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Tax Resources

Mission

This site contains tax resource material for the University of North Florida community. Its purpose is to provide content necessary to meet tax reporting and compliance requirements of the University in addition to giving guidance to those seeking information. As needs, requirements, and processes evolve, the page will be modified as needed. This page contains information and resources as listed below:

Information and Resources

Payments to Individuals

  1. Independent Contractor Payments
  2. Moving Expenses
  3. Temporary Living Expenses
  4. Payments to Nonresident Aliens

Independent Contractor Payments

Accounts Payable (AP), in accordance with Internal Revenue Service (IRS) regulations, must report to the IRS and be able to produce 1099 tax forms for non employees receiving payments or in-kind payments that in aggregate exceed $600. All individuals and organizations classified as independent contractors and requesting payment from UNF must complete IRS Form W-9 in Purchasing. UNF must determine if an individual providing services is an independent contractor (payment should be made via Purchasing and reported on Form 1099) or an employee (payment should be made via the Payroll Department and reported on Form W-2). Payments made to non-resident aliens are subject to special tax provisions and withholding under the Internal Revenue Code, thus, payments to nonresident aliens must be processed by the Payroll Department. Departments should carefully consider answers provided to questions on the form as any taxes, interest or penalties assessed by the IRS due to misclassification of an individual as an independent contractor, will be paid by the UNF Department authorizing the payment.

Moving Expenses

UNF Departments may approve payment of moving expenses for new employees. Payments meeting the Internal Revenue Service (IRS) definition of a "qualified moving expense" will not result in taxable income to the employee. Payments of "non-qualified moving expenses" will result in additional taxable income to employees subject to federal income tax withholding and employment taxes (FICA & FATA). The following is a recap of the IRS definitions of qualified and non-qualified moving expenses and it is recommended that Departments refer to the procedures listed on the Purchasing and Accounts web pages for more complete details with regard to what may be allowable or not allowable.

Qualified Moving Expenses - IRS Definition

Qualified moving expenses will not be reported as wages if the expenses meet the following conditions are documented in the payment file:

  1. That the employee's new principal place of work is at least 50 miles farther from his former residence than was his former place of work, or if the taxpayer had no former principal place of work, is at least 50 miles from his former residence; and
  2. That the hiring department reasonably believes, at the time of payment or reimbursement of moving expenses, that during the 12-month period immediately following the employee's arrival in the general location of his new principal place of work, the individual will be a full-time employee, in such general location, during at least 39 weeks.
  3. Costs of moving must be reasonable (and not lavish or extravagant) and can include:
    1. Transportation and travel expenses representing the shortest and most direct route available from the former residence to the new residence. This must be done using a conventional means of transportation, in the shortest period of time that is commonly required to travel the distance.
    2. Cost of moving household goods and personal effects from the former residence to the new residence, and/or
    3. Cost of moving the entire family, including transportation and lodging from the former residence to the new residence. The employee and family may only make one trip from the old residence to the new residence, however they need not make the trip together or at the same time.
    4. The expenses must not include any meals.
     
  4. If the move represents commencement of work by the taxpayer at a new principal place of work located outside the United States and its possessions, reasonable expenses may also include those costs for moving household goods and personal effects to and from storage, and of storing such goods and effects for part or all of the period during which the new place of work continues to be the taxpayer's principal place of work.
  5. Employee must provide UNF with a receipt for all expenses.

Non-Qualified Moving Expenses - IRS Definition

Expenses other than qualified employer-provided moving expenses are taxable fringe benefits subject to FICA, FUTA, and federal income taxes.

 

Examples of non-qualified moving expenses include:

  1. Temporary living expenses incurred in the general area of the new workplace while waiting to occupy the new residence or waiting for household furnishings to arrive;
  2. House-hunting and apartment-hunting trips;
  3. Expenses of trips to the locale from which the taxpayer moved that are made to sell property;
  4. Costs incurred to visit family at the former residence before the family's move;
  5. Meals during travel; and
  6. Mileage in excess of IRS limitations - (NOTE: current IRS rate is $0.14/mile (see IRS Rev. Proc. 2003-76) for moving expenses paid or incurred on or after January 1, 2004. NOTE: Allowable state mileage reimbursement rate may be lower than the IRS allowed rate.

