University of Tennessee system
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
| | |EXEMPT/ | | |
|ACTIVITY |DESCRIPTION |REPORT |AUTHORITY |COMMENTS |
|Academic Contest |Contest to promote interest in mathematics among TN high |EXEMPT |Reg. 1.513-1(d)(2) |This activity is in furtherance of the |
| |school students | | |University’s educational purposes. |
|Advertising |Sale of advertising space in souvenir programs for sports |EXEMPT |Reg. 1.513-1(c)(2)(ii) |Activities conducted without competitive or |
| |events (or music or drama performances). | | |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, |REPORT |IRC 513(c) |The sale of general consumer advertising in an |
| |journals, magazines, or other periodicals that are not run by| | |exempt organization’s publication is an unrelated |
| |students. | | |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, |EXEMPT |Reg. 1.513-1(d) |Student participation contributes importantly to |
| |researchers and staff | | |the University's exempt educational purposes. |
| | | | | |
| | | | |This activity is in furtherance of the |
| | | |Reg. 1.513-1(d)(2) |University’s educational purposes. |
|Annual Membership Dues |Income paid by members in support of organization’s exempt |EXEMPT |IRC 512(a)(3)(B) |Exempt function income |
| |mission | | | |
|Career Services |Sales of one hour career-related webinars and cd-rom products|EXEMPT |Reg. 1.513-1(d)(2) |This activity may be considered in furtherance of |
| |to other colleges and universities as instructional tools for| | |the University’s educational purposes |
| |their students | | | |
|Child Care |Provision of child care services to University members, |EXEMPT |Reg. 1.513-1(d) |Student participation contributes importantly to |
| |employees of area hospital and the general public. Program | | |the University's exempt educational purposes. |
| |serves as a learning laboratory for University students as | | | |
| |well as students of area colleges and universities. | | | |
|Crops/ Honey |Sale of excess crops used in research. The crops are sold in |EXEMPT |Reg. 1.513-1(d)(4)(ii) |Income derived from the sale of goods which result|
| |an “as is” condition when mature | | |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 |
| |Sale of crops by student run farmer’s market | | |the University's exempt educational purposes. |
| | |Exempt |Reg. 1.513-1(d) | |
|Computer sales |Sales of computer hardware and software to students, faculty |EXEMPT |IRC 513(a)(2) |Unrelated trade or business does not include any |
| |and staff | | |activity carried on for the convenience of |
| | | | |University members. |
| |Infrequent sales of computer hardware and software to the |EXEMPT |Reg. 1.513-1(c)(2) |The remote location of the computer store |
| |general public where the location of the store is remote. | | |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 |Educational classes offered to the general public leading to |EXEMPT |Reg. 1.501(c)(3)-1(d)(3) |This activity is in furtherance of the |
|and Conferences |certification in these areas | |Reg. 1.513-1(d)(2) |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 |EXEMPT |RR 68-504 |These activities are substantially related to |
| |tax-exempt and for-profit organizations who conduct | |PLR 9014069 |university’s exempt purposes of advancing |
| |educational classes, seminars and workshops on campus | | |education. |
| |utilizing other university educational facilities such as | | | |
| |library, auditorium, classrooms etc. | | | |
| |Rental of apartments to university departments to provide |EXEMPT |PLR 201106019 |Where the cost is paid by the sponsoring |
| |lodging for guests invited for an on-campus interview, | | |University department, such use does not |
| |lecture, etc. | | |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 |REPORT |PLR 201106019 |Rental of housing to the general public is |
| |very rarely | | |unrelated and reportable, if regularly carried on.|
|Equipment Maintenance – |Specialized cleaning, service and repair of technically |REPORT |Reg. 1.513-1(d)(2) |The provision of cleaning, service and repair of |
|Biomedical Instruments |advanced biomedical instruments to another hospital. | | |biomedical instruments to a hospital is not |
| | | | |related to University’s exempt purposes. |
|Equipment Rental |Infrequent rental of sporting equipment and accessories to |EXEMPT |Reg. 1.513-1(c)(2) |The remote location of the rec center indicates |
| |the general public (UT Martin). | | |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 |EXEMPT |PLR 8151098 |The rental of costumes and props to other |
| |organizations. | | |non-profit organizations contributes importantly |
| | | | |to exempt purpose of educating, promoting and |
| | | | |encouraging the arts. |
