UNRELATED BUSINESS INCOME TAX
A DETERMINATION AND REPORTING GUIDE
THE UNIVERSITY OF TENNESSEE
OFFICE OF THE CONTROLLER
JULY 12, 2012
CONTENTS
ACTIVITY: PAGE:
Academic Contest 1
Advertising 1
Animal Science Lab 1
Annual Membership Dues 1
Career Services 1
Child Care 1
Crops/Honey 1
Computer Sales 2
Concession Sales 2
Continuing Education Conferences 2
Donated Items 3
Dormitory Rental 3
Equipment Maintenance 4
Equipment Rental 4
Equipment/Facility Rental-mixed 4
Exercise Classes 4
Facilities Rental 5
Fitness Testing 5
General Merchandise Sales 5
General Stores 6
Health Clinics 6
Identification Cards 6
Intramural Sports 6
Joint Venture 6
Journals 7
Laboratory Testing 7
Learning Resources 7
Lifeguard, CPR Classes 7
Locker Rental 8
Parking 8
Photo/Duplication Services 8
Printing Service 9
Recitals 9
Recreational Memberships 9
Records Management 9
Registration Fees 9
Sponsorships (Qualified) 10
Summer Camps 10
Surveys 11
Swim Lessons 11
Telecom Services 11
Trademarks 11
Training 11
UPSF Events 11
Veterinary Clinical Services 11
KEY: IRC = Internal Revenue Code
Reg = Treasury Regulation
RR = Revenue Ruling
GCM = General Counsel Memorandum
PLR = Private Letter Ruling
TAM = Technical Advice Memorandum
ACTIVITY / DESCRIPTION / EXEMPT/REPORT / AUTHORITY / COMMENTS /
Academic Contest / Contest to promote interest in mathematics among TN high school students / EXEMPT / Reg. 1.513-1(d)(2) / This activity is in furtherance of the University’s educational purposes.
Advertising / Sale of advertising space in souvenir programs for sports events (or music or drama performances). / EXEMPT / Reg. 1.513-1(c)(2)(ii) / Activities conducted without competitive or promotional efforts of commercial enterprises will not be considered regularly carried on.
Sale of advertising in student run publications / EXEMPT / Reg. 1.513-1(d)(4)(iv) / The sale of advertising by students contributes importantly to the University’s educational purpose of training of students
Sale of commercial advertising space in campus newspapers, journals, magazines, or other periodicals that are not run by students. / REPORT / IRC 513(c) / The sale of general consumer advertising in an exempt organization’s publication is an unrelated trade or business since it does not contribute importantly to the organization’s exempt purpose.
Animal Science Lab / Provision of animal care and lab services to train students, researchers and staff / EXEMPT / Reg. 1.513-1(d)
Reg. 1.513-1(d)(2) / Student participation contributes importantly to the University's exempt educational purposes.
This activity is in furtherance of the University’s educational purposes.
Annual Membership Dues / Income paid by members in support of organization’s exempt mission / EXEMPT / IRC 512(a)(3)(B) / Exempt function income
Career Services / Sales of one hour career-related webinars and cd-rom products to other colleges and universities as instructional tools for their students / EXEMPT / Reg. 1.513-1(d)(2) / This activity may be considered in furtherance of the University’s educational purposes
Child Care / Provision of child care services to University members, employees of area hospital and the general public. Program serves as a learning laboratory for University students as well as students of area colleges and universities. / EXEMPT / Reg. 1.513-1(d) / Student participation contributes importantly to the University's exempt educational purposes.
Crops/ Honey / Sale of excess crops used in research. The crops are sold in an “as is” condition when mature
Sale of crops by student run farmer’s market / EXEMPT
Exempt / Reg. 1.513-1(d)(4)(ii)
Reg. 1.513-1(d) / Income derived from the sale of goods which result from the performance of an exempt function is not taxable if the product is sold in substantially the same state it was in upon completion of the exempt function.
Student participation contributes importantly to the University's exempt educational purposes.
Computer sales / Sales of computer hardware and software to students, faculty and staff / EXEMPT / IRC 513(a)(2) / Unrelated trade or business does not include any activity carried on for the convenience of University members.
Infrequent sales of computer hardware and software to the general public where the location of the store is remote. / EXEMPT / Reg. 1.513-1(c)(2) / The remote location of the computer store indicates that it is operated primarily for the convenience of University members. Furthermore, the sales to the general public are of a casual nature, indicating the activity is not regularly carried on.
Concession Sales / Concessions sold to students, faculty and staff / EXEMPT / IRC 513(a)(2) / Unrelated trade or business does not include any activity carried on for the convenience of University members.
