Tax Guidance

Federal

• Unrelated Business Income Tax Policy

  Last Update: March 20, 2020

  1.0 Purpose
  This policy describes the general guidelines for the analysis of unrelated business income.

  2.0 Policy
  Summary of the Unrelated Business Income Tax

  2.1 Introduction
  The Federal Income Tax laws have traditionally exempted from tax those organizations whose activities benefited society, a category which included colleges and universities. An entity which met the requirements for tax exempt status was not taxed on any income, even from business activities. However, Congress enacted legislation in 1950 which taxed the "unrelated trade or business income" of a tax exempt entity, although it did not prohibit tax exempt entities from engaging in business activities. This legislation was intended to prevent unfair competition by tax- exempt organizations with tax-paying, commercial enterprises. In fact, the impetus for the legislation was commercial activity by a state university.

  2.2 Unrelated Business Income (UBI)
  For the income from an activity of the University to be taxed, the income must be from an "unrelated trade or business." This is defined as any TRADE OR BUSINESS which is REGULARLY CARRIED ON and which is NOT SUBSTANTIALLY RELATED to the University's educational, tax-exempt purpose.

  2.3 Trade or Business
  The term "trade or business" means any activity carried on for the production of income from the sale of goods or the performance of services. This is a very broad definition which includes many University activities. Except for specific statutory exceptions, only investment activities (producing income in the form of rents, royalties, interest or dividends) escape this classification. Further, the University's operations are viewed as a "bundle of activities" which the Internal Revenue Service (IRS) can examine independently for the characteristics of unrelated business. Under this "fragmentation rule," an activity does not lose its identity as a trade or business merely because it is carried on within a larger aggregate of similar activities or within a larger complex of other endeavors which may be related to the exempt purposes of the University.

  Although the policy behind the tax is the elimination of unfair competition between tax-exempt and taxable entities, demonstrating that an activity does not compete with a taxable business is not sufficient by itself to avoid application of the tax. Also, the activity need not actually generate a profit; only the PURPOSE of generating profit is required for the activity to be a trade or business.

  2.4 Regularly Carried On
  To be taxable, the trade or business must be "regularly carried on." The test of "regularly carried on" considers the FREQUENCY, CONTINUITY, and MANNER in which the activities are conducted compared with similar commercial activities carried on by taxable businesses. Activities normally conducted year-round in a commercial context are not "regularly carried on" if the University conducts them only for a few weeks. Intermittent activities are evaluated with special emphasis on the manner in which they are carried out, comparing the competitive and promotional efforts with those of comparable taxable businesses.

  2.5 Not Substantially Related
  A regularly conducted trade or business is subject to tax if it is also not substantially related to the exercise or performance of any charitable or educational function of the University. To be substantially related, the activity must have a substantial causal relationship to the achievement of an exempt purpose, other than the University's need for income.

  Two other concepts are encompassed by the "substantially related" test. First, the activities should be conducted on a scale no larger than is necessary for the performance of the exempt functions. Activities in excess of the needs of exempt functions constitute the conduct of an unrelated business. Second, the University may sell a product or by-product of the performance of its exempt function without being considered to be engaged in an unrelated trade or business if the product is sold in substantially the same state it is on completion of the exempt function, and is not further used in a business activity.

  2.6 Exempted Activities
  The federal tax laws list several activities which are exempted from the UBI tax, even though they would otherwise have the characteristics of an unrelated trade or business. Two exempted activities are applicable to the University. First, any trade or business which is carried on by the University primarily for the convenience of its members, students, patients, officers, or employees is exempted from the UBI tax. An exemption also applies to all income derived from research performed by the University for any person. "Research" within the meaning of this exemption does not include activities of a type ordinarily carried on as an incident to commercial or industrial operations, such as the ordinary testing or inspection of materials or products or the designing or construction of equipment, buildings, etc. The IRS will scrutinize applied research funded by commercial sponsors, especially if the research involves a physical product, such as a drug. In these cases, it is important for the University to articulate its academic or educational interest in the performance of the research.

  2.7 Reporting Requirements
  Any tax-exempt organization which realizes unrelated business income must file a tax return with the IRS for the year involved, whether or not the income produced a net profit. The Tax Cuts and Jobs Act of 2018 changed how UBI is reported. Prior to this Act, income reported on the UBIT return could be aggregated for all of the unrelated trades or businesses engaged in by the University, so that gains from one business could be offset by losses in another business. The new guidelines require an organization subject to the unrelated business income tax, with more than one unrelated trade or business, to calculate unrelated business taxable income (UBTI) separately with respect to each trade or business. UBTI, including for purposes of determining any net operating loss (NOL) deduction, shall be computed separately with respect to each trade or business. UBTI with respect to any such trade or business shall not be less than zero.

