Ignorance Is Not Bliss: UBIT and the Museum Store

When it comes to legal issues for museums, ignorance is definitely not bliss. Instead, forewarned is forearmed. Make it a regular activity to research and seek advice before you deal with any legal issue. Along with learning how the law will impact your museum, policies and ethics are good prophylactics.

Disclaimer: The author is not an authority on the law, and this blog post is not a substitute for legal advice. Whenever you deal with legal issues, it is imperative that competent legal counsel be sought. In seeking out legal counsel, remember that many areas of museum law are specialty areas, from copyright and licensing to tax-exempt status and accessibility. An attorney who practices personal injury or bankruptcy law, for example, may not have the background or experience to deal with many museum concerns.

The chapter in the Small Museum Toolkit on museums and the law provides a brief introduction to many legal issue and then guides you to resources for finding more information and legal rulings.

Let's take unrelated business income tax as an example.

The IRS mandates that income produced at exempt organizations from “regularly conducted activities,” such as those conducted by museum stores and restaurants (as opposed to one-time or occasional activities such as fundraising events), be related to the organization’s exempt purpose or else become subject to the unrelated business income tax (UBIT). UBIT was established to protect nonexempt businesses from unfair competition. If a “substantial” percentage of a museum’s income comes from unrelated activities, it risks losing its tax-exempt status. And even if, for example, some museum store merchandise is substantially related to the museum’s mission, the IRS’s so-called fragmentation rule means that other merchandise that is not so related can be separated out for taxation.(1) Although the IRS has not ruled on the definition of “substantial,” “as a general rule . . . if unrelated income regularly falls within the range of 15–30% of museum revenues, you may wish to establish a for-profit subsidiary.”(2)

While more details about UBIT regulations are available on the IRS website,(3) a few rulings on UBIT regarding museum stores may be informative. Low-cost items (e.g., T-shirts, magnets) are not taxable if they promote the museum or provide an educational message.(4) The sale of note cards or postcards featuring images of museum collections has been deemed to be within the law.(5) “Merely affixing the museum’s name to an object [however] did not establish the requisite causal relationship with the museum’s exempt purpose. It makes no difference that many of the articles containing the name or logo are inexpensive souvenirs or trinkets.”(6)

There are some general rules about buying and producing merchandise to sell in a museum store with respect to UBIT. First, each sale item will be individually considered for UBIT by the IRS. Thus, “it can be helpful to consult curators and educators to evaluate which goods are related to the museum’s purposes and which are not.”(7) Merchandise featuring the reproduction of some- thing in the museum collections is less likely to fall under UBIT. Second, adding an accompanying small card or hang tag with educational information about the item (e.g., information about the artist, historical information about the craft, how the item relates to local history) increases the educational value and thus helps negate UBIT. Third, you can sell unrelated merchandise, but you will have to keep track of these sales in order to pay UBIT.(8)

Museum stores have great potential to support your museum's education mission and provide some earned income. This introduction to UBIT should help you to consider what legal ramifications having a store might mean for your museum.

Allyn Lord is the director of the Shiloh Museum of Ozark History in Springdale, Arkansas. Since 1982 she has served on the AAM board; been an accreditation, Museum Assessment Program (MAP), and Institute of Museum and Library Services (IMLS) grant reviewer; and worked on numerous committees, including those serving small museums with both AAM and AASLH. She has also been active in the Arkansas Museums Association and Southeastern Museums Conference. She believes in the power of networking, professional development, mentoring, and service to the field.

Notes:

(1) “Museum Retailing—UBIT Issues,” Internal Revenue Service, www.irs.gov/pub/irs-tege/eotopicu79.pdf.

(2) Jeffrey Hurwit, “The Entrepreneurial Museum: Some Legal, Tax, and Practical Perspectives,” Hurwit & Associates, www.hurwitassociates.com/l_entrepreneur_ museum.php.

(3) “Unrelated Trade or Business,” Internal Revenue Service,www.irs.gov/publications/p598/ch03.html.

(4) Hurwit, “Nonprofit Governance.”