IRS Form W-2 Reporting Requirements for Moving Expenses

  • Qualified moving expenses made directly to a third party (i.e., authorized moving van company) are excluded from an employee's taxable income and are not reported on Form W-2.
  • Qualified moving expenses made directly to an employee are excluded from taxable income but must be reported in Box 12 of Form W-2 indicated with code 'P'.
  • Non-qualified moving expenses are considered taxable income and must be reported in Box 1 of Form W-2, subject to FICA, FUTA, and federal tax withholding requirements.
  • Payments made to non-resident aliens must be reported on IRS Form 1042-S. All moving expense payments made on behalf of a nonresident alien must be reported to the UNF Payroll Department.

Temporary Living Expenses

UNF is required to follow IRS rules to determine if payment or reimbursement of living expenses to employees must be included in taxable wages. Payment or reimbursement of living expenses to an employee on a temporary work assignment is excluded from taxable income while payment to an employee on an indefinite work assignment must be included in taxable wages. IRS rules define a temporary assignment as one that is initially expected to last (and does in fact last) one year or less. An indefinite work assignment is one that is realistically expected to last more than one year. Please contact the Payroll Office for further guidance regarding the taxation of fringe benefits.

 

As explained in IRS Publication 463, UNF must determine whether an employee's assignment is temporary or indefinite as of the date work begins.

  • An assignment or job expected to last for one year or less, is temporary unless there are facts and circumstances that indicate otherwise.
  • Employment expected to last more than one year will be treated as indefinite, regardless of whether the employment exceeds one year.
  • An assignment or job that is initially temporary may become indefinite due to changed circumstances.
  • A series of assignments to the same location, all for short periods but that together cover a long period, may be considered an indefinite assignment.

The following examples illustrate whether an assignment or job is temporary or indefinite:

Example 1

You are a construction worker. You live and regularly work in Los Angeles. You are a member of a trade union in Los Angeles that helps you get work in the Los Angeles area. Because of a shortage of work, you took a job on a construction project in Fresno. Your job was scheduled to end in 8 months. The job actually lasted 10 months.

 

You realistically expected the job in Fresno to last 8 months. The job actually did last less than 1 year. The job is temporary and your tax home is still in Los Angeles. This example qualifies as a temporary assignment, and temporary living expenses paid by employer may be excluded from employee's taxable income.

Example 2

The facts are the same as in Example 1, except that you realistically expected the work in Fresno to last 18 months. The job actually was completed in 10 months.

 

Your job in Fresno is indefinite because you realistically expected the work to last longer than 1 year, even though it actually lasted less than 1 year. This example does not qualify as a temporary assignment, thus living expenses paid by employer must be included in employee's taxable income.

Example 3

The facts are the same as in Example 1, except that you realistically expected the work in Fresno to last 9 months. After 8 months, however, you were asked to remain for 7 more months (for a total actual stay of 15 months).

 

Initially, you realistically expected the job in Fresno to last for only 9 months. However, due to changed circumstances occurring after 8 months, it was no longer realistic for you to expect that the job in Fresno would last for one year or less. Living expenses paid by employer for the first 8 months of the job are considered temporary and may be excluded from the employee's taxable income (as employment is not expected to last more than one year). However, living expenses paid by the employer after expectations changed (it was realistic to expect employment would last for more than one year) are considered indefinite and must be included in the employee's taxable income.

What travel expenses may be reimbursed by the employer as a temporary living expense?

Temporary living expenses include ordinary and necessary expenses incurred when traveling away from home on business. These must be evaluated closely depending on the particular facts and circumstances.

