The Revenue Act of 1950 established the “Unrelated Business Income Tax” (UBIT) that applies to tax-exempt organizations. The UBIT was established for two reasons: 1) To give the IRS a procedure by which it could penalize a tax-exempt organization that engaged in commercial business activities without having to revoke its exempt status; and 2) to put tax-exempt organizations that engage in business activities on a level playing field with for-profit companies that engage in the same business activity and pay taxes on the income they earn.
Three elements must exist in order for an activity engaged by a college or university to be treated as an "unrelated business income" activity.
A trade or business is conducted with a profit motive. Revenues in excess of expenses constitute taxable income where goods are sold or services rendered that are not related to the educational/research mission of the institution.
"Regularly carried on" means performed in the same manner or time frame as it would be in the commercial sector. Thus, the activity may be seasonal and still subject to UBIT.
"Substantially related" means that the activity contributes importantly to the exempt purpose. Bookstore sales to students/faculty, advertising sales by the school newspaper, etc. are examples of exempt activities.
Examples of College/University Activities that Could be Subject to UBIT:
It should be noted that the University pays UBIT only on the profit (residual income after expenses) and the tax is assessed in the following year.
How does OSU Determine UBIT?
These are IRS corporate tax rates and are subject to change.
How OSU Departments can Minimize Tax Exposure
Testing activities may qualify as research when carried on in the public interest. Meaning, the results of the research must be published. One way to minimize the UBIT would be to file the results in the OSU library. Another way would be to use the data (in published form) in a classroom setting. Also, testing services may be exempt where no alternative source exists within a “reasonable distance”. Documenting the lack of other testing sources may be another way to minimize UBIT. If the argument is made that the student needs to do testing as part of his/her curricula, then the student cannot be paid for the work. (This includes GRA or GTA appointments.) In that case, there would be no tax.
Commercial testing usually involves 1) ordinary and routine testing, 2) repetitive work, 3) performance by scientifically unsophisticated employees, and 4) testing for quality control or certification purposes.
Keep qualified sponsorship agreements separate from advertising agreements. If the donating entity will receive benefits other than simple recognition and a ‘thank you’ it will be an advertising agreement. Don’t mix the two. Also, if a sponsor will be receiving any ‘in-kind’ consideration such as sky box rights, free game tickets, etc., the fair market value of those items counts as advertising income to OSU. Keep these items separate along with any related expenses.
Year-end information regarding operating leases is to be provided to the Office of Business Affairs by the dates specified in the Year End Close Instructions so OSU can comply with their responsibilities to the OUS Controller’s Division per OUS Fiscal Policy Manual 05.281 Accounting for Leases.
A lease/purchase or capital lease has at least one of the following characteristics:
Year-end information regarding capital leases is to be provided to the Office of Business Affairs by PaCS within the dates specified in the Year End Close Instructions so OSU can comply with their responsibilities to the OUS Controller’s Division per OUS Fiscal Policy Manual 05.281 Accounting for Leases.
All Lease/Purchase agreements must be processed by the PaCS University Contract Officer. For further information on equipment leasing/purchase see PRO 204: Lease-Purchase in the Property Management Manual.
Fiscal Operations Manual
Section 500: Financial Accounting and Analysis
Effective: 01/01/2003
Revised: 3/21/2013
An administrative assessment is made to recover overhead costs incurred by the institution central services on behalf of funds which are not directly supported by either State of Oregon Educational and General appropriation or sponsored grants and contracts. Central administrative services benefit the entire institution and are not easily assignable to any one unit. Examples include, but are not limited to,
Specialized Service Facility (SSF) cost shall consist of both direct costs and allocable share of overhead costs, per OMB Circular A-21 section J47. This is considered full-costing. Overhead cost includes use of the building and general operations & maintenance cost associated with the space occupied by the SSF. The charges are posted by Business Affairs monthly. The current SSF at OSU are: Printing/Mailing, Telecommunications, Motor Pool, and Laboratory Animal Resource Center.
Finding a cash balance or fund balance (sometimes referred to as an account balance) is appropriate for self-support funds. This would include 05xxxx (operating funds), 09xxxx (service funds), 1xxxxx (auxiliaries funds), 4xxxxx (endowments), Mxxxxx (gifts/scholarships), FSxxxx (gifts/scholarships), and FAxxxx (gifts). For General Fund indexes, other budgeted funds and grants, the budget balance is the most important. See 505-02 below for this information.
To find your fund balance (cash plus receivables, etc.), go to FIS form FGITBSR and query on your fund with the current fiscal year indicated. Your calculated fund balance is given in the Current Fund Balance field at the lower right.
