Unrelated Business Income Taxes
Unrelated Business Income is an activity that is unrelated business if it meets three requirements:
- It is a trade or business,
- It is regularly carried on, and
- It is not substantially related to the purpose of the exempt organization.
If your department has any income that is not related to tuition and fees, please complete our Unrelated Business Income Tax Questionnaire or contact our Payroll and Tax Compliance office.
FAQ - Unrelated Business Income
An activity is subject to UBIT if it meets the following criteria: (1) it is conducted as a trade or business, (2) is regularly carried on by the University AND (3) is not substantially related to the tax exempt purposes of the University.
"Trade or business” generally includes any activity conducted for the production of income from selling goods or performing services. An activity must be conducted with intent to profit to constitute a trade or business.
- Business conducted in a competitive manner is considered strong evidence of intent to profit.
- Where an activity carried on for profit is an unrelated trade or business, the trade or business is not excluded merely because it does not result in profit.
- Sustained, significant, and repeated losses generated by unrelated activities may not be considered trade or business for lack of profit motive.
- If the University charges substantially below the cost of its goods or services, then the activity is not a trade or business, and the losses are not allowed to offset net UBI from profitable unrelated business activity.
Business activities are considered “regularly carried on” if they show frequency and continuity, and, are pursued in a manner similar to comparable commercial activities of nonexempt organizations.
- An activity should not be considered regularly carried on if it is on a very infrequent or one-time basis.
- Activities over a period of only a few weeks or days are not "regular" for the University if the same kind of activity is normally conducted by a nonexempt business on a year-round basis.
- Year-round activities are regular even if they are conducted only one day a week.
- Seasonal activities may be considered regularly carried on, even though they are conducted only for a short period each year.
A business activity is “not substantially related” to the University’s exempt tax purpose if it does not contribute importantly to accomplishing that purpose other than through the production of funds.
To establish whether or not activities contribute importantly to the accomplishment of an exempt purpose*, the following principles apply. This list of determination factors is not exhaustive.
- The size and extent of the activities must be considered in relation to the nature and extent of the exempt function that they intend to serve. If an activity is conducted on a scale larger than is reasonably necessary to perform an exempt purpose, it does not contribute importantly to the accomplishment of the exempt purpose. The part of the activity that is more than needed to accomplish the exempt purpose is an unrelated trade or business.
- Dual use for both exempt and commercial purposes will not necessarily exempt the income derived from commercial use, unless the business activity contributes importantly to the accomplishment of exempt purposes.
- Selling products of exempt functions.
*Exempt Tax Purpose = the mission of the University: education, research and public service.
Departments with activities determined to be UBI are responsible for providing the fiscal year’s UBI and associated expenses annually.
UBI and associated expenses are to be submitted along with the department’s total income and expense. Supporting financial documentation may consist of SAP reports, worksheets and any other relative information.
Direct costs that can be apportioned to UBI are deductible; those that cannot be apportioned directly may be reasonably allocated by the Payroll and Tax Compliance office as defined and accepted under IRS guidance.
- Contract Research
- Sales of Merchandise
- Licensing Agreements/Affinity Income
- Investment Income