Payments to Nonresident Aliens

The University of North Florida is required to withhold U.S. income tax at the time a payment is made to a nonresident alien or to a third party on his or her behalf. If the taxes are not properly withheld from Nonresident Aliens payments, the University can be held liable for the tax that is not withheld and any penalties that may be imposed by the IRS. The following list is the types of payments to Nonresident Aliens that need to be analyzed to determine if taxes are to be withheld or not withheld:

  1. Wages, salary or compensation
  2. Independent Contractor Payments
  3. Scholarships/Fellowships
  4. Stipends
  5. Book allowances
  6. Living expenses
  7. Honoraria for Guest speaker fees
  8. Prizes/Awards
  9. Royalties/Commissions
  10. Travel Reimbursement
  11. Interest

Sales Tax

Specific Transactions and Exemptions

In general, revenue from the sale of tangible personal property or lease of tangible and real property is subject to Florida sales tax. The Tax Department is available to review revenues collected by the university to determine if transaction is subject to state and local sales taxes. Additional information regarding specific transactions and specific exemptions is provided via the links below.

  1. Determining Whether a Transaction is Subject to State Sales Tax- Exempt organizations must collect sales tax on taxable transactions with individuals or organizations that do not possess an exemption certificate issued by the Florida Department of Revenue.
  2. How to Document a Transaction with an Organization Exempt from Sales Tax
  3. Real Property Rentals
  4. Management Agreements vs. Leases or Licenses to Use Property- Determining if an agreement is a management agreements (not subject to Florida sales tax) vs. a leases or licenses to use property (subject to sales tax).
  5. Transient Rentals and Tourist Development Taxes- Taxation of living accommodations.
  6. Admissions
  7. Fundraising (Meals, Auctions, Gift Certificates and Parking)
  8. Out of State Sales
  9. Returns of Merchandise
  10. Transportation Charges
  11. Food/ Property Distributed at Conferences, Seminars and Educational Courses
  12. Lump sum Tuition (including books, supplies or other tangible property)
  13. Prepaid Calling Cards
  14. Mailing Lists
  15. Bartering or Trading Property
  16. Public Record Requests - copying charges
  17. Direct Support Organizations
  18. Recordkeeping Requirements
  19. How to Collect Sales Tax and Provide Receipt to Purchaser

Determining Whether a Transaction is Subject to State Sales Tax

The State of Florida imposes a tax on all sales of tangible personal property. A sale is defined as any transfer of title or possession, or both, exchange, barter, license, lease, or rental of tangible personal property for consideration. Most counties in the state impose additional surtaxes on sales.

 

Exempt organizations must collect sales tax on transactions made to individuals or organizations (i.e., vendors) that do not possess an exemption certificate. Organizations that have obtained an exemption certificate from the Florida Department of Revenue (DOR) are not subject to sales tax on items purchased for use in their exempt activities.

 

The primary sources of authority for determining whether a particular transaction is subject to Florida sales tax are the Florida Statutes (F.S.) and the Florida Administrative Code (F.A.C.). The Florida Department of Revenue (DOR) may issue a technical assistance advisement (TAA) to a taxpayer that submits a specific question in writing. The TAA is only binding for the requesting taxpayer. TAA's are published by the DOR without the taxpayer's name or identification number. The DOR is not required to follow guidance contained in a TAA in any situation other than the specific situation addressed for the specific requesting taxpayer.

 

The State University System (SUS) compiled a list of transactions along with a determination as to their taxability that was submitted to the DOR for review. The SUS and DOR engaged in subsequent meetings and correspondence regarding several transactions on the list. Refer to the Florida Department of Revenue (DOR) for the State University System for a list of taxable and non-taxable transactions as agreed by the DOR and the SUS. The determination as to the taxability of the transactions listed is not binding on the DOR.

How to Document a Transaction with an Organization Exempt from Sales Tax

Obtain the Necessary Documentation if Taxes are Not Collected

Political subdivisions and religious, charitable, educational and certain veteran organizations may qualify under Sections 212.08(6) and (7), F.S., and Rule 12A-1.038, F.A.C., to make purchases for use in the course of their customary nonprofit religious, nonprofit educational, or nonprofit charitable activities without paying the tax. Charitable organizations, which qualify under 501(c)(3)IRC, qualify for a consumer's certificate of exemption. Qualifying persons desiring to make tax-exempt purchases must apply for a certificate of exemption on form DR-5. This exemption must be renewed every 5 years per Sec. 212.084, F.S. Upon approval of the application, the Department will issue form DR-14, a Consumer's Certificate of Exemption.