This question is appropriate for General Fund indexes (fund = 001100) and other budgeted funds (0xxxxx). Grants will have an expense budget, which will also be discussed below.
To find your budget balance go to FIS form FGIBDST and query on your index for the current fiscal year (for grants see below). Usually, budgeted amounts will only be in certain general account codes, not distributed to all the account codes in which you have had transactions. FGIBSUM might also be helpful as it gives budget balances for the major budget categories and the net available balance.
For grants, go to FRIGITD and query on your grant. Refer to the Grants, Contracts and Gift Accounting Manual for further information.
Go to FIS form FGITRND. Find the transaction and its document number and drill down to the document itself.
If the document is a journal voucher with the ordinary J prefix or an invoice with the usual I prefix, you can find the name of the person who input the transaction (the originating user) by going to FOIAPPH or FOIAPHT and running a query on the document number. This should allow you to identify the source of the transaction.
If the document begins with two letters, the transaction was sent electronically to FIS. The source of the transaction is identified by these letters, e.g. VP = Printing and Mailing. For a complete list of document types see FIS 1100 Banner Processes.
The Oregon University System (OUS) is an agency of the State of Oregon. The system is administered by the State Board of Higher Education in accordance with Oregon Revised Statutes 351.010 and 352.002. Additional information on this subject can be found in the OUS Tax Exempt Status document within the OUS Fiscal Policy Manual.
The tax-exempt status of the OUS is based on Internal Revenue Code, Title 26, Section 115.
The Oregon State University Foundation (OSUF) is a private, non-profit corporation affiliated with the University under IRS tax code 501(c)3. The Foundation receives gifts of cash, securities, real and personal property, deferred gifts (such as bequests), life insurance, and life income agreements to support the University’s programs. It is a comprehensive organization that handles all aspects of fundraising for OSU.
All fundraising and investment activities of the Foundation are limited to benefiting Oregon State University. The Foundation assets and earnings are distributed to colleges, departments and programs of the University per donor directions or, if funds are unrestricted, per the direction of the Foundation's volunteer Board of Governors in response to priority requests from the President of the University.
Fiscal Operations Manual
Section 500: Financial Accounting and Analysis
Effective: 01/01/2003
Revised: 5/9/2013
Generally, all costs associated with fulfillment and administration of OSU’s mission (instruction, research, and public service) should be paid at OSU through FIS Banner, not directly by the Foundation.
The cost for these payments should be recorded on:
See 507-03 for further detail on indexes associated with these funds.
Payments will be made to vendors and contractors who provide goods and services directly to the University in conformity with the accounting policies of the University.
OSU payments should include (but are not limited to):
Payments to vendors and reimbursements to OSU employees should be made directly by OSU Foundation check when the expense is for:
Payments which must NOT be made through OSU (FIS Banner) include:
Non-cash employee awards less than $400 can be processed through either OSU or the Foundation. As a reminder, gift certificates are considered the same as cash and must go through OSU FIS Banner.
All distributions (scholarships, fellowships or awards) to enrolled students shall be made through the OSU Business Office and coordinated with the OSU Financial Aid Office to ensure that a student’s eligibility for other financial aid or awards is not jeopardized.
For scholarships, the Scholarship-Fellowship-Award Payment Authorization form is completed by the department identifying the foundation account that will fund the awards and the individual student recipients. The Payment Authorization Form is forwarded to the OSU Foundation which verifies that there are funds to make the requested payments. After OSUF’s funding verification, the form is forwarded to OSU Office of Financial Aid and Scholarships for verification of the student’s enrollment and eligibility. Once verified by OSU Financial Aid, the scholarship payment is posted to the student’s OSU account.
These payments will be recorded on FSxxxx indexes when funding is from the OSU Foundation. All scholarships must be on FSxxxx indexes with program code of 82001 Scholarships & Fellowships. Only expenses applicable to account codes 51xxx and 52xxx should be debited to these FS indexes.
At a minimum, scholarship funds should be reconciled with the Financial Aid Office and OSUF on a quarterly basis. The Scholarships-Fellowship-Awards Payment Authorization form is located at the OSUF website.
OSU funds which can receive Foundation reimbursements are:
Use the specific OSU index for payment which best records the activity/function being supported.
OSUF direct payment is preferred for donor fundraising and alumni relations costs rather than processing that expense at OSU through the “V” indexes.
