Tax & Compliance Services
Unrelated Business Income (UBI)
Although public colleges and universities are not subject to federal income tax relating to their exempt purpose, Internal Revenue Code (IRC) Section 511(a)(2) imposes a tax on activities that generate taxable income which is unrelated to their exempt purpose. Oklahoma State University (OSU) is subject to the unrelated business income tax (UBIT) imposed by IRC section 511(a)(2)(B) on unrelated business activity. As such, OSU is required to file an Exempt Organization Business Income Tax Return (Form 990-T).
An activity must meet all three of the following criteria to be considered an unrelated business activity:
- 1. Be a Trade or Business
The term “trade or business” generally includes any activity conducted for the production of income from selling goods and performing services with the intent to make a profit.
- 2. Be Regularly Carried On
An activity is ordinarily considered to be regularly carried on if it shows frequency and continuity, and the activity is pursued in a manner generally similar to comparable commercial activities of nonexempt organizations.
- 3. Not Be Substantially Related
An activity isn’t substantially related to the exempt purpose if it doesn’t contribute importantly to accomplishing that purpose. In determining whether activities contribute importantly to the accomplishment of OSU’s exempt purpose, the size and extent of the activities involved must be considered in relation to the nature and extent of OSU’s exempt function. Whether an activity contributes importantly depends in each case on the facts involved. Use of the profits derived from an activity, does not alone, make the activity substantially related to its exempt purpose.
OSU is not prohibited from engaging in activities that generate UBI, but it is required to report the income from each unrelated activity to the Internal Revenue Service (IRS).
UBI Data Collection
The Tax & Compliance Services department is responsible for ensuring that OSU's Form 990-T is timely filed. With OSU having a June 30th year-end, Form 990-T is initially due November 15th. OSU typically files for an extension to allow time for UBI data collection. The extended due date for Form 990-T is May 15th.
Tax & Compliance Services will collect the UBI data from the various OSU departments by sending a UBI initial request survey and then follow-up with a UBI financial information questionnaire.
The UBI initial request survey will be sent to fiscal officer contacts in each OSU department. No financial information is requested during this survey. The survey is intended to identify departments that have unrelated business activity and to help departments determine if an activity is considered unrelated.
Based on the responses from the UBI initial request survey, a follow-up questionnaire will be sent to departments that have been identified as having UBI. This questionnaire will ask for specific financial information regarding unrelated business activity. This financial information will be used to complete Form 990-T for the applicable fiscal year.
- Tips for completing the UBI initial request survey
Determining if an activity is unrelated is not always clear. If you are unsure if an activity is unrelated, please respond with "Unsure" in the survey and then provide a brief description of that activity. The Tax & Compliance Services department will contact you within a couple of weeks to assist in making a determination.
If you have multiple sources of revenue with a mix of related and unrelated business activity, please respond with a "Yes" in the survey and then provide a brief description of the unrelated business activities only.
If you have multiple sources of revenue with a mix of related and unrelated business activity, but you are unsure if one or more of those activities is unrelated, please respond with "Unsure" in the survey. Then provide a brief description of the unrelated business activity and the activity you are unsure about (please note which activity you are unsure about in the description). The Tax & Compliance Services department will contact you within a couple of weeks to assist in making a determination on the activity you are unsure about.
If you have any questions about completing the survey or would like a report showing revenue account balances by fund code for each organization code, please contact Josh Tivis in the Tax & Compliance Services department.