University of North Florida

The University of North Florida has obtained form DR-14, a Consumer's Certificate of Exemption, from the DOR. All Colleges and Departments at the University may use this certificate to exempt from sales tax purchases for use in the course of UNF's customary nonprofit educational activities. The Student Government, as a division of the University, is entitled to use the certificate. Student Organizations that receive A&S funds are entitled to use UNF's certificate when expending those funds. Student Organizations are not entitled to use UNF's certificate to obtain exemption for any other expenditures. Rule 6C4-6.017(1)(b)4., F.A.C., Registration and Conduct of Student Organizations, states that "although not an entity of or a division of the University, a student organization is given the opportunity to operate as a member of the University community...".

UNF's Vendors

UNF must retain proper documentation when a sale or rental is made to an entity which is exempt from tax. Payment must be made directly by the exempt entity. The sale is not exempt if employee pays and will be reimbursed. UNF must retain in its files, either:

  1. A copy of exempt entity's Consumer's Certificate of Exemption (Form DR-14)
  2. Transaction Authorization Number
  3. Vendor Authorization Number
  4. Resale Certificate (Form DR-13)

Rule 12A-1.038(8), F.A.C., provides that purchases by the U.S. government are exempt whether or not a Consumer's Certificate of Exemption (Form DR-14) is presented to the dealer. Rule 12A-1.038(4) F.A.C., contains a suggested document to be provided the dealer by Federal employees.

Resale Certificates

Sales tax is not required to be collected when property is purchased for subsequent resale to the final consumer (provided the seller obtains an Annual Resale Certificate from the purchaser). Beginning with calendar year 2000, the DOR will issue a sales tax Annual Resale Certificate (Form DR-13) to each active registered dealer. The certificates expire on December 31 of each calendar year. Sales tax must be collected when the property is sold to the final consumer. When UNF makes a tax exempt sale for the purposes of resale, it must obtain either a:

  1. Copy of the purchaser's current Annual Resale Certificate (Form DR-13),
  2. Transaction Resale Authorization Number or
  3. Vendor Resale Authorization Number issued by the FL Department of Revenue.

Real Property Rentals

Renting, leasing, letting, or granting a license for the use of any real property are activities subject to sales tax. Section 212.031, F.S., provides that every person is exercising a taxable privilege who engages in the business of renting, leasing, letting, or granting a license for the use of any real property. The tax imposed shall be in addition to the total amount of the rental or license fee, shall be charged by the lesser or person receiving the rent or payment, and shall be due and payable at the time of the receipt of such rental or license fee payment. Payments for intrinsically valuable personal property such as franchises, trademarks, service marks, logos, or patents are not subject to tax under this section. In TAA 94A-065 the Department of Revenue determined that certain expenses paid directly by the lesser but apportioned to the tenant as additional rent are subject to sales tax.

 

Section 212.031(1)(c), F.S., requires sales tax to be imposed on the " total rent...charged for such real property by the person charging or collecting the rental...fee." This statute is interpreted specifically in paragraph (4)(b) in Rule 12A-1.070, F.A.C. which provides that tax is due "...on all considerations due an payable from the tenant...". Rule 12A-1.070(4)(e), F.A.C., states utility charges paid by a tenant to the lessor for the privilege or right to use or occupy real property are taxable, unless the lessor has paid the sales tax to the utility company on such utilities consumed by the tenant, and the utilities billed by the lessor to the tenant are separately stated on the lessor's invoice to the tenant at the same or lower price as that billed by the utility to the lessor. In TAA 89A-064 the Department of Revenue determined that the cost of improvement to premises when paid by the tenant is additional rent. The Department considers these payments as part of the total consideration given by the tenant for the right to use or occupy the property.

Management Agreements vs. Leases or Licenses to Use Property

Management agreements are not subject to Florida sales tax; however, real property rentals and "licenses to use" real property "space" are both subject to Florida sales tax. This process discusses factors involved in determining classification of agreements in these categories.