|Equipment/ Facility Rental - |Unrelated rental of personal property with real property. |EXEMPT |Reg. 1.512(b)- |10% or less – Incidental; do not report personal |
|Mixed1 |Amount to report as subject to ubi depends upon the | |1(c)(2)(ii)(b) |property rental; |
| |percentage of personal property rental to total rent. For |REPORT |Reg. 1.512(b)-1(c)(2)(ii)(b) |11% - 50% – report only personal property |
| |purposes of ubi, equipment is considered personal property. | |Reg. 1.512(b)-1(c)(2)(iii)(a) |allocation; |
| | |REPORT | |>51% - report total rental income as personal |
| | | | |property subject to ubi. |
|Exercise Classes |Bowling, water, etc. exercise instruction offered to |EXEMPT |Reg. 1.501(c)(3)-1(d)(3) |This activity is in furtherance of the |
| |University members and the general public. | |Reg. 1.513-1(d)(2) |University’s educational purposes. |
|Facilities Rental1 |Facility usage by non-University members (outside |EXEMPT |Reg. 1.513-1(d)(2) |This activity may be considered in furtherance of |
| |organizations) for educational conferences, workshops, | |PLR 8024001 |the University’s educational purposes. |
| |meetings, training and theatrical performances. | |PLR 7728059 | |
| |Facility rental by non-University or corporate entities for |EXEMPT |Reg. 1.513-1(d)(2) |Rental income is excluded from ubi only when |
| |private meetings or unrelated activities. | | |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 |REPORT |Reg. 1.512(b)-1(c)(5) |Provision of maid service is an example of |
| |unrelated activities where services are provided primarily | |PLR 8024001 |services primarily for convenience of the renter. |
| |for the 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 |EXEMPT |Reg. 1.513-1(d) |Student participation contributes importantly to |
| |students as part of their assistantship duties | | |the University's exempt educational purposes. |
|General Merchandise Sales |Sale of clothing, emblematic items (T-shirts, mugs, caps, |EXEMPT |GSM 35811 |On-campus sales of general merchandise and |
| |etc.) tapes, cd’s, posters, and other items to the University| |PLR 8025222 |University logo items to the University community |
| |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 |
| |Sale of caps biennially on Milan No-Till Field Day |EXEMPT |Reg. 1.513-1(c)(2) |carried on. |
| |Internet sales of emblematic items |REPORT |GSM 35811 |Mail order sales do not qualify for the |
| | | |PLR 8025222 |convenience exception |
| | | | | |
| |Internet sales of publications and other related products via|EXEMPT |PLR9550003 |Sale of publications and other related products |
| |AgStore | | |contribute importantly to the University’s |
| | | | |educational purpose |
| | | | | |
| | | | |Any activity in which substantially all (probably |
| | |EXEMPT |Reg. 1.513-1(e)(1) |85%) of the work is performed by unpaid volunteers|
| | | | |is exempt from ubi. |
|General Stores |Sales of laboratory, teaching and research supplies to |REPORT |Reg. 1.513-1(d)(2) |The sale of general stores goods to non-University|
| |non-profit agencies. | | |members is not related to the University’s exempt |
| | | | |purposes. |
|Health Clinic/ Counseling |Health clinics and counseling provided to members of the |EXEMPT |IRC 513(a)(2) |Unrelated trade or business does not include any |
| |University community and the general public. Student | |Reg. 1.513-1(d) |activity carried on for the convenience of |
| |participation is involved. | | |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 |EXEMPT |Reg. 1.513-1(d)(2) |This activity is in furtherance of the |
| |to check out books | | |University’s educational purposes. |
|Intramural Sports |Service provided to students who want to participate in |EXEMPT |Reg. 1.513-1(e)(2) |Service conducted primarily for convenience of |
| |organized sports leagues | | |University members is excluded from ubi. |
|Joint Venture |Revenue for building renewal and replacement from UT Batelle|EXEMPT |Reg. 1.513-1(d)(2) |Joint ventures are generally not taxable where the|
| | | | |formation contributes importantly to the |
| |Fee for management of ORNL | | |University’s exempt purposes. |
|Journals/Publications |Sale of student and scholarly publications |EXEMPT |Reg. 1.513-1(d)(2) |This activity is in furtherance of the |
|(Scholarly/ Student) | | |Reg. 1.513-1(d) |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|EXEMPT |Reg. 1.513-1(d) |Diagnostic and lab testing provided to |
| |members. Student participation and instruction is involved | |RR 85-109 |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 |EXEMPT |RR 85-110 |Diagnostic and lab testing provided to |
| |within a reasonable distance or that involves technically | | |non-University members are generally considered |
| |advanced equipment to non-University members or for training | | |unrelated. However, special circumstances can |
