Q&A: Are Proceeds From the Church Community Center Taxable?

A prime outreach opportunity raises financial, tax considerations.

Our church’s new community center includes a gym and a coffee shop for people to fellowship while watching their younger children on our playground just outside the building. We also host a church basketball league involving other churches. All the fees from the basketball league and funds from the sale of coffee are used to pay for things like electricity and janitorial supplies so we can use the building nas intended: a way to reach non-Christian families in a recreational environment. Do we owe taxes in any of the revenue? How should we handle payments for the referees? Contract or payroll? Cash or check? And finally, can we use waiver of liability forms for referees and/or players?
Athletic facilities have become common among larger churches. The tax consequences of such an operation is well beyond the scope of this answer. You should engage a competent tax professional for detailed advice.
It does not matter for tax purposes how the funds are spent. The only thing that matters for taxes is the transaction where the church received the funds. Churches may operate youth athletic leagues within its exempt purposes, so all the fees received from operating the leagues are exempt from federal income taxes. If the church allows another entity to operate the leagues, then the proceeds will likely be taxable.
Normally, the sale of coffee during church activities does not create taxable income for federal income taxes.
Referees sent from the local referee association and paid according to the association rules are contract labor. But if the church hires the referees, they are employees.
State tax issues are entirely a different matter. The operation of the athletic leagues and/or coffee shop may jeopardize the church’s property tax exemption. Sales taxes may be due on the sale of coffee or other items. You will need to check with local taxing officials.
The use of waivers is advisable. You will need a local attorney to draft such as waiver.
Frank Sommerville is a both a CPA and attorney, and a longtime Editorial Advisor for Church Law & Tax.

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