(5) Jim Bloom, “IRS Refines Its Position on Museum UBIT Sales of Inventory,” Free Library, April 1996, http://www.thefreelibrary.com/IRS+refines+its+position+on+museum+UBIT+sales+of+inventory.-a018202846.

(6) Bloom, “IRS Refines Its Position.”

(7) Laura Damerville, “BIT Focus: Museum Store Products,” Art Law Clinic Client Newsletter 1, no. 1 (fall 2005), www.law.harvard.edu/academics/clinical/lsc/pdf/Art%20Law%20Clinic%20Newsletter1.pdf.

(8) Damerville, “BIT Focus.”

Getting to Know Your Building: Writing an Operations Manual

Are you new to managing a small museum? I bet you feel comfortable with your area(s) of expertise, but managing a facility might not be a part of your life or work experiences.

If you do not have something like an operations manual at your facility now, then you and your facilities manager should begin assembling one immediately. (I inherited my building from the county with nothing but a set of original architectural drawings.) If precious little material exists to get you started, begin by documenting what the facilities manager is doing or having done. Knowing exactly when lightbulbs get changed (and approximately how many hours you get out of them) will, in the end, give you an excellent idea of your building’s life cycle. This documentation will tell you when regular maintenance needs to occur and what tasks need doing at the change of seasons. Record everything, even the seemingly unimportant—it is impossible to know immediately upon occupying a new (to you) building where everything is or what everything represents. At some point, you will identify the spigot for which you have found the water shutoff.

The following items would be a great start for a basic operations manual:

1. As-built drawings of the building

• Building map (floor plan)
• Lighting map
• Alarm map
• All rooms with numbers or names
• Circuit map (detailing which circuit breakers control which outlets and lights)
• Plumbing map or information about the locations of shutoff valves
• Fire-suppression system map

2. Major modification or renovation description and drawings

3. Basic maintenance schedule of building and grounds

• Daily cleaning
• Weekly cleaning
• Monthly cleaning
• Deep cleaning schedule
• Filter change in HVAC system
• Periodic tree-trimming and gutter-cleaning schedule
• Major grounds keeping activities, such as fertilization, annual plantings, leaf removal

4. Other documentation

• Material safety data sheets for all chemicals used in the building
• Warranty or purchase records for building tools and equipment
• Manuals or other operating information for the museum’s HVAC system
• Contact and contract information for vendors who regularly service the building
• Key and alarm-code policy and current key log
• Notes on discoveries that the facilities manager has made

In addition to the basics, you may wish to include things like environmental readings taken from data loggers or hygrothermographs, periodic light-level readings, floor-load information, and elevator sizes and load capacities. In fact, if you and your facilities manager have time to fill out the American Association of Museums Registrars Committee’s General Facilities Report, you will have a great deal of vital information about your facility all in one place.

Be sure to keep your operations manual up to date. Any time you have major work done at your facility, make sure that you gather all this important information and place it in the operations manual, purging superseded information. Review your operations manual yearly with your facilities manager to ensure that it has all the information you need.

Claudia J. Nicholson has thirty years of experience in history museums and historical agencies, as well as a master’s degree in history museum studies from the Cooperstown Graduate Program. An experienced curator, she became executive director, fundraiser, curator, educator, press officer, and tour guide at the North Star Museum of Boy Scouting and Girl Scouting in North St. Paul, Minnesota, in 2005. Her chapter was written based on her experience converting a non- purpose-built structure into a history museum.

Identifying Work for Productive Internships

Before recruiting interns, museum staff need to assess what types of work is to be done in the coming months, as well as the groundwork to be laid, before sending out the word to recruit students. Because internships are supposed to be learning experiences for the students, they need to involve projects and aspects of organizations that will develop interns’ skills and add to their body of knowledge while helping the museum. Ideally, intern assignments will be stand-alone projects that interns can complete within the prescribed time of the internship. When this is not possible, identify a phase or portion of a project so that the intern can complete something tangible and reach a good stopping point. However, it may be unrealistic to expect a summer intern to plan, execute, and wrap up a major program in the eight to ten weeks that summer internships normally span.