Fiscal Operations Manual
Section 500: Financial Accounting and Analysis
Effective: 01/01/2003
Revised: 12/09/2010
Non-Scholarship Expense
A completed OSU Index Reimbursement Request is required for the OSU Foundation (OSUF) to process payment to OSU. This form is available through the online OSUF Reimbursement System.
The online OSUF Reimbursement System is designed for units and Business Centers to create reimbursement requests, route the requests to authorized signers for approval, and then forward the request to the OSU Foundation for reimbursement.
All units are required to use the online system to process non-scholarship expense reimbursement requests.
OSUF also requires that supporting expenditure documentation be scanned and then retained by the unit for a year and made available for audit purposes. Such documentation includes the vendor’s invoice and any receipts to verify that OSU has approved the payment of the expense to be reimbursed.
Scholarship Expense
Scholarship reimbursements must be completed through the online OSUF Reimbursement System.
Information on this subject is contained in the Grant, Contract and Gift Accounting (GCG) Policy & Procedure Manual.
Fiscal Operations Manual
Section 500: Financial Accounting and Analysis
Effective: 08/31/2008
Revised: 10/25/2012
The Agricultural Research Foundation is a private, non-profit corporation affiliated with Oregon State University (OSU) under IRS tax code 501(c) 3. Since 1934, the Agricultural Research Foundation (ARF) has proved to be a successful partner with the College of Agricultural Sciences in securing funding to solve current agricultural problems. ARF is the custodian of privately and publicly donated funds used to support scientific experimentation, research, and educational training activities for the benefit of the agricultural industry.
Fiscal Operations Manual
Section 500: Financial Accounting and Analysis
Effective: 08/31/2008
Revised: 10/25/2012
ARF accepts gifts from corporations, foundations, or private individuals. ARF accepts funding for sponsored research projects from commodity commissions, grower group committees, councils, and associations.
Potential funding sources should be discussed with the ARF Executive Director as only ARF personnel should accept donations on behalf of ARF.
Gifts
Gifts, by definition, do not commit OSU to any obligations and are sent directly to ARF for processing. An OSU employee must not agree to provide any goods, services or other remuneration in exchange for a gift.
Student Scholarships
The OSU Foundation is the recognized OSU-affiliated organization for most endowed student scholarships. Upon donor request, and with ARF approval, endowments for student scholarships may be established through ARF.
Facility/Capital Contributions
Funding from ARF projects may be needed to support facility/building remodel projects. These expenditures are pre-approved by ARF and processed through the appropriate FAxxxx indexes. Contributions for facility/building projects, including major capital campaigns, should be referred to the OSU Foundation.
Revenue not classified as contributions or donations
Revenue received from an OSU activity, or use of OSU facilities, shall not be deposited in an ARF account. These funds must be deposited into the appropriate OSU fund/index in which the costs were incurred.
When OSU employees provide services to a client, such as testing or assistance in product development, the client shall directly pay OSU for such services. OSU employees shall not accept payment for such services directly or indirectly through ARF.
An OSU employee or department/unit may not deposit revenue into ARF when generated from OSU sponsored workshops, conferences, seminars or similar activities (examples: registrations or ticket sales). To account for these types of revenues and their associated expenses within OSU refer to FIS 1403-03 Designated Operations.
An OSU employee or department/unit may not deposit into ARF revenue generated from OSU sponsored attendee-paid recognition events such as retirement dinners and award luncheons. Refer to FIS 102-09 Attendee-paid Recognition Events.
Summary: Revenue to ARF shall be donations or contributions which support scientific experimentation, research, and educational training activities for the benefit of the agricultural and natural resource industries in collaboration with OSU. Checks payable to OSU shall not be deposited directly into ARF. If a check is made payable to OSU, but intended for ARF, the check must first be sent to ARF with supporting documentation (all requests must be accompanied by documents clearly demonstrating ARF is the intended recipient). ARF will deposit through the OSU Business Affairs Cashier’s Office and the Cashier’s Office will issue a check payable to the Agricultural Research Foundation.
Contact ARF for answers to questions concerning this process.
Fiscal Operations Manual
Section 500: Financial Accounting and Analysis
Effective: 08/31/2008
Revised: 11/9/2012
FAxxxx indexes are established by the OSU Office of Post Award Administration (OPAA) for the receipt of revenue from ARF projects for the support of specific research contracts and are administered in the same manner as all OSU grants/contracts. All research work plans are approved by the Office of Sponsored Programs (OSP).
OPAA establishes one FAxxxx gift fund per department. The FAxxxx gift fund is specific to a department/unit and is not to be shared by multiple units. Activity codes should be used to identify transactions for all gifts. These are interest-bearing funds and must maintain a positive or zero cash balance.