  2.8 University-specific Issues
  There are several specific areas addressed by the tax law, regulations, court decisions, and IRS rulings which are applicable to current and potential University activities. The rules announced in these sources for several specific fact situations are summarized in the following paragraphs.

  Athletics and Athletic Facilities:
  A university's receipt of revenues from the sale of television and radio broadcasting rights to athletic events is not subject to UBI tax.

  Money received by a university for leasing athletic facilities to a professional football team for summer camp, without providing meals or maid service, is exempt from UBI tax because it is rental income.

  Money received by a school from a contract with an individual who conducts a summer tennis camp, under which the school furnished tennis courts, housing and dining facilities, and hired instructors, recruited attendees and provided supervision, is unrelated business income.

  Campus Activities:
  The operation of a music theater by a liberal arts college is not an unrelated trade or business.

  Sponsoring professional theater companies and symphony orchestras that give performances to which the general public is invited does not create unrelated business income.

  The conduct of conferences or seminars open to the general public is an activity related to a school's exempt purpose.

  Travel Services:
  The conduct of travel study tours that include courses on the culture of foreign countries and nature studies taught by certified teachers is exempt from UBI tax.

  The operation of a travel tour program for alumni association members and their families is an unrelated trade or business.

State

• Admissions Tax

  Admissions tax must be collected by all places of amusement when an admission fee has been charged. The tax is 5% of the paid admissions. Every person subject to the tax is required to complete and electronically file an Admissions Tax Return. Various exemptions apply under Section 12-21-2420 of the South Carolina Code of Laws, and the tax does not apply to:

  • Any amount separately stated on the ticket of admission for the repayment of money borrowed for the purpose of constructing an athletic stadium or field by any accredited college or university;
  • Any amount of the charge for admission, whether or not separately stated, that is a fee or tax imposed by a political subdivision of the State; or
  • Any amount that an accredited college or university requires a season ticket holder to pay to a nonprofit athletic booster organization that is exempt from federal income taxation in order to receive the right to purchase athletic event tickets.
• Federal Excise Tax

  In order to claim the Federal excise tax exemption, an exemption certificate must be on file with the vendor, and the certificate must be renewed at least every three years. Some vendors will request an updated certificate annually.

  For further information or assistance, please contact Ree Cooley in Accounting Services by email at desirec@clemson.edu or by phone at 864-656-5603.

  The following purchases are exempt from Federal Excise Tax: 

  Fuels

  • Gasoline
  • Aviation fuel
  • Aviation jet fuel
  • Diesel
  • Benzyl, benzene, naphtha, casing head, natural gas
  • Liquid petroleum
  • Compressed natural gas

  Telephone – Charges on phone bills

  Some communication vendors allow Clemson University to use the exemption certificate designed by us, but others require that their specific form be used.

• Sales / Use Tax

  Sales tax is imposed on the sale of goods and certain services in South Carolina. Generally, all retail sales are subject to the sales tax. Statewide, the sales tax is 6% effective since June 1, 2007. However, counties may elect to impose an additional local sales tax. There are several different types of local taxes, each with a rate of 1%. Currently, the county's total local tax rates range from 0% to 3%. Specific tax rates can be found on the SC Local Tax Designation by County map. 

  Use tax is imposed on goods and services purchased outside the state of South Carolina and then brought into the state without any sales tax having been paid on them. If a receipt from an out-of-state retailer shows that sales tax was collected on the merchandise, no use tax should be remitted. However, if the retailer is not licensed to collect South Carolina tax, the purchaser of the merchandise is then responsible for remitting this tax to the South Carolina Department of Revenue. If a South Carolina retailer fails to collect sales tax on a purchase, do not add tax to the purchase. All retailers in South Carolina are responsible for collecting their own sales tax.

  Freight can be taxable if the shipping terms are "FOB CLEMSON" or "FOB DESTINATION." This means the purchaser of the goods takes the title of the goods at their destination (which for us is Clemson). Freight is not taxable if the shipping terms are "FOB SHIPPING POINT" or "FOB POINT OF ORIGIN." This means the title is not taken at Clemson but at the vendor's loading dock. Freight charges billed directly by freight or transportation companies (trucking companies or railroads) are not subject to sales or use tax.

  Computer software: Rev. Ruling # 96-3 states that computer software delivered in the form of a computer diskette or magnetic tape is tangible personal property subject to taxation. Computer software sold and delivered by electronic means is not subject to sales and use tax. It should be noted that the entire amount is taxable if we receive delivery on the same item both ways.

  Download Sales and Use Tax tips.

• Warranties, Maintenance and Similar Service Contracts – Taxable

  Effective September 1, 2011, the South Carolina Department of Revenue has announced legislative changes to the collection of State sales tax or the accrual of use tax. Please use the table below to simplify the tax inclusion/exclusion questions on invoices that Clemson pays for goods and services.

