Unrelated Business Income Tax
Charges to External Customers may be subject to Unrelated Business Income Tax (UBIT). Three elements must be present for an activity to be considered unrelated to the University's tax-exempt purposes of education and research. The activity must be:
- A Trade or Business – whether an activity is a trade or business for the purposes of UBIT is whether the activity is conducted for the primary purpose of generating income or a profit. The activity wouldn’t be considered taxable if its intent is to break-even and it does in fact break even or generate a loss.
- Regularly Carried On – the regulation provides that a trade or business activity is regularly carried on if it manifests a “frequency and continuity, and pursued in a manner generally similar to comparable commercial activities of nonexempt organizations.”
- Not Substantially Related to the University's Exempt Purpose – the University’s exempt purposes are education, research, and patient care so an activity whose purpose is not substantially related to one of those purposes would be characterized as unrelated. It is irrelevant that the proceeds from an activity are used to fund education or research. The determining factor is the nature of the activity itself.
For more information related to Procedures for Identifying Unrelated Business Activities, please download UCOP's Unrelated Business Income Questionnaire and Questionnaire Instructions to see if your business may be subject to UBIT. While the questionnaire is used in the Business Contract fund application or extension process, a Tax Survey is included in the updated Sales and Service Rate Calculation forms for the Sales and Service fund application or revision.
UCLA Tax Services is responsible for UBIT determination and calculation and may require documentation from the departments that are providing services to External Customers. Departments generating UBIT liability may be required to contribute to UBIT payments. Please contact Amy Lee at UCLA Tax Services for any inquiry related to UBIT.