The College is exempt from tax on income related to its core mission or “exempt purpose” (e.g. tuition revenue). Income from operating a trade or business not related to the College’s core mission is considered “unrelated business income” (UBI) by the Internal Revenue Service and is subject to annual reporting and imposition of income tax.
This policy helps departments identify those activities that may generate unrelated business income and encourages departments to contact the Office of the Controller for guidance. The Office of the Controller is responsible for reporting unrelated business income on the College's annual tax return and paying estimated tax due on a quarterly basis.
Departments, programs or other college units generating income that may not directly further the College's tax-exempt purpose must contact the Office of the Controller to determine if such income is subject to unrelated business income tax.
This policy applies to all College faculty and staff who engage in business activities at the College that generate income.
The College is responsible for classifying income in two categories: Related (non-taxable) versus unrelated (taxable). To be non-taxable, an activity must be substantially related to the purpose for which the College has its exempt status. In general, the College’s exempt status is based on its educational and research activities. Any income that does not directly further the College's tax exempt purpose, i.e. education and research, has the potential to become unrelated business income. Income from an activity is subject to unrelated business income tax if the following three criteria are present:
1. The conduct of the activity is “not substantially related” to the performance of the College’s exempt function;
2. The activity constitutes a “trade or business”; and
3. The activity is “regularly carried on” by the College.
*More detail regarding these three criteria can be found in the Definitions section.
Income from certain unrelated activities may be non-taxable because of a statutory exemption. These categories are discussed later in the policy as “Exclusions and Exemptions.
Common Examples of Activities That May Generate UBI
A. Use of College facilities such as the Cowin Center by the general public for a fee.
B. Providing services in connection with the rental of College facilities to outside entities for unrelated events, such as rental of facilities for an event that includes catering and similar services. As a general guideline, providing any services beyond utilities and overall building maintenance may create unrelated business income.
C. Renting of personal property (e.g. TC-owned furniture) to non-TC users.
D. Sale of goods or services to non-TC users. This may include the sale of computers, programming services, translation or printing.
E. Advertising. (For example, income from vendors that support the College’s educational programs in exchange for an advertisement in the TC Record)
F. Exclusivity agreements, such as selling Coke products, when significant services are provided by the College in return (e.g. extensive involvement of TC employees in joint marketing efforts to increase enrollment in professional development programs).
Income from an unrelated trade or business that is carried on primarily for the convenience of students, faculty or staff is not taxable. For example, the College operates a cafe for the purpose of providing food and drink to the TC community. Any revenues from this service are not taxable as unrelated business income because the activity is for the convenience of the students, faculty and staff.
Dividends, interest, capital gains and other income received from the holding of College investments are generally not taxable.
A royalty is passive income received from entities external to the College for the use of College property or rights, and is usually paid as a percentage of receipts from using the property or as a fixed amount per unit produced. Royalty income is not taxable.
The funding for any research conducted in any department, program, institute or center within the College (including research conducted for the United States, its instrumentalities or agencies, or any state or political subdivision) is not taxable. However, where the activity constitutes mere testing it will not qualify as research and the income funding may be taxable.
Substantially Related: Any activity that provides an important contribution toward the accomplishment of the College’s tax-exempt purposes. Determining whether an activity is “substantially related” requires an examination of the relationship between the activity and the College’s primary exempt purpose. An activity is related to an exempt purpose only when the conduct of the activity has a causal relationship to the achievement of exempt purposes. The causal relationship must be substantial. (For example, patient fees for work done at the speech and hearing clinic by students are clearly related to the exempt purposes of education).
Trade or Business: Any activity carried on for the production of income from the sale of goods or performance of services. The activity must be conducted in a manner similar to the style under which a for-profit business would operate.
Regularly Carried On: Identifies the frequency and continuity with which the activities are conducted and the manner in which they are pursued. If the activity is of a kind normally conducted by non-exempt commercial organizations on a year-round basis, the conduct of such an activity by a College over a period of only a few weeks does not constitute the regular carrying on of trade or business.
Contact:
If you have any questions on this policy, please contact the Office of the Controller at (212) 678-3016.
Responsible Office: Controller
Effective: January, 2020
Last Update: January 29th, 2020