  Please note that this table applies to deliveries made after September 1, 2011.

  Tax Inclusions or Exclusions

  Purchase Item	Description	Taxable
  Maintenance Contract for Equipment or Item	Purchased with Equipment/Tangible Property even if listed as a separate line item.	Yes
  Maintenance Contract for Equipment or Item	Purchased at a later date or not purchased in conjunction with the product.	No
  Maintenance Contract for Software	Purchased or Delivered Tangible Property. (Disk, Flash Drive, etc.)	Yes
  Maintenance Contract for Software	Purchased with Software that was delivered electronically.	No
  Software	Database access to online information services. (legal services, credit reporting, etc.)	Yes
  Software	Delivered Electronically.	No
  Software	Internet websites that allow customers access and use of software to enter and process their own information (known as ASP or Application Service Providers). The processing (tracking, reports, etc.) is done by the customer and not a process of the software. (iTunes)	Yes
  Software	Internet websites which provide the customer with data processing. Transactional processing is where the software uses operations or interactions of procedures to process the customer's information. (Kronos, Peoplesoft)	No
  Software	Purchased or Delivered Tangible Property. (Disk, Flash Drive, etc.)	Yes
  Warranty	Purchased with Tangible Property even if listed as a separate line item.	Yes
  Warranty	Purchased at a later date or not purchased in conjunction with the product.	No

  Tangible personal property does not include the transmission of computer database information by a cooperative service when the database information has been assembled by and for the exclusive use of the members of the cooperative service.

  Renewals of existing agreements (maintenance, warranty or software updates and licenses) are subject to tax based on the original purchase.

  Certain transactions are excluded or exempted from the use tax. See also sales/use tax exclusions. Please refer to the South Carolina Department of Revenue for additional details, as well as a list of counties that collect the 1% local sales tax. See the Sales Tax Rate by Zip Code chart for the most recent tax rates for each SC County.

  Updated August 2016

• Withholding Tax

  Based on South Carolina Department of Revenue Code Sections 12-8-540 and 12-8-550, when a department utilizes the services of a nonSouth Carolina resident individual or business to perform personal services within the State of South Carolina, and the amount is over $10,000, Clemson University may be required to withhold a percentage of the payment.

  Withholding is not required if the non-resident taxpayer submits to Clemson University an I-312 form (PDF) that certifies the vendor is registered with either the South Carolina Secretary of State or the South Carolina Department of Revenue or if the total payments to the vendor do not meet certain minimum amounts (as noted below).

  Click here to register with the State of South Carolina.

  If the vendor does not provide Clemson University with a completed I-312 form and the designated amounts are exceeded, the following percentages must be withheld from the vendor payment.

  Paying Contractors

  The South Carolina Department of Revenue Code Section 12-8-550 requires persons hiring or contracting with a non-resident (not a resident of South Carolina) taxpayer to withhold two percent of each payment made to the nonresident where the payments under the contract exceed $10,000 or could reasonably be expected to exceed $10,000.

  Paying Rent or Royalties

  Code Section 12-8-540 requires persons making payment to a Non-Resident taxpayer of rentals or royalties for South Carolina properties at a rate of $1,200 or more a year to withhold seven percent of the total of each payment made to a non-resident taxpayer who is not a corporation and five percent if the payment is made to a corporation.

  How To Process A Withholding Payment

  Enter a voucher in CUBS, and select the Clemson University business unit.

  Documentation for Voucher:

  • Signed contract.
  • Approved Contract Review Form from Clemson University Risk Management.(This form may be obtained from E309 Martin Hall, 656-3354)

  For Example, If $20,000 is to be paid to a non-resident individual or business and they did not have an I-312 form, $400 would be paid to the Clemson University Payroll Account on a voucher, and $19,600 would be paid to the individual or business.

• Unrelated Business Income Tax

  View the Unrelated Business Income Tax Policy

  Annual Filing

  Clemson University annually files an Unrelated Business Income Tax Return (Form 990-T) based on its fiscal year ending June 30. The Controller’s Office is responsible for reviewing the University activities and accounts and consults with staff to identify activities that may meet the Internal Revenue Service criteria as unrelated business income. The Controller’s Office files the Unrelated Business Income Tax Return for Clemson University.

  Revenue Review

  The Controller’s Office reviews new revenue sources for their potential to be unrelated business income (UBI). The revenue sources that were reported on the 990-T in the previous year are assessed to help ensure that they should continue to be reported as UBI. Other ways in which UBI is determined is through being aware of activities occurring on campus by reading Inside Clemson and other local announcements or advertisements (radio, newspaper, billboards, etc.)