Unrelated Business Income Tax (UBIT)
Federal Income Tax Exemption
The University of New Mexico is tax-exempt as an instrumentality of the State of New Mexico under IRC 115. The Internal Revenue Code (IRC) provides that the exempt purposes of state universities include all the same purposes and functions described in Section 501(c)(3), and under Section 115 excludes gross income of states. For federal income tax purposes, the university/agency may engage in activities that 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. Universities/Agencies are not, however, exempt from tax imposed by IRC Sections 511, 512, and 513 on activities which are unrelated to those exempt purposes. All activities should be carefully reviewed to determine whether an exempt purpose is also being served. Please call the UNM Taxation Department if you need assistance in this matter.
See short power point presentation on UNM UBIT.
If you had any new revenue generating activities in FY13, please fill out UBIT Questionnaire . To be filled out by UNM Department Fiscal Agents or Accountants.
Please note: Thank you to those of you who have filled out and returned a UBIT Questionnaire to MSC 01-1260. As these questionnaires are being reveiwed by Taxation staff, only those departments where additional information is needed will be contacted by us. If upon review it is determined that no unrelated business income is indicated, you will not be hearing from us. Please feel free to contact us at 277-0875 to make sure we did receive your questionnaire.
Unrelated Business Income Tax Defined
The Internal Revenue Service anticipates that exempt organizations will engage in activities that may be in competition with private business endeavors; but to be non- taxable, the activities must be substantially related to the purpose for which the organization has an exemption status. Therefore, UNM departments will derive taxable income from an activity if that activity is not related to the University’s educational, scientific, literary, and charitable purposes. A college or university is generally deemed to have unrelated business taxable income (UBTI) when it realizes gross income from any regularly conducted trade or business that is not substantially related to its educational and other exempt purposes. In order to determine whether a particular activity that the university/agency engages in will generate taxable income, the following three criteria must all be present.
1. Substantially Unrelated to the Exempt Purpose
The first criteria in determining whether an activity is taxable is to determine whether the activity is "substantially unrelated" to the exempt purpose of the organization. Conversely, to be considered related nontaxable income, there must be a substantial causal relationship between the activity that generates revenue and the exempt purpose of the organization (i.e., the activity must contribute importantly to the accomplishment of the exempt purpose other than the university's need to produce income).
The exempt purpose of colleges and universities includes (a) teaching and instruction, (b) research, and (c) public service. The mere fact that an activity generates a source of funds that are then used to carry out a mission-related activity does not mean that the activity is related to the mission.
2. Trade or Business
Activities cannot be considered taxable unless they are deemed to be a "trade or business" as defined in IRC Section 162. Among other things, a trade or business has to exhibit intent to profit from the activity (real economic profit).
3. Regularly Carried On
The IRS Treasury Regulations consider the frequency and continuity of the activity and the manner in which it is pursued to determine if the activity is regularly carried on. Thus, the unrelated business income tax (UBIT) applies only to a business activity, which is regularly carried on as distinguished from commercial transactions, which are sporadic or infrequent.
An activity should not be considered as regularly carried on if it is:
i.on a very infrequent basis;
ii.for a short period of time during the year; or
iii.without competitive and promotional efforts.
However, year round activities are regular even if they are conducted only one day a week. Further, seasonal activities may be regularly carried on even though they are conducted only for a short period each year.
Unrelated Business Income
Activities that are determined to produce unrelated business income/loss (UBI) will be included in the University of New Mexico’s Exempt Organization Business Income Tax Return (Form 990-T), to be prepared each year for submission to the Internal Revenue Service. Departmental activities will be evaluated by the Taxation Department. If the revenue is deemed UBIT taxable, the department will be responsible for both paying the tax and for the income tax return preparation.
Exclusions from UBIT
Even if an activity is considered to be taxable based on the above three criteria, there are a number of modifications to income and statutory exceptions that are available under the UBIT regulations. These include the following:
- passive income such as dividends, interest, annuities, and royalties where no active business participation and management is involved;
- rents from real property (contingent with debt finance issue) and some personal property;
- income from certain forms of research;
- income generated from donated services or property;
- income produced from sales made primarily for the convenience of the organization's members, students, and employees (including faculty and staff); and
- special situations.