| |or research purposes | | |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 |REPORT |Reg. 1.513-1(d)(2) |The sale of these services is not related to the |
| |services to private businesses/industrial companies | | |exempt purposes of the University |
|Learning Resources |Provision of instructional aides to University students, |EXEMPT |Reg. 1.501(c)(3)-1(d)(3) |This activity is in furtherance of the |
| |faculty, area school teachers and the general public | |Reg. 1.513-1(d)(2) |University’s educational purposes. |
|Lifeguard, CPR, First Aid |Educational classes offered to the general public leading to |EXEMPT |Reg. 1.501(c)(3)-1(d)(3) |This activity is in furtherance of the |
|Classes and Recertification |certification in these areas | |Reg. 1.513-1(d)(2) |University’s educational purposes. |
|Locker Rental – Student Rec |Lockers rented to University students, faculty, and staff. |EXEMPT |Reg. 1.513-1(e)(2) |Service conducted primarily for convenience of |
|Center | | | |University members is excluded from ubi. |
| |Lockers rented to spouses and dependents of University |EXEMPT |Reg. 1.513-1(c)(2)(ii) |Intermittent activity – not conducted with |
| |members. | | |competitive or promotional efforts of commercial |
| | | | |enterprises. |
|Parking Services |Traffic violations |EXEMPT | |Fines are not considered a trade or business |
| | | | |activity. |
| |Parking passes for special events |REPORT |Reg. 1.513-1(d)(2) |Parking sales to the general public at an |
| | | | |unrelated event are not related to University’s |
| | | | |exempt purposes. When the event is related, |
| | | | |parking sales are not subject to ubi. |
| |Parking at student center parking garage for students, |EXEMPT |Reg. 1.513-1(e)(2) |Service conducted primarily for convenience of |
| |faculty, staff, and visitors | | |University members is excluded from ubi. |
|Photo/Duplication Services |Passport photo service available to University students, |EXEMPT |Reg. 1.513-1(e)(2) |Service conducted primarily for convenience of |
| |faculty, and staff. | | |University members is excluded from ubi. |
| |Passport photo service available to the general public. Sales|EXEMPT |Reg. 1.513-1(c)(2)(ii) |Intermittent activity – not regularly carried on |
| |to general public are very infrequent – less than 5 times per| | |as it occurs less than 5 times per year. |
| |year. | | | |
| |Sale of photographs taken at University sponsored events to |EXEMPT |PLR 8623081 |Sales of novelty items at University sponsored |
| |University students, faculty staff and the general public. | | |(related) events are treated as an integral part |
| | | | |of the events and not subject to ubi. |
| |Duplication of dvd’s, cd’s or videotapes; sale of stock |REPORT |Reg. 1.513-1(d)(2) |The sale of these services is not related to the |
| |photography, and video production and duplication | | |exempt purposes of the University. |
|Printing Service |Sale of digital printing services, copying, and supplies to |REPORT |Reg. 1.513-1(d)(2) |The sale of printing services and supplies to |
| |the general public. | | |non-University members is not related to the |
| | | | |University’s exempt purposes. |
|Recitals |Charges for recording undergraduate and graduate student |EXEMPT |Reg. 1.513-1(d) |Student participation contributes importantly to |
| |recitals | | |the University's exempt educational purposes. |
|Recreational/Fitness Center |Sale of recreational memberships to University students, |EXEMPT |Reg. 1.513-1(e)(2) |Service conducted primarily for convenience of |
|Memberships |faculty, and staff. | | |University members is excluded from ubi. |
| |Sale of recreational memberships to dependents and guests of |REPORT |TAM 9645004 |Sales to spouses and dependents of University |
| |University members, alumni, and the general public. | |PLR 9720035 |members do not qualify for the convenience |
| | | | |exception. Additionally, alumni should be treated |
| | | | |in the same manner as the general public for |
| | | | |purposes of ubi. |
|Records Management |East Tennessee repository records center to provide records |EXEMPT |Reg. 1.501(c)(3)-1(d) (2) |Activity lessens the burden of government by |
| |management services to other state agencies to ensure | | |allowing state agencies to store their inactive |
| |compliance with state and federal laws and regulations. | | |records at UT rather than incurring higher costs |
| | | | |to transfer documents to Nashville. |
|Registration Fees |Income paid by participants to attend events (career |EXEMPT |Reg. 1.513-1(d)(2) |Activities contributes importantly to the |
| |fairs/parents weekend etc) sponsored by the University | | |University’s exempt purposes of relationship |
| | | | |building and assisting students to find gainful |
| | | | |employment upon graduation |
|Sponsorships – Qualified |A payment made to the University by a business there is no |EXEMPT |Reg. 1.513-4(c) |An unrelated trade or business does not include |