 

Real Property rentals and licenses to use real property are both subject to Florida sales tax (see 212.03, F.S. and discussion in #1 above); however, management agreements are not subject to Florida sales tax. Several TAAs issued by the DOR have helped to provide guidance as to when a transaction qualifies as a "rental" or "license to use real property" (subject to Florida sales tax) versus a "management agreement" (not subject to Florida sales tax). This determination is complicated, and depends on the facts and circumstances of each contract.

Transient Rentals and Tourist Development Taxes

Every person who rents, leases, or lets for consideration any living quarters or accommodations in any hotel, apartment hotel, motel, resort motel, apartment, apartment motel, rooming house, mobile home park, recreational vehicle park, or condominium for a term of 6 months or less is exercising a privilege, unless such person rents, leases, or lets for consideration any living quarters or accommodations which are exempt according to the provisions of chapter 212 (sales tax).

 

Note: If an entity is exempt from Florida sales and use tax, then that entity is also exempt from the tourist development tax.

 

Section 212.03, F.S., provides that every person is exercising a taxable privilege who engages in the business of renting, leasing, letting, or granting a license to use any living quarters or sleeping or housekeeping accommodations in, from, or a part of, or in connection with any hotel, apartment house, rooming house, or tourist or trailer camp. Any person who exclusively enters into a bona fide written agreement for continuous residence for longer than 6 months in duration at such property is not exercising a taxable privilege. The tax levied is 6% of the total rental charged. 212.03(7)(a), F.S. exempts full-time students enrolled in an institution offering post secondary education from the tax imposed by this section. The department shall be empowered to determine what shall be deemed acceptable proof of full-time enrollment. Rule 12A-1.061(10), F.A.C., provides that a full-time student is one taking that number of hours or courses considered by his or her educational institution to constitute full-time enrollment.

 

Rule 12A-1.061(1)(d), F.A.C., provides that day nurseries, kindergartens, church-operated and other custodial camps which primarily provide supervisory and instructional services which are professional and personal, are exempt and are not required to collect tax on fees charged for lodging to the students or campers. Sales of taxable items of tangible personal property at commissaries operated by such institutions are taxable. TAA 95A-049R acknowledges that the rule does not provide a clear definition of "custodial camp". Thus, we must look to other sources to define this term. The term "camp" is not defined in any statute or rule. However, the terms "summer day camp" and "summer 24 hour camp" are defined in Section 409.175(2), F.S. Both of those definitions specify that they are programs offered during summer vacation. Webster's Dictionary defines "camp" as being a "place provided with tents or cabins...designed for rest or recreation, especially for children during the summer." Thus, relying on these sources and the doctrine of "plain and ordinary meaning" we must conclude that a camp is a program that is of a temporary or limited duration conducted during a period when school is not normally being attended.

 

Section 125.0104(3)(a), F.S., provides for a tourist development tax which may be imposed by the governing board of a county. This tax is an ad valorem or property tax. Every person who rents, leases, or lets for consideration any living quarters or accommodations in any hotel, apartment hotel, motel, resort motel, apartment, apartment motel, rooming house, mobile home park, recreational vehicle park, or condominium for a term of 6 months or less is exercising a privilege which is subject to taxation under this section, unless such person rents, leases, or lets for consideration any living quarters or accommodations which are exempt according to the provisions of chapter 212.Note: If an entity is exempt from Florida sales and use tax, then that entity is also exempt from the tourist development tax.

Admissions

Every person is exercising a taxable privilege that sells or receives anything of value by way of admissions. This process provides definitions for exemptions and outlines exemption criteria for:

  • Events sponsored by public colleges and universities (does not apply to athletic events sponsored by state universities)
  • Certain events sponsored by 501(c)(3) organizations

Section 212.02(1), F.S. defines admissions as the net sum of money after deduction of any federal taxes for admitting a person or vehicle or persons to any place of amusement, sport, or recreation or for the privilege of entering or staying in any place of amusement, sport, or recreation, including, but not limited to, theaters, outdoor theaters, shows, exhibitions, games, races, or any place where charge is made by way of sale of tickets, gate charges, seat charges, box charges, season pass charges, cover charges, greens fees, participation fees, entrance fees, or other fees or receipts of anything of value measured on an admission or entrance or length of stay or seat box accommodations in any place where there is any exhibition, amusement, sport, or recreation, and all dues and fees paid to private clubs and membership clubs providing recreational or physical fitness facilities, including, but not limited to, golf, tennis, swimming, yachting, boating, athletic, exercise, and fitness facilities.

