Baylor University
Tax & Compliance Department
Financial Services

Unrelated Business Taxable Income (UBTI)

A tax exempt organization (§501(c)(3)) is not subject to income tax on revenues generated through activities that are in line with the organization’s exempt purposes. However, §511 and corresponding Treasury Regulations place a tax on income that is not related to the organization’s exempt purposes. For income to be unrelated business income and taxable (UBTI) the activity generating the income must be:

  1. A trade or business -- Conducted with intent to generate profit.
  2. That is regularly carried on – Determined by looking to frequency, continuity, and whether manner conducted is consistent with the manner of a commercial taxable organization.
  3. And not substantially related to the exempt purpose of the organization – Does not contribute importantly to furthering the university’s purposes; motivated primarily for the production of income.

There are possible exceptions and modifications for each of these prongs depending on the activity in question. Possible activities that might generate UBTI are as follows, and each activity is discussed under the corresponding links:

Advertising Income Internet
Athletic Events/Television and Broadcast Rights Operation of Parking Lots
Activities with a History of Consistent Losses Participation in Partnerships
Bookstore Operations Professional Entertainment Events
Catering Activities Publishing Activities
Concession Sales Research
Conferences, Meetings, & Training Programs Restaurant Operations
Corporate Sponsorship Payments Summer Sports Camps
Dormitory Rentals Treatment of Alumni
Exclusivity Contracts Use of Facilities by the General Public