Office of the Controller
Office of the Controller
The University of Southern Mississippi is exempt from taxation under Section 115 of the Internal Revenue Code. However, the University is required to pay Federal income tax on net income from activities unrelated to the exempt mission of the University: education, research and public service.
It is very important that all unrelated business activities of the University be reported on the Federal tax return. The Internal Revenue Service can and will assess costly penalties and interest charges for underpayment of taxes.
Three elements must be considered to determine if an activity is subject to unrelated business income tax. The activity must:
Trade or Business: Includes any activity carried on for the production of income from selling goods or performing services.
Regularly Carried On: UBIT applies only to a business activity that is regularly carried on, as opposed to transactions that are sporadic or infrequent. An activity is considered regularly carried on if it is conducted with a frequency and manner comparable to the conduct of a similar activity by a taxed business.
Not Substantially Related: The activity must not be substantially related to the exempt mission of the University. To decide if an activity is related or unrelated, determine the nature of the activity and how essential it is to accomplish the mission of the University: education, research and public service.
The following are examples of activities that are not related to the mission of the University and subject to unrelated business income tax:
The following are examples of activities that are related to the mission of the University:
EXCLUSIONS
Certain exclusions exist to the criteria set forth above. An activity that would ordinarily be considered unrelated and subject to income tax is exempt from UBIT if any of the following conditions exist:
Member Convenience: An unrelated activity conducted by the University for the benefit of its members (students, faculty, and staff) is not subject to UBIT unless the income is generated from sales to non-members. In this case, only non-members sales are taxed. Examples of activities that are not subject to UBIT under the convenience exception include:
Volunteer Work: UBIT does not apply to income from an activity in which substantially all of the work is performed without compensation.
Donated Property: Income from the sale of merchandise, substantially all of which has been donated by a gift or contribution.
Government Research: Income from research conducted for the U.S., its instrumentalities or agencies, or any State, or its instrumentalities or political subdivisions.
Tax-Exempt Colleges, Universities, and Hospitals: Income from research and all deductions directly connected with the income for tax-exempt colleges, universities, and hospitals.
Rental of Real Property: In general, the rental of real property is not subject to unrelated business income tax unless personal services are rendered that are not customarily or usual to the rental of space.
Dividends, Interest, Annuities, and Royalties: In general, not subject to UBIT.
How do we know if we owe this tax? If the project or activity is selling goods or providing services to the general public, a taxable UBIT evaluation must take place and the true “general public” net profit of the activity will be subject to this tax. Some exceptions may apply.
With the current financial position of the University, wouldn’t generating revenue be a good thing? Yes, it can be a good thing, but this tax is a cost of doing business. The activity will owe this tax, and the tax should be factored in when pricing and planning the project’s activity.
Please download the UBIT Questionnaire and submit the completed questionnaire to taxcomplianceFREEMississippi.