| |arrangement or expectation that the sponsor will receive any | | |soliciting or receiving qualified sponsorship |
| |substantial return benefit (defined as no more than 2% of the| | |payments. |
| |payment) other than the use or acknowledgement of the name or| | | |
| |logo of the trade or business | | | |
|Summer Camps |University-operated summer camps (sports, band, theater, |EXEMPT |RR 77-365 |The purposes of the summer camps are to improve |
| |horse/livestock judging) for pre-college age youth of | |PLR 7908009 |the ability of the participants, acquaint them |
| |University faculty, staff, students and the general public | | |with the University and when applicable, provide |
| |where sports facilities, dorm rooms, meals, linens, and maid | | |experience for camp counselors who may be college |
| |service may be provided by the University to the | | |students. Such instruction is therefore |
| |participants. | | |educational. |
| |University contracts with a third party[2] who operates the |EXEMPT |RR 80-297 |Income is excluded from UBI as rents from real |
| |summer camp. The University merely rents its facilities to | | |property. |
| |the third party without provision of substantial services. | | | |
| |University’s contract with the third party2 operated camp |REPORT |RR 80-298 |Provision of substantial services precludes |
| |includes provision of substantial services such as dorm room | |PLR 8151005 |treatment of income as rents from real property |
| |rental, meals, linen and maid service. University contracts | |PLR 8136028 |and is subject to unrelated business income. |
| |with its concessionaire for provision of services (meals, | | | |
| |linens, maid service, etc.) on behalf of third party camp | | | |
| |operator. | | | |
| |Third party2 camp operator contracts with outside vendor for |EXEMPT |PLR 8024001 |When the third party contracts directly with an |
| |services (meals, linens, maid service, etc). | | |outside vendor for services, income received by |
| | | | |the University for use of its facilities will be |
| | | | |shielded from ubi and will qualify as rents from |
| | | | |real property. |
|Surveys |Public service surveys conducted for governmental agencies |EXEMPT |IRC 512(b)7 |Research is excluded from ubi. |
| |and local governments using diagnostic tools developed by the| | | |
| |University (not ordinary testing). | | | |
| |Questionnaire used to provide research and training on |EXEMPT |Reg. 1.501(c)(3)-1(d)(3) |This activity is in furtherance of the |
| |provision of mental health services to children | |Reg. 1.513-1(d)(2) |University’s educational purposes. |
|Swim Lessons |Instruction in swimming offered to University members and the|EXEMPT |RR 77-365 |Instruction in sports is educational and thus |
| |general public. | | |related to the University’s purposes. |
|Telecom Services - Contractors |Sale of long distance service to building contractors located|EXEMPT |Reg. 1.513-1(c)(2)(ii) |Intermittent activity – not regularly carried on |
| |on campus constructing University capital projects. | | |as it occurs only 4-5 times per year. |
|Trademark Licensing/Royalty |Income from the licensing of University marks |EXEMPT |Reg. 1.512(b)-1(b) |Payment for the right to use valuable intangible |
| | | | |property is excluded from ubi. |
|Training- Workshops/ |Training classes offered to the University community as well |EXEMPT |Reg. 1.501(c)(3)-1(d)(3) |This activity is in furtherance of the |
|Conferences/Non- academic |as the general public on a variety of topics to enhance | |Reg. 1.513-1(d)(2) |University’s educational purposes. |
|courses |knowledge | | | |
|UPSF Events |Presentation of educational, cultural, and entertainment |EXEMPT |Reg. 1.513-1(e)(2) |Service conducted primarily for convenience of |
| |events for students produced by students | | |University members is excluded from ubi. Student |
| | | | |participation is involved. |
|Veterinary Clinical Services |Sale of pharmaceutical products to local veterinarians |EXEMPT |RR 68-374 |The sale of pharmacy goods to non-patients is |
| | | | |normally considered an unrelated business. |
| | | | |However, casual sales are exempt since they are |
| | | | |not regularly carried on. |
| | | | | |
| |Sale of physical therapy items and behavior/training related | | |Sales to non-patients and general public are |
| |pet products to non-patients (small animal clinic) |REPORT |RR68-374 |generally considered taxable. |
-----------------------
[1] Rent basis must not be based on net profits to qualify for exclusion from ubi on real property rentals per Reg. 1.512(b)-1(c)(2)(iii)(b).
[2] For purposes of ubi, summer sports camp conducted privately by athletic coach should be treated as a third party operated camp.
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