donations of used clothing and merchandise ("salvageable personal property") and sold the property to a for-profit thrift store. The for-profit thrift store operator is listed. Each charitable organization is ranked by the percentage of money that actually went to the charity, i.e., from a high of 44.17% to low of 0.44%.

Table 2 - Thrift Store Operations: Management Fee/Commission, pdf
This table lists each charitable organization that solicited donations of used clothing and merchandise and paid a management fee or commission to a for-profit thrift store operator. The for-profit thrift store operator is also listed. Each charitable organization is ranked by the percentage of total revenue that actually went to the charity, i.e., from a high of 100% to low of 3.44%.

Table 3 - Vehicle Donation Operations, pdf
This table lists each charitable organization that solicited vehicles and paid a management fee or commission to a for-profit reseller. Each charitable organization is ranked by a percentage of total revenue that actually went to the charity, i.e., from a high of 100% to low of 0%. (Note: Some charities are listed more than once. Each listing shows a separate for-profit thrift store or vehicle reseller operation.)