There are specific activities identified in the federal tax law which are exempted from unrelated business income tax even though they may otherwise have the characteristics of an unrelated trade or business:
Real Property Rents
Rent collected from outside entities is considered passive and not subject to UBIT. However, the exclusion may be lost if personal services or use of equipment are included in the rental agreement.
Income from Research Activities
In general, revenue received from research activities is excluded from unrelated business income taxes. There are certain situations that may require further analysis to determine if they fit the research exception. For example, ordinary testing and inspection of products or materials is normally not exempt from UBIT.
Member Convenience Activities
An unrelated activity conducted by the University for the benefit of its members (students, faculty, and staff) is not subject to tax unless the income is generated from sales to non-members. In this case only the non-member generated income is taxable.
Dividends, Interest, Annuities, and Royalties
These sources of income are considered passive and are generally excluded from UBIT. However, consideration must be given to the investment generating the income before a determination to exclude from UBIT. Investments in controlled organizations, partnerships, “S” Corporations, etc. will generally result in UBIT.