CONTROLLER'S OFFICE

Unrelated Business Income Tax

Unrelated Business Income Tax 

Although Rice University is a Section 501(c)(3) tax-exempt organization, it is required to pay corporate income tax on net income from unrelated business activities. Unrelated business income (UBI) is income from activity that is conducted as a trade or business, regularly carried on, and not substantially related to the exempt purpose of the University. Form 990-T is filed annually to report the University's net unrelated business taxable income. 

General Requirements for Unrelated Business Income (UBI)

   A. Trade or Business

  • Activities conducted with the intent to make a profit (a goal to just break even is not deemed as a profit motive)
  • Activities will not be excluded from being considered UBI merely because it did not generate profit 
  • If a loss is at least 3 years in a row, consider the "hobby loss" rule and remove it from UBI

  B. Regularly Carried On

  • Activities conducted with frequency and continuity
  • Activities pursued in a manner similar to comparable commercial activities of for-profit organizations
  • Activities engaged in only "discontinuously or periodically" won't be considered "regularly carried on" if no competitive and promotional efforts

   C. Not Substantially Related to the University's Exempt Purpose (i.e. education & research)

  • Size and extent of the activities in relation to the nature and extent of the exempt function are relevant
  • Whether or not the income produced from the activity is used for the exempt function is irrelevant
UBI Exceptions 
  • Convenience exception: activities are performed for the convenience of Rice students, officers, faculties and staff
  • Volunteer labor: trade/business activities in which substantially all the work is performed by volunteers
  • Donated merchandise: selling merchandise Rice received as gifts or charitable donations
  • Passive income: income such as interest, dividend, annuities, real property rental, royalties, and capital gain, if not debt-financed
  • Research income: income from research, whether fundamental or applied, is not UBI, except for commercial testing or inspecting
  • Qualified sponsorship payment (without triggering substantial return benefit rule)
Common Types of UBI
  • UBI flow through to Rice from investment partnerships or joint ventures
  • Passive income generated by debt-financed investment
  • Advertising income
  • Parking for the general public or alumni
  • Sales of goods or services to the public
  • Recreation facilities used by the general public
  • Rental of facility bundled with services
  • Dorm rental with room service & board provided to third-party for-profit entities

 

For additional information, see Rice UBI Tax Guidance

 

Questions?

Contact Tax@rice.edu