ARF payments to OSU should not be deposited in other OSU funds or indexes without express permission from both ARF and Business Affairs.
Fiscal Operations Manual
Section 500: Financial Accounting and Analysis
Effective: 08/31/2008
Revised: 10/25/2012
An OSU employee must not use State funds or other department/unit deficits. OSU resources to fulfill a FAxxxx contract. Likewise, ARF funds must not be used to fulfill State or other department/unit deficits. An OSU employee may not redirect funds from the fulfillment of a FAxxxx contract to a different research purpose without first obtaining permission from ARF. FAxxxx contract to a different research purpose without first obtaining permission from ARF. FAxxxx contracts follow OSU policy, including those for cost overrun and cost transfers. See OSU Gift, Grant, and Contract manual.
FAxxxx gift indexes may only be used to pay for expenses incurred to fulfill OSU’s research or educational training mission. Expenses outside the scope of these programs are not reimbursable. Although ARF, with limited exceptions, follows OSU guidelines and recommendations concerning legitimate research and university expenses, other requirements may be imposed by ARF regarding the payment of expenses. Contact ARF regarding allowable expenses.
Fiscal Operations Manual
Section 500: Financial Accounting and Analysis
Effective: 08/31/2008
Revised: 10/25/2012
Generally, costs that are consistent with OSU’s fiscal policy should be paid through the OSU accounting system on established FAxxxx, not directly by ARF.
The following OSU expenses can only be paid through FAxxxx indexes and cannot be paid directly by ARF:
Capital equipment purchases equal-to or greater-than $5,000 per item, including vehicles. [account codes 401xx – 40201]
Use the following for specific OSU index payments which best record the activity/function being supported:
The expenses below can only be processed on FAxxxx giftfunds/indexes.
Fiscal Operations Manual
Section 500: Financial Accounting and Analysis
Effective: 08/31/2008
To assure student’s eligibility for financial aid is not jeopardized, and financial aid is accurately reported, all scholarship and fellowship funding supported by ARF shall be sent to OSU and the individual student account is credited.
Fiscal Operations Manual
Section 500: Financial Accounting and Analysis
Effective: 01/01/2003
Revised: 04/15/2013
The Facilities and Administrative rate (commonly referred to as indirect cost rate or F&A Rate) is based on the latest update of OMB (Office of Management and Budget) Circular A-21. The F&A Cost Proposal is prepared by OSU Business Affairs' Financial Accounting & Analysis Unit. Negotiations are completed by the VP for Finance and Administration with staff from the US Department of Health and Human Services (DHHS), Division of Cost Allocation (DCA). DHHS-DCA is OSU's cognizant agency responsible for negotiating and approving rates for OSU on behalf of all Federal agencies. Negotiated rates are usually established for a 3-4 year period.
The Modified Total Direct Cost (MTDC) method of calculating the Facilities and Administrative rate is the method required for use by OSU. The process is as follows:
The current F & A Rate Agreement can be found at the OSU Research – Office of Sponsored Programs website or under Business Affairs, Financial Accounting & Analysis
Fiscal Operations Manual
Section 500: Financial Accounting and Analysis
Effective: 03/01/2013
Fiscal Operations Manual
Section 500: Financial Accounting and Analysis
Effective: 01/01/2003
Revised: 12/09/2010
Foreign programs frequently present special challenges. International vendors often require immediate payment for goods and services in local currency. The solution has been to provide funds to foreign personnel in advance. The program director is then responsible for the funds.
Occasionally, providing an advance to a foreign program includes depositing funds in a foreign bank. Approval must be obtained in advance from OSU Office of Business Affairs, the OUS Controller’s Division and the State Treasurer.
Authorization should be requested by letter to the Director of Business Affairs for approval and forwarding to the OUS Controller’s Division. The request should include the following:
Fiscal Operations Manual
Section 500: Financial Accounting and Analysis
Effective: 01/01/2003
Revised: 08/26/2010
Funds 9xxxxx are Agency Funds. These funds are established for outside entities affiliated with and residing at OSU to facilitate ease of use of OSU services, such as direct charging from telecommunications, printing/mailing services, or OSU Bookstore. Examples include: student campus organizations, OSU Alumni Association, and National Marine Fisheries Service Ground Fish Group. The balance in this fund is owned by the agency, not OSU. Expenditures are not reported in OSU’s financial statements. These funds cannot be used to make salary payments. Employees of the agency are not OSU employees.
See FIS 1101 FOAPAL Elements for additional information.