Examine all aspects of the museum: Collections, education, exhibits, marketing, fundraising, and grounds work can open the possibilities for a well-fitting match with a student in a program that is not directly related to your museum's area of focus. For instance, a student majoring in computer science could help a museum revamp its website. If possible, identify several projects and brainstorm all the possible academic links before contacting colleges and universities.

Ask yourself the following questions to help you determine if your brainstormed list is realistic:

• How long of an internship will be required for both training and 
task execution?
• What, if any, specialized knowledge is required?
• Does the museum have the staff time to train the intern in that 
knowledge?
• Does the museum have the staff and time to supervise the intern 
effectively?
• Does the project meet the museum’s strategic goals?
• What skills does the intern need to have already in order to complete 
the project?
• What skills will the intern gain from this project?

In addition to an overarching project, both organization and student often find it mutually beneficial if the internship also involves aspects of daily operations. Part of working for a small organization includes wearing many hats, and incorporating day-to-day activities into the internship increases the educational value for the student and benefits the organization. An intern’s main project can be an aspect of daily operations, such as serving visitors, because the intern still gets the experience of working with the public and making history relevant to modern patrons. The key to including daily operations in an internship is conveying that information up front, ideally in both a written job description and the initial interview.

Once you have identified one or more possible intern projects, contact area colleges and universities to investigate their requirements and ask about their system for internships.

Amanda Wesselmann was previously the associate director of the General Lew Wallace Study & Museum an she has supervised and trained volunteers and interns for over seven years. She has worked in almost all areas of the museum field over the past nine years, including education, volunteer coordination, exhibit fabrication, collections, development, and administration. 

What If My Board Won't Fundraise?

Simply put, if your board refuses to fundraise, you’re in a bit of a pickle. But, it’s not hopeless. The nonprofit sector functions because board members and staff fundraise side by side in their communities, and if you let the board off the hook, the organization is in jeopardy. The following offers just a few ways you can help the board become more comfortable with its fundraising role:

1. Recognize that fundraising takes many forms. It’s not always a direct, face-to-face ask that is needed from board members, but they all need to find a way to plug into fundraising. Perhaps you’re planning a special fundraising event. Have a board-level task force produce the event in total, alleviating the burden on the director.
2. During a board retreat, integrate training. Bring in a local development officer as a guest speaker or schedule a webinar during the retreat. (The dean for advancement at a local college or university would be an excellent speaker.) Introduce select readings, and find time for discussion. Be sure you create a continuum of training that both develops the existing board member and educates the new board member.
3. Ask the board to thank people for you. Of course you will have sent the standard thank-you letter with a personal note, but ask board members to drop a personal note for certain gifts and/or contacts. While this isn’t an ask, it is a critical part of the fundraising cycle.
4. Ask for names. As you develop a membership mailing list or other direct mail piece, ask board members to give you a list of names and addresses to include in the mailing. Everyone can do this; there really is no excuse for a board member to refuse to crack open his or her address book or Christmas mailing list and share some names. Make it an annual goal for each board member to provide five to ten new names for mailings and have him or her write a personal note on the letter before it goes into the mail.
5. Get yourself and other board members invited to social events. Maybe a board member has an annual Memorial Day picnic. Ask her to invite the board so that members can meet new people and start to broaden the network. Have a board member host an intimate dinner party so that you can get to know his friends casually. As director you’re there as a guest, but you also have the chance to learn about interests and build relationships.
6. Carry the torch. While the board’s fundraising skill set may take longer to develop than you would like, don’t stop fundraising. Sometimes the director will have to go the extra mile to secure funds, but the more success and ease of fundraising you share with the board, the more attractive the process becomes. Everyone wants to be part of a winning team, and when you’re hitting fundraising goals, you are winning!

Working in museums for nearly 20 years, Cinnamon Catlin-Legutko has been a museum director since 2001. Cinnamon became CEO of the Abbe Museum in Bar Harbor, Maine in 2009. Before that, she was the director of the General Lew Wallace Study & Museum in Crawfordsville, Indiana, where she led the organization to the National Medal for Museum Service in 2008.