 

Section 212.04(1) declares that every person is exercising a taxable privilege that sells or receives anything of value by way of admissions. The tax is levied at the rate of 6 percent of sales price, or the actual value received from such admissions. Each ticket must show on its face the actual sales price of the admission, or each dealer must prominently display at the box office or other place where the admission charge is made a notice disclosing the price of the admission, and the tax shall be computed and collected on the basis of the actual price of the admission charged by the dealer.

 

Section 212.04(2)(a)1, F.S.exempts admissions to events sponsored by public colleges and universities when only student or faculty talent is used. This exemption shall not apply to admission to athletic events sponsored by an institution within the SUS system.

 

Section 212.04(2)(a)6, F.S.,exempts admissions to live theater, live opera, or live ballet productions which are sponsored by an organization that has received a determination from the Internal Revenue Service that the organization is exempt from federal income tax under section 501(c)(3)of the Internal Revenue Code. The University of North Florida is not exempt under section 501(c)(3). The State University System comes under the umbrella of the Department of Education that is a governmental agency.

 

Section 212.04(2)(a)2, F.S., states that no tax shall be levied on admission charges imposed by not-for-profit sponsoring organizations. To receive this exemption, the sponsoring organization must qualify as a not-for-profit entity under the provisions of Sec. 501(c)(3) of the U.S. Internal Revenue Code of 1954, as amended.Rule 12A-1.005(1)(f), F.A.C.,states that sponsorship of an event or program is determined by using the following criteria: 1. Active participation by the entity in the planning and conduct of the event or program; 2. Assumption by it of responsibility for the safety and success of the event or program, such that it will be subject to a suit for damages for alleged negligence in its conduct; 3. Entitlement by it to the gross proceeds from the event or program and to the net proceeds after payment of its costs; and 4. Responsibility by it for payment of costs of the event or program and for bearing any net loss if the costs exceed gross proceeds.

Fundraising (Meals, Auctions, Gift Certificates and Parking)

Meals, auction items and parking provided as part of a fundraising activity may be subject to sales tax. The sale of a gift certificate is not subject to sales tax.

 

Rule 12A-1.001(14), F.A.C., defines schools as tax supported ... schools conducting regular classes and courses of study required for accreditation by or membership in the Southern Association of Colleges and Schools ... . Tangible personal property sold outright or rented through the school to students is taxable based on delivered cost to the school or on the amount charged the student upon sale or rental. Student photographs, candies, confections, and novelties sold to students or the public for fund raising purposes come within this rule. Schools grades K through 12 and their respective P.T.A.'s or P.T.O.'s have been granted the privilege of paying tax to their suppliers on school materials and supplies that they purchase for resale to students and the tax is passed on to the student as part of the selling price. All others making sales of school supplies and materials are required to register as dealers and collect the tax thereon from the purchaser. Parent-teacher associations may qualify for exemption as educational institutions and may make tax-exempt purchases of items used in their customary activities or items donated by the associations to the schools. Parent-teacher associations holding fund raising events such as spring festivals, fun houses, and games where prizes are given away shall pay the tax on all materials used, including the prizes awarded.

 

Rule 12A-1.011(23), F.A.C., provides that barbecues, fish fries and similar dinners are taxable even if the entire proceeds are used for charitable purposes. If a club or similar organization charges its members or guests a greater amount at their luncheon meetings and dinners than it pays the caterer or restaurant which furnishes the meals, the tax may be computed on the charge made by the caterer or restaurant. In the case of fund raising events when the charge to the patron or customer bears no relationship to the actual value of that which is received, such as a $50 per place dinner, the tax base shall be the total amount charged by the caterer or restaurateur to the sponsoring organization. Subsection (26) states that if meals for members of school organizations are paid for out of school funds, the person paying for them may give a certificate to the person collecting for them stating that the meals are purchased from school funds for school purposes. This will relieve the seller of the responsibility of collecting sales tax on the meals. Subsection (27) provides that athletic organizations are taxable on meals purchased from caterers and served to their players without charge. When such organizations purchase groceries and prepare meals, which they serve to their players without charge, such meals are exempt.

