Providing Internet Service to HOA as a Non-Profit

Started by JohnM63 • 4 replies • 473 views

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JohnM63 (North Carolina)
Posts: 21

Posted:

Hi. If an HOA enters into a reasonable in duration contract with an internet provider to run upgraded lines in the neighborhood, allows residents to opt in to the service, collects dues to pay for the service, turns around and pays the internet provider, but also collects a buffer to cover cancellations, etc.; is that buffer considered a "profit" that has to be taxed since it is not immediately used to pay for the optional service? The funds would be earmarked for that service, so I would liken it to having a reserve for maintenance on roadways, common areas, etc. Anyone see any problems with this arrangement? Thanks!

JohnT38 (South Carolina)
Posts: 1,631

Posted:

Suppose you sign the contract and agree to a charge with the provider and no one wants the service or over time they cancel the service as 5G and other internet solutions are rolled out? Since this is an opt-in service it sounds to me like you could end up losing money. What you call a 'buffer' sounds to me like a CYA in case you guessed wrong and lose money.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By JohnT38 on 03/11/2021 1:28 PM
Suppose you sign the contract and agree to a charge with the provider and no one wants the service or over time they cancel the service as 5G and other internet solutions are rolled out? Since this is an opt-in service it sounds to me like you could end up losing money. What you call a 'buffer' sounds to me like a CYA in case you guessed wrong and lose money.

I agree. A bad idea from the get go.

JohnM63 (North Carolina)
Posts: 21

Posted:

While it is not the ideal way to improve the internet for this HOA, they did not feel comfortable making it a mandatory requirement to use this service without adding it to the CC&R. The question still remains that if this "buffer" exists, is that considered a profit to what is supposed to be a non-profit entity?

NpS (Pennsylvania)
Posts: 4,216

Posted:

I expect that your "buffer" should be comprised of two things:

1. A reserve fund to cover additional costs that the HOA is likely to incur as a result of what you call "cancellations, etc."

2. An amount received from the service provider that exceeds all known and reasonably expected costs to the HOA.

IMO, item 1 would be classified as an anticipated expense (cost), not a profit. Item 2 would be classified as profit.

Sikubali jukumu. Read all posts at your own risk.

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