Concessions sold to anyone at a related event / EXEMPT / PLR 8623081 / When the event is related, concession sales are not subject to ubi
Concessions sold to the general public at an unrelated event / REPORT / Reg. 1.513-1(d)(2) / Concession sales to the general public at an unrelated event are not related to University’s exempt purposes.
Continuing Education Seminars and Conferences / Educational classes offered to the general public leading to certification in these areas / EXEMPT / Reg. 1.501(c)(3)-1(d)(3)
Reg. 1.513-1(d)(2) / This activity is in furtherance of the University’s educational purposes.
Donated Items / Sale of donated dog and pet food / EXEMPT / Reg. 1.513-1(e)(3) / Any unrelated activity engaged in the selling of merchandise, substantially all (probably 85%) of which was received as gifts or contributions, is exempt regardless of whether the labor to operate the activity is paid or unpaid.
Dormitory Rental[1] / Rental of dormitory space during the summer to both tax-exempt and for-profit organizations who conduct educational classes, seminars and workshops on campus utilizing other university educational facilities such as library, auditorium, classrooms etc. / EXEMPT / RR 68-504
PLR 9014069 / These activities are substantially related to university’s exempt purposes of advancing education.
Rental of apartments to university departments to provide lodging for guests invited for an on-campus interview, lecture, etc. / EXEMPT / PLR 201106019 / Where the cost is paid by the sponsoring University department, such use does not constitute a trade or business.
Rental of dorms and apartments to students / EXEMPT / PLR 201106019 / Rental of housing to students is a related activity and exempt from ubi.
Rental of dorms and apartments to staff and faculty / REPORT / PLR 201106019 / Rental of housing (not associated with a related activity) to faculty and staff is an unrelated activity and reportable. IRS specifically revoked 2006 plr that held non-student such as faculty and staff was related.
Rental of dorms and apartments to the general public, though very rarely / REPORT / PLR 201106019 / Rental of housing to the general public is unrelated and reportable, if regularly carried on.
Equipment Maintenance – Biomedical Instruments / Specialized cleaning, service and repair of technically advanced biomedical instruments to another hospital. / REPORT / Reg. 1.513-1(d)(2) / The provision of cleaning, service and repair of biomedical instruments to a hospital is not related to University’s exempt purposes.
Equipment Rental / Infrequent rental of sporting equipment and accessories to the general public (UT Martin). / EXEMPT / Reg. 1.513-1(c)(2) / The remote location of the rec center indicates that it is operated primarily for the convenience of University members. Furthermore, the sales to the general public are of a casual nature, indicating the activity is not regularly carried on.
Rental of scientific equipment to non-University members. / REPORT / Reg. 1.513-1(d)(2) / The rental of scientific equipment to non-University members is not related to University’s exempt purposes.
Rental of costumes and props to other non-profit organizations. / EXEMPT / PLR 8151098 / The rental of costumes and props to other non-profit organizations contributes importantly to exempt purpose of educating, promoting and encouraging the arts.
Equipment/ Facility Rental - Mixed1 / Unrelated rental of personal property with real property. Amount to report as subject to ubi depends upon the percentage of personal property rental to total rent. For purposes of ubi, equipment is considered personal property. / EXEMPT
REPORT
REPORT / Reg. 1.512(b)- 1(c)(2)(ii)(b)
Reg. 1.512(b)-1(c)(2)(ii)(b)
Reg. 1.512(b)-1(c)(2)(iii)(a) / 10% or less – Incidental; do not report personal property rental;
11% - 50% – report only personal property allocation;
>51% - report total rental income as personal property subject to ubi.
Exercise Classes / Bowling, water, etc. exercise instruction offered to University members and the general public. / EXEMPT / Reg. 1.501(c)(3)-1(d)(3)
Reg. 1.513-1(d)(2) / This activity is in furtherance of the University’s educational purposes.
Facilities Rental1 / Facility usage by non-University members (outside organizations) for educational conferences, workshops, meetings, training and theatrical performances. / EXEMPT / Reg. 1.513-1(d)(2)
PLR 8024001
PLR 7728059 / This activity may be considered in furtherance of the University’s educational purposes.
Facility rental by non-University or corporate entities for private meetings or unrelated activities. / EXEMPT / Reg. 1.513-1(d)(2) / Rental income is excluded from ubi only when customary services such as heat, light, cleaning of public areas and trash collection are provided by the University.
Facility rental by non-University or corporate entities for unrelated activities where services are provided primarily for the convenience of the renter. / REPORT / Reg. 1.512(b)-1(c)(5)
PLR 8024001 / Provision of maid service is an example of services primarily for convenience of the renter. To shield University’s income from UBI, renter should contract with outside vendor to supply service.