 

Rule 12A-1.037, F.A.C.,exempts occasional or isolated sales. Rule 12A-1.037(3)(b)(2) states such sales must occur no more frequently than two times during any 12-month period. An entity with more than one place of operation in the State of Florida shall be considered a single entity. Auctions held by UNF departments will not qualify for exemption because more than two auctions are held each year for the UNF campus as a whole.The isolated sales exemption does not apply to sales made by or through an auctioneer, agent, broker, factor, or any other person registered or requiring to be registered as a dealer to engage in, conduct, or hold itself out as engaged in business, regardless of whether the sale of such items by the owner would have qualified the sale as an isolated sale.

 

Rule 12A-1.089, F.A.C., provides that the sale of a gift certificate is not taxable.

 

Rule 12A-1.073, F.A.C., provides that the lease or rental of parking or storage spaces for motor vehicles in parking lots or garages is taxable.

Out of State Sales

A dealer is required to collect tax on sales of tangible personal property, when the property is delivered to the purchaser or the purchaser's representative in Florida. Sales tax is not due if the exportation process remains continuous and unbroken until the property is exported from Florida.

 

Rule 12a-1.0015(2)(a), F.A.C., provides that a dealer is required to collect tax on sales of tangible personal property, when the property is delivered to the purchaser or the purchaser's representative in Florida,whether the disclosed or undisclosed intention of the purchaser is to transport the property to a location outside Florida, or whether the property is actually so transported. every sale of tangible personal property to a person physically present a the time of the sale is presumed to have been delivered in Florida.

 

Rule 12a-1.0015(2)(b), F.A.C. states when a dealer sells tangible personal property, commits the property to the exportation process at the time of the sale, and the exportation process remains continuous and unbroken until the property is exported from Florida, the dealer is not required to collect tax.the intent of the seller and the purchaser to export the property is not sufficient to establish that the property is not subject to tax in Florida. the delivery of the property to a location in Florida for subsequent export from Florida is insufficient to establish documentary evidence that the property sold was irrevocably committed to the exportation process. the following are examples of methods to commit the property to the exportation process at the time of the sale: Solution

  1. the dealer is required by the terms of the sale contract to deliver the goods outside this state using his own mode of transportation;
  2. the dealer is required by the terms of the sale contract to mail the property by united states mail to a destination located outside Florida;
  3. the dealer is required by the terms of the sale contract to deliver the property to a carrier, licensed customs broker, or forwarding agent for final and certain movement of the property to a destination located outside Florida.
    1. the term "carrier" means a person regularly engaged in the business of transporting tangible personal property owned by other persons for compensation. The term "carrier" includes common carriers and contract carriers.
    2. the term "licensed customs broker" means a person licensed by the united states custom service to act as a custom house broker.
    3. the term "forwarding agent" means a person regularly engaged in the business of preparing property for shipment or arranging for its shipment for compensation.
    4. person not engaged in the business of receiving tangible personal property owned by other persons and shipping or arranging for shipping for compensation does not become a carrier or forwarding agent by being designated by the purchaser to receive and ship goods to a point outside Florida.
     

Rule 12a-1.0015(2)(c), F.A.C., states any dealer who makes tax exempt sales of tangible personal property for export outside Florida is required to maintain records to document that the property is committed to the exportation process at the time of sale and that the exportation process is continuous and unbroken until the property is exported from Florida.

 

Examples of records to document sales for export to points outside Florida are provided in rule 12a-1.0015, F.A.C.

Returns of Merchandise

When a sale is canceled or merchandise is returned, sales tax that was remitted to the DOR is returned to the customer. The amount of sales tax returned to the customer must be charged to the appropriate account in order to facilitate proper reporting on UNF's sales tax return.

