Business Puts Church in Gray Taxation Area; How Much Can a Church-Based Venture Compete and Remain Tax-Exempt?

Article excerpt

Byline: JEFF BRUMLEY

As a Southern Baptist minister, the Rev. Nick Phoenix doesn't venture much into gray areas.

The Bible is the inerrant word of God, and salvation is solely through a personal relationship with Jesus Christ.

Black and white. Plain and simple.

But that's theology.

The business world, well, that's a different story -- a fact Phoenix and his North Main Street Baptist Church in Jacksonville have learned since launching an inflatable games and party equipment rental company in May.

Go Inflatables joined about a dozen other party rental firms that provide Northeast Florida festivals, block and birthday parties and other events with inflatable games -- like bounce houses that children can climb into and jump around in. They also provide inflatable slides, carnival games and concessions equipment.

The venture has been highly successful to date, Phoenix said, with revenues exceeding $35,000 in the first 13 weeks of operation. But it's also taken the preacher and his Go Inflatables operation on a bouncy ride through the murky world of tax regulations, government red tape and resentment from some local competitors.

His experience raises questions about how much church-based businesses can compete with secular companies before having to pay local, state and federal taxes. Religious and other nonprofit organizations generally are tax-exempt under local, state and federal laws.

"I would say the challenge is doing the homework," said Phoenix, 45.

It was math homework that led Phoenix to launch the business in the first place.

The 50-member congregation and its Words to Works inner-city ministry started Go Inflatables as a way to get out of the $20,000 a year it was spending to rent inflatables for the block parties, day camps and other events it hosts for Northside youth, Phoenix said.

By providing jobs and generating money for summer camp and school scholarships, Go Inflatables fit hand-in-glove with the church's other ministries, such as its food pantry, housing rehabilitation and hurricane relief projects, Phoenix said.

The church found an investor -- a businessman Phoenix declined to identify -- who put up the money for about 50 inflatables and related equipment.

The business says its Christian "inflatable experts" are handling 60 to 100 events a month, from church festivals to corporate picnics. The money it's making will be used to send 2,000 to 3,000 kids to camp each year, to contribute to a college fund and provides about 16 mostly part-time jobs, Phoenix said.

"It's a way for a small church to leverage a big impact," he said.

Go Inflatables' mass mailings and advertising in publications like Mint Magazine got the attention of one inflatables and party supplies business owner who worried the church had an unfair advantage with its tax-exempt status.

Craig Gustafson, owner and manager of Space Walk of Jacksonville, said he could find no records that the church was charging customers Florida's 7 percent sales tax, had obtained a city business license and was paying federal income tax on its rental revenues. Church-run businesses are required to pay those taxes if they compete on the open market, according to Duval County, state and federal tax officials and regulations.

Gustafson said he also believed the church was using its nonprofit organization postal rate to mass-mail Go Inflatables advertisements.

"They're using an unfair advantage," Gustafson said.

But Phoenix and Go Inflatables General Manager Jimmy Bembry say Gustafson and other competitors have nothing to worry about.

Go Inflatables is not abusing its nonprofit mail rate and is charging state sales tax -- they presented a copy of their Florida sales and use tax registration. The business will pay federal income tax when it's due, the two men said in separate interviews. …