Simple Charity for Shelters Can Be Rewarded by an Extra Tax Deduction for Firms

Ricardo Villanueva had a big problem. His workers had just finished 500 twin mattress sets for a major discount chain when the store canceled the order. Having no other outlet for the beds, Villanueva was about to donate them to his favorite charity when Kris Ockershauser, product donations manager for the Shelter Partnership’s Resource Bank, made him an offer he couldn’t refuse: The beds would be put to good use in area homeless shelters, while Villanueva’s small company would be entitled to a generous tax deduction.

Based on this simple concept, the Shelter Partnership has collected about $20 million worth of new goods and equipment since 1988. The donated merchandise helps reduce the cost of operating about 200 homeless shelters and social service agencies throughout Los Angeles County.

“We’ve been going like gangbusters because everybody wins in the deal,” Ockershauser said.

Mattresses, bedding, underwear, socks, shoes and diapers are high on the Shelter Partnership’s wish list.

“Shelters need everything that a hotel needs--shampoo, soap, dishwashing detergent, cleaning supplies and paper supplies,” said Barbara McMahon, executive director of the Rio Hondo Temporary Home, located on the grounds of Metropolitan Hospital in Norwalk. “If you make anything that can be used in an apartment, hotel or restaurant, we can use it.”

McMahon, whose 100-bed facility is filled to overflowing every night, said that because of the weak economy, the shelter is serving people who have never been homeless before.

According to a recent study by the Shelter Partnership, the number of homeless people in Los Angeles County jumped 13% over 1992 estimates. On any given night, there are between 43,200 and 77,100 homeless men, women and children in the county and between 21,500 and 39,000 in the city. About 10,000 homeless children are included in those totals.

Helping homeless children is one of Ricardo Villanueva’s main goals. The founder and president of City of Commerce-based G&M; Mattress and Foam Co. has become so involved in the Shelter Partnership that he now serves on its advisory council.

“When I went to the open house at Shelter Partnership’s warehouse, and the homeless kids told me, ‘We don’t have to sleep on the floor anymore, we’ve got a mattress,’ it was really great to hear that,” Villanueva said.

While small businesses such as Villanueva’s contribute excess inventory, big companies like Clorox Co., Nike, Kimberly-Clark Corp., Kmart, Neutrogena, Patagonia and National Sanitary Supply are also strong supporters.

“When we have excess materials, it’s very difficult to sell them or send stuff back to the mill, because we’d have to pay restocking charges,” said Everett Sanborn, vice president of Ingram Paper Co.’s industrial paper division. He said Ingram has donated about $60,000 worth of paper products to the Shelter Partnership, which stores donations in a 30,000-square-foot warehouse in Bell. The warehouse is provided free by the U.S. General Services Administration.

Sanborn said he is impressed with the way the organization handles donations, including the requirement that donors submit a detailed list of what they want to donate and the prices before the donation is accepted. “They are very well-managed, and you get the feeling they are serious and careful about what they accept and what they do with it,” Sanborn said.

While the shelters benefit, businesses do too. Companies donating excess inventory to the nonprofit organization can often deduct up to twice the cost of the goods donated, under Section 170 (e)(3) of the tax code. In order to qualify for this type of deduction, the law requires that the donation, generally speaking, be made by a C corporation, not an S corporation; be used by the organization that collects the donation, and not be resold.

The merchandise must be new, not used.

C corporations are legal entities that are taxed at a slightly higher rate than an S corporation. S corporations provide business owners with the limited liability of a corporation, but the owners pay income taxes as if they were a sole proprietor or partner.

Donations to the Shelter Partnership can provide a greater tax deduction because the goods are not resold.