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Shoua Yang is a big philanthropist - but she doesn't know how big.
She dropped off a bag of clothes at the Goodwill store in Woodbury on Wednesday.
Because she did, the value of that donation was about 25 times more than if she had taken it to the Woodbury Savers store or if she had called a pickup service.
With either of those, only about $1 of her $25 donation would have gone to charity. That's about 4 percent, with the remainder going to the for-profit businesses that collect and resell clothing.
"Actually, I didn't know they give out such a small percentage," said Yang, 23, of St. Paul.
Yang is in the front lines of a new battle in the used-clothing business. Traditional used-clothing charities, such as Goodwill and ARC, now face a new breed of competitor - the for-profit used-clothing business.
Savers, a national chain of used-clothing stores, just opened its sixth store in the metro area. Its stores seem similar to the nonprofit outlets in that they accept donated goods, sell them and donate to charity.
But there's a difference in how much goes to charity. The nonprofits use 100 percent of the value of donations for charity and find it tough to compete with businesses that pay 4 percent. Many experts are crying foul.
"It's a feel-good thing with them, but it really isn't philanthropy," said Rich Cowles, director of the Charities Review Council of Minnesota.
The claim that businesses give to charity, he said, is like "cause-related marketing," in which a retail product is linked with a donation. Typical is a bottle of shampoo with a pink ribbon; the company benefits from the association with a good cause but gives only a few cents per bottle to breast cancer research.
Most donors aren't aware of the amount of money that the intermediate businesses give to charity, said Pat Mellenthin, chief executive of The ARC Minnesota.
"They are making an awful lot of money on people's perceptions that it is all going to charity. But if you give 1/25th to charity, it's going to have 1/25th the impact."
Which charities get 4 percent of the value of your clothing donations?
The Lupus Foundation, Vietnam Veterans of America and the Epilepsy Foundation of Minnesota, to name a few.
But to them, it's better than nothing. They have no stores, no trucks - no way to tap into the lucrative used-clothing business. By using a middleman, they raise money painlessly, by lending their name to a clothing-collection effort.
Last year, clothing picked up by trucks accounted for three-quarters of the Lupus Foundation's $887,000 budget, according to president Jennifer Monroe. "It's a great way to contribute to an organization and get rid of your used clothing," she said.
Savers spokeswoman Sara Gaugl said that the 270 Savers stores worldwide have contributed $1 billion to nonprofits in the past 10 years.
"We are happy with Savers," said Tom Rue, operations director of the Epilepsy Foundation of Minnesota. The foundation gets about 40 percent of its $1.5 million annual budget from Savers.
"It is a very good, self-sustaining business for us," Rue said. "With Savers, you are going to get a check every month."
Most donors don't care where the money goes, said Duane Crandall, owner and founder of Good Donor, which solicits referrals for nonprofits in several U.S. cities.
"They are all good causes," Crandall said. And he said donors usually don't care if only a fraction of their donations is used for charity.
What they care about is convenience.
"If you are a consumer, you view it from a selfish perspective. Whoever has the most convenient pickup for me is going to get my stuff," Crandall said.
HOW IT WORKS
Here's how the system works.
Suppose a homeowner puts a bag of clothes on the curb for the Lupus Foundation. A collection business picks it up and weighs the clothes.
The Lupus Foundation gets paid the value of the clothes as rags, about 20 cents a pound.
The same thing happens at Savers.
Each store picks a local charity - the Epilepsy Foundation at the Apple Valley Savers, for example. Savers weighs the clothes and sends the charities a check for the value as bulk rags.
The middleman then can sell the clothing for 10, 20 or 30 times the rag value. A 7-ounce men's shirt is worth only 9 cents as a rag, but sells for about $5 on the sales floor. A women's coat worth 80 cents measured by weight could bring $20 in the store.
The per-pound value of donations, which is what the charities get, is about 4 percent of their retail value.
A donor would have to give 25 bags of clothes through a middleman to match the impact of one bag given directly to a charity. Or one check written for the same amount.
"I feel that this is deceptive," said the Epilepsy Foundation's Rue. "Lupus and the Vietnam Vets license their name, and they get a pittance."
Giving directly or indirectly becomes critical at tax time.
The IRS code says donors may deduct the value of the clothes, defined as "the price that buyers of used items actually pay in used clothing stores, such as consignment or thrift shops."
That means that a donation of a used shirt might warrant a deduction of $5, which is what it would sell for.
But if that shirt went to a for-profit go-between, the full value is not deductible - only the amount that the charity actually receives, according to Cindy Hockenberry, research supervisor for the National Association of Tax Professionals.
Using the example of the shirt, the donor could claim a deduction of 9 cents.
Used-clothing stores, including nonprofits and businesses, don't evaluate the donations. They usually hand out blank receipts to donors, and it's assumed the donors will fill them out correctly.
But often, donors don't. Hockenberry said donors are breaking the law if they deduct the retail value of the items given to middlemen, rather than the actual bulk rate for cloth.
Ronald Kohls agrees. He is a tax expert and president of the Minnesota Society of Enrolled Agents, a group representing tax preparers.
He recommends photographing donations, listing them carefully and assessing their proper value - that is, the bulk-rag rate of about 20 cents per pound for clothing given to businesses, and the retail rate for direct donations.
"I understand why people would not catch the difference," said Pam Carlson, director of community relations of the ARC Greater Twin Cities, which operates used-clothing stores. "But there is a big difference."
IT'S YOUR CHOICE
On Wednesday, Yang strolled through the Goodwill store after dropping off her clothing.
She gazed at the electronics and home-decorating items. She said she had always assumed that all used-clothing stores made the same contribution to nonprofits.
What mattered to her was Goodwill's goal of training workers for employment.
"They do a good job. I like their mission," said Yang, standing in the checkout line. Then she paid for a picture of flowers - her second contribution of the day.