The University of ArizonaThe University of Arizona
Financial Policies & ProceduresFinancial Policies & Procedures
 

20.10 Unrelated Business Income Tax

Purpose:To inform University departments of the procedures/guidelines to identify unrelated business activities and then report the revenues and associated expenses generated by such activities.
Policy Owner:Comptroller – Tax Compliance


  1. The University is exempt from federal income tax for engaging in activities which include charitable, scientific, testing for public safety, literary, educational, to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals.
  2. However, the University is not exempt from income tax imposed on activities which (1) are substantially unrelated to those exempt purposes, (2) are conducted for the primary purpose of earning a profit, and (3) are regularly carried on and compete with commercial businesses that provide similar services to the public. Even though these activities may bring in funds to support the University’s exempt operations, the income generated from these activities is subject to Unrelated Business Income Tax (UBIT). 
  3. Typical unrelated business activities include but are not limited to:
    1. Advertising not related to educational purpose
    2. Catering services provided to the general public
    3. Use of recreational facilities by alumni and general public
    4. Operation of parking lots to the general public
    5. Rental of equipment to the general public
    6. Rental of facilities to the general public with substantial services
    7. Bookstore sales of non-educational items to the general public
    8. Lab testing and other research for commercial or industrial application
  4. The rules governing UBIT are very complex, and there are a number of exceptions to the general rules. Therefore, determining whether an activity is “unrelated” or whether the income is taxable depends on the facts and circumstances of each case.
  5. Tax Compliance is responsible for providing guidelines to the campus to identify potential unrelated business activities.
  6. Each department is responsible for identifying the potential unrelated business activities, and providing particular facts and circumstances in writing to Tax Compliance to determine whether the activities are unrelated business. 
  7. For the unrelated business activities determined by Tax Compliance, the department is responsible for providing the unrelated business income and associated expenses data to Tax Compliance. Tax Compliance reviews the accuracy and reasonableness of the data provided by the department, prepares and files the Unrelated Business Income Tax Return, and pays the tax liabilities to the Internal Revenue Service for the University as a whole.  Tax Compliance then charges the tax expenses to the department, based on its share of taxable unrelated business income, if any.