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As an instrument of the state, the University of Oregon is not subject to income tax on revenues that are generated through activities, (non-commercial research, teaching and instruction, and public service) that further the mission or purpose of our institution. Selling goods or services to the general public via activities that are not directly connected to the university's mission, may create income that will be subject to unrelated business income tax, even if the funds are used for mission-related purposes.
The Unrelated Business Income Tax (UBIT) is a tax imposed on a nonprofit, exempt organization on income derived from an activity of a trade or business, regularly carried on, that is not substantially related to the organization's tax exempt purpose.
The following is a list of parameters that, if met, may qualify the activity as generating Unrelated Business Income (UBI):
The activity is conducted as a trade or business. Any activity which is carried on for the production of income, and which presents a likelihood for unfair competition with for-profit business entities of a comparable nature. Actual competition doesn't have to be present for taxation of income.
The trade or business is regularly carried on. Factors will include is it a frequent event, continuous in nature, and conducted in a manner that is consistent with a commercial business.
The trade or business is not substantially related to our exempt purpose. Is there a lack of a substantive relationship to our exempt purpose. Is the activity conducted solely to produce revenue.
Statutory modifications to the UBI definition generally exclude royalties, dividends, and interest.
Sales of assets other than inventory and property held for sale to customers is also exempt from taxation.
Research that is performed for federal state and local governmental agencies, or if the research is carried on in the public interest, and results made available to the general public will qualify as exempt from taxation. Research that is considered commercial testing, or industrial operations may be subject to taxation.
Rental income from real property rentals is excluded. However the real property rental exclusion cannot be claimed under the following circumstances.
If rental of personal property (i.e., tables, chairs, etc.) is included in the rental that portion will be taxable, unless it is considered to be an incidental amount (usually less than 10%) of the total lease.
If the personal property portion exceeds 50% of the total rental, the entire rental amount is subject to UBIT.
If services are provided for the occupant beyond what is usual or customary (maid service, laundry service, and food/dining). Services that are generally included are utilities, janitorial, grounds maintenance, and security.
Rental payments that are based on income or profits do not qualify. However, payments based on gross receipts, or sales activity conducted on the rental property is excluded under the real property rent exclusion.
Activities Considered Exempt from UBI (but not specifically excluded in the statute)
The preceding definitions are very broad in nature, and if you suspect that your department may have an activity that is producing unrelated business income please call and let us help you with the determination.