As an integral part of the State of Florida, the university is generally exempt from federal income tax when engaging in activities directly related to the exempt purposes of state colleges and universities. These purposes are to preserve, expand, and disseminate knowledge in the sciences, technology, arts, humanities, and professions through teaching, research, creative endeavors, and service. However, the university is not exempt from federal income tax imposed on activities that are substantially unrelated to those exempt purposes, even though these activities may bring in funds to support the university’s exempt operations. Activities with income determined to be unrelated business income (UBI) are subject to unrelated business income tax (UBIT).
Please reach out to CTL-Tax@fsu.edu if you have any further questions regarding Unrelated Business Income.
Activity Subject to UBIT
An activity is subject to UBIT if:
- It is a trade or business,
- It is regularly carried on, and
- It is NOT substantially related to the organization’s exempt purpose.
A trade or business is any activity that is carried on for the production of income that may be derived from selling goods or performing services for an activity that is regularly carried on. Regularly carried on is defined as activities that show a frequency and continuity in a manner that is similar to comparable commercial activities of non-exempt organizations.
Is My Activity NOT Substantially Related?
To be related to the university’s educational or research exempt purpose, there must be a substantial relationship, and the activity must contribute to the accomplishment of the exempt purpose. Emphasis is placed on the size and the extent of the activity. If the activity is conducted on a scale larger than reasonably necessary to carry out the exempt purpose, the activity is likely to be treated as unrelated.
Using property or activities for both exempt and commercial purposes does not automatically make the commercial income tax-exempt, unless the commercial activity significantly supports the university’s exempt mission.
Exclusions from UBIT
- Qualified sponsorship income – A payment would be considered qualified if the business receives no return benefit other than use or acknowledgment of the name in connection with the organization’s activities.
- Royalty income - This is excluded for any payment received in consideration for the use of a valuable intangible property right. These include payments for use of trademarks, trade names, service marks, copyrights, and photographs. However, payments for services provided in connection with the granting of this type of right are not royalties and are considered taxable as unrelated business income (unless the services are substantially related to the organization’s purpose).
- Qualified convention or trade show income – The convention must be designed to attract persons to a show for the purpose of displaying/stimulating interest for the organization or to educate about new matters affecting the organization. Alternatively, the event is sponsored by an organization that shows it has exempt purposes.
- Interest, dividends, annuities, and certain capital gains
- Certain rental income – Rents from real property are excluded if they are not debt financed, additional services are not rendered, and are not dependent on a percentage of the profits. Parking rentals are generally taxable. If services are provided with the rentals (housekeeping, furnishing heat and light, cleaning services, trash collections), this may render the rental taxable.
- Volunteer labor exception – Any trade or business is excluded in which substantially all the work is performed for the organization without compensation. Some fundraising activities, such as volunteer-operated bake sales, may meet this exception.
- Income from research activities – Revenues received from research performed by the university are excluded from UBI if conducted for federal/state governments and companies, and the fundamental research is available to the general public.
- Member convenience activities – Any trade or business that is carried on by an organization described in section 501(c)(3) or by a governmental college or university primarily for the convenience of its members, students, patients, officers, or employees is excluded. A typical example of this is a school cafeteria.
Common Forms of UBI
Advertising
Advertising is any language that is an inducement to purchase a product or service, any indication of savings, endorsements, or a call to action.
- Sale of commercial advertising space in campus newspapers, journals, and magazines would be considered unrelated.
- Sale of commercial advertising on a campus radio station, where students asscist in subscription drives and advertising sales programs, would be considered related, as it contributes to the university’s educational purpose through the training of students.
- Example: A piece of advertising that states “brought to you by _________ “ is a sponsorship; however, “shop at _______” is an advertisement.
Career Services
- Career services such as resume critiquing, interview coordination, or job placement assistance for students would be considered related.
- Career services as above, but provided to alumni or the general public for a fee, would be considered unrelated, as it is not typically related to the university’s exempt function.
Sale of Merchandise
- Educational material sold by the bookstore to students at another university would be considered related.
- Non-educational items sold to university students for convenience are considered related.
- University bookstore items sold to alumni would be considered unrelated.
Debt-Financed Property
- Rental of apartments to students and non-university members if the apartment building is subject to a mortgage is considered related. The rules regarding debt-financed property do not apply to the university; therefore, the rentals are exempt under the exclusion for real property rents.
- Rental of the property owned by a DSO that does not qualify as a supporting organization to students and non-university members would be considered unrelated.
Equipment Rentals
- Rental of equipment to university members is considered a service provided for the convenience of the university members. This would be considered related.
- Rental of equipment to non-university members is not related to the university’s exempt purpose, so this would be unrelated.
Facilities Usage (No Lease)
- The rental of facilities to non-university members for a conference is related if the outside organization is conducting educational activities. The use of the facilities and services by outside organizations for conducting educational activities is related. Use of recreational facilities for classes offered to the general public and alumni to instruct or educate individuals of all ages is in furtherance of the university’s educational purpose and is therefore related.
- Use of a university-owned golf course by alumni, spouses, and guests of students, faculty, and staff is treated as unrelated, as they do not fall within the convenience exception.
Rents (Lease Basis)
- Rental of a campus building or space within the building, along with rental of athletic facilities and equipment to non-university members, is considered related.
- Leasing property for a fee that is based on a percentage of net income or profit is considered unrelated.
Entertainment Events
- Events conducted in which the school’s own students put on an event are considered related. Income derived from these activities contributes to the university's exempt purpose.
- Events involving professional entertainers are considered unrelated unless they are contributing to the university's exempt purpose, which is education.
Tower Rentals
- Rental of space on campus to a third party for placement of cellular transmission equipment is considered related. Payments for the use of excess radio frequency are considered related.
- Rental of antenna space on a tower owned by the university is not eligible for rental exclusion, so this would be considered unrelated.
Frequently Asked Questions
1. What if we do not have any activity in a fund or department?
If there is no activity in a department, then you do not need to include it.
2. Does hosting conferences and collecting revenue count as “conference services” even though the conference was for FSU and not another entity? Does that revenue need to be reported?
Yes, you will include this information on your survey, and Tax will research further to determine if this is considered UBI.