 

F.S. 212.17 addresses when a sale is canceled or merchandise is returned, sales tax that was remitted to the DOR is returned to the customer. The amount of sales tax returned to the customer must be charged to the appropriate account in order to facilitate proper reporting on UNF's sales tax return.

Transportation Charges

Transportation charges include carrying, delivery, freight, handling, pickup, shipping, and other similar charges or fees that are not separately stated on an invoice or bill of sale but are included in the sales price of taxable tangible personal property are subject to tax. If a purchaser cannot elect to avoid the charge for transportation services, the charge for the transportation service is subject to tax, even if separately stated on an invoice or bill of sale.

 

Rule 12A-1.045, F.A.C., provides that transportation charges include carrying, delivery, freight, handling, pickup, shipping, and other similar charges or fees that are not separately stated on an invoice or bill of sale but are included in the sales price of taxable tangible personal property are subject to tax. Where the seller agrees to deliver tangible personal property to some designated place and the purchaser cannot elect to avoid the charge for transportation services, the charge for the transportation service is subject to tax, even if separately stated on an invoice or bill of sale. The charge for transportation services is not subject to tax when both of the following conditions have been met: 

  1. The charge is separately stated on an invoice or bill of sale; and
  2. The charge can be avoided by a decision or action solely on the part of the purchaser.

If the seller contracts to sell tangible personal property F.O.B. origin, the title to the property passes at the point of origin. Since the title to the property passes at the point of origin, transportation services arranged by the seller and rendered to the buyer are not a part of the taxable selling price, provided the transportation charges are separately stated. Where the transportation charges are billed by the seller to the buyer but documentation is inadequate to establish the point at which title passed to the buyer, it is presumed that the tangible personal property was sold F.O.B. origin and the title to the property passes at the point of origin. In such instances, the transportation charges are not considered a part of the selling price of the property, if separately stated.

Food/ Property Distributed at Conferences, Seminars and Educational Courses

Expenditures normally made by UNF in the development and presentation of conferences, seminars and educational programs are not subject to sales or use tax when purchases are made directly by UNF to "carry on" its "customary" nonprofit educational activities.

Lump sum Tuition

When programs at UNF charge a lump-sum amount for tuition including payment for fees, books, supplies, or any other property required of a particular course or program, sales tax is required to be collected and remitted on the sale of tangible personal property sold to program participants.

 

When programs at UNF charge a lump-sum amount for tuition including payment for fees, books, supplies, or any other property required of a particular course or program, sales tax is required to be collected and remitted on the sale of tangible personal property sold to program participants. When including charges for tangible personal property (such as textbooks) as part of a lump-sum charge, there are two options:

  1. UNF may pay sales tax at the time of purchasing the tangible goods (textbooks, etc.) by not using its exemption certificate at the time of purchase. In this case there is no need to separately charge students for the distribution of the tangible goods as part of a lump-sum tuition payment. It is important to retain documentation (i.e., receipts) showing UNF paid sales tax on its purchase of the tangible property in case of future DOR audit.
  2. UNF can use its tax-exempt certificate at the time of purchasing the tangible goods (i.e., textbooks) then charge the students sales tax on the value of the tangible goods provided as part of the lump-sum tuition payment. UNF must establish a sales price for the tangible personal property portion of the lump-sum tuition charge and collect/remit sales tax.

Prepaid Calling Cards

Prepaid calling cards are subject to Florida sales tax on telecommunications at the rate of 7 percent at the moment of sale to the customer. The tax also applies to recharging or reactivating the calling card.

 

According to DOR TIP 99A01-18, effective July 1, 1999, prepaid calling cards are subject to Florida sales tax on telecommunications at the rate of 7 percent at the moment of sale to the customer. The tax also applies to recharging or reactivating the calling card. However, the discretionary sales surtax (local option) does not apply to the sale, recharge, or reactivation of the calling card. The dealer is responsible for collecting and remitting the sales tax to the Florida Department of Revenue. The term "prepaid telephone calling card" includes any prepaid telecommunication service that allows the user of the card the right to exclusively make telephone calls using an access number, authorization code, authorization number, wireless or cellular mobile telephone account, whether dialed manually or electronically.

Mailing Lists

The sale of mailