Unrelated Business Income Tax

Unrelated Business Income Tax (“UBIT”) is a tax imposed on the unrelated business income generated by tax exempt organizations. Although exempt from federal and state income tax, Emory is required to pay income tax at corporate rates on net income from activities that are unrelated to the exempt purposes of the University.

Taxable Income

Unrelated Business Income (“UBI”) is income generated by or within the University from activities if the activity is: 

  • Conducted as a trade or business
  • Regularly carried on
  • Not substantially related to the exempt purposes of the University

Trade or Business

An activity is considered to be conducted as a trade or business if its primary purpose is to generate a profit from the sale of goods or services.

Treasury regulations indicate that "trade or business" means any activity which is carried on for the production of income and which presents a sufficient likelihood for unfair competition with for-profit business endeavors of a comparable nature. Actual competition need not be present for taxation of unrelated business income.

Regularly Carried On

An activity is considered regularly carried on if it is conducted with a frequency comparable to the conduct of a similar activity in the private sector.

The general rule used by the IRS provides that UBIT is only imposed on income from a trade or business if the business is frequent, continuous, and pursued in a manner similar to commercial businesses. This is referred to as the "regularly carried on test."

Not Substantially Related

Activities must be substantially related to the exempt mission of the University to be exempt from income tax.

The IRS states that, generally, income received by an exempt organization from regularly carrying on a trade or business is not subject to UBIT if the business activity contributes importantly to the accomplishment of the organization's exempt purposes. This is known as the "substantially related test."

Emory's Exempt Purposes

The University's "mission" consists primarily of its exempt educational, scientific, research, and medical purposes.

Exceptions

There are a number of modifications, exclusions, and exceptions to unrelated business income. Some common considerations for Emory include:

  • Convenience - For Emory's students, faculty, staff, and patients
  • Passive income - Interest, dividends, royalties, capital gains, annuities
  • Volunteer labor - Most of the work is performed without compensation
  • Donated merchandise - Sales of merchandise received as gifts or contributions
  • Surplus property - Sales of property no longer used by the University
  • Rents from real property - Services or personal property may trigger UBI

Potential UBI Activities

Some activities can easily be defined as UBI but in most situations, the facts and circumstances of each activity must be examined. Activities that warrant further consideration include:

  • Sales of merchandise or services to the general public
  • Partnership or joint venture interests that produce "flow though" UBI
  • Travel tours
  • Publishing activities
  • Corporate sponsorships
  • Advertising income
  • Recreation facilities made available to the general public

Questions

For additional information please contact the Emory Director of Tax at 404-727-8044.