Fitness Testing / Fees for fitness testing service performed by graduate students as part of their assistantship duties / EXEMPT / Reg. 1.513-1(d) / Student participation contributes importantly to the University's exempt educational purposes.
General Merchandise Sales / Sale of clothing, emblematic items (T-shirts, mugs, caps, etc.) tapes, cd’s, posters, and other items to the University community
Sale of caps biennially on Milan No-Till Field Day / EXEMPT
EXEMPT / GSM 35811
PLR 8025222
Reg. 1.513-1(c)(2) / On-campus sales of general merchandise and University logo items to the University community qualify for the convenience exception. Items sold with a useful life exceeding 1 year do not qualify for the convenience exception.
Sales to the general public are of a casual nature, indicating the activity is not regularly carried on.
Internet sales of emblematic items
Internet sales of publications and other related products via AgStore / REPORT
EXEMPT
EXEMPT / GSM 35811
PLR 8025222
PLR9550003
Reg. 1.513-1(e)(1) / Mail order sales do not qualify for the convenience exception
Sale of publications and other related products contribute importantly to the University’s educational purpose
Any activity in which substantially all (probably 85%) of the work is performed by unpaid volunteers is exempt from ubi.
General Stores / Sales of laboratory, teaching and research supplies to non-profit agencies. / REPORT / Reg. 1.513-1(d)(2) / The sale of general stores goods to non-University members is not related to the University’s exempt purposes.
Health Clinic/ Counseling / Health clinics and counseling provided to members of the University community and the general public. Student participation is involved. / EXEMPT / IRC 513(a)(2)
Reg. 1.513-1(d) / Unrelated trade or business does not include any activity carried on for the convenience of University members. Patients are considered members of the University community.
Student participation contributes importantly to the University's exempt educational purposes.
Identification Cards / Id cards sold to one business approximately once per month / EXEMPT / Reg. 1.513-1(c)(2)(ii) / Intermittent activity – not conducted with competitive or promotional efforts of commercial enterprises.
Borrower cards sold to general public that allows purchaser to check out books / EXEMPT / Reg. 1.513-1(d)(2) / This activity is in furtherance of the University’s educational purposes.
Intramural Sports / Service provided to students who want to participate in organized sports leagues / EXEMPT / Reg. 1.513-1(e)(2) / Service conducted primarily for convenience of University members is excluded from ubi.
Joint Venture / Revenue for building renewal and replacement from UT Batelle
Fee for management of ORNL / EXEMPT / Reg. 1.513-1(d)(2) / Joint ventures are generally not taxable where the formation contributes importantly to the University’s exempt purposes.
Journals/Publications (Scholarly/ Student) / Sale of student and scholarly publications / EXEMPT / Reg. 1.513-1(d)(2)
Reg. 1.513-1(d) / This activity is in furtherance of the University’s educational purposes.
Student participation contributes importantly to the University's exempt educational purposes.
Laboratory Testing / Sale of diagnostic and lab testing services to non-University members. Student participation and instruction is involved / EXEMPT / Reg. 1.513-1(d)
RR 85-109 / Diagnostic and lab testing provided to non-University members are generally considered unrelated. However, student participation contributes importantly to the University's exempt educational purposes.
Sale of diagnostic and lab testing services not available within a reasonable distance or that involves technically advanced equipment to non-University members or for training or research purposes / EXEMPT / RR 85-110 / Diagnostic and lab testing provided to non-University members are generally considered unrelated. However, special circumstances can exempt the activity if the services are not available within a reasonable distance, involve technically advanced equipment, or emergency care.
Sale of nonwoven fabric or polymer characterization testing services to private businesses/industrial companies / REPORT / Reg. 1.513-1(d)(2) / The sale of these services is not related to the exempt purposes of the University
Learning Resources / Provision of instructional aides to University students, faculty, area school teachers and the general public / EXEMPT / Reg. 1.501(c)(3)-1(d)(3)
Reg. 1.513-1(d)(2) / This activity is in furtherance of the University’s educational purposes.
Lifeguard, CPR, First Aid Classes and Recertification / Educational classes offered to the general public leading to certification in these areas / EXEMPT / Reg. 1.501(c)(3)-1(d)(3)
Reg. 1.513-1(d)(2) / This activity is in furtherance of the University’s educational purposes.
Locker Rental – Student Rec Center / Lockers rented to University students, faculty, and staff. / EXEMPT / Reg. 1.513-1(e)(2) / Service conducted primarily for convenience of University members is excluded from ubi.
Lockers rented to spouses and dependents of University members. / EXEMPT / Reg. 1.513-1(c)(2)(ii) / Intermittent activity – not conducted with competitive or promotional efforts of commercial enterprises.
Parking Services / Traffic violations / EXEMPT / Fines are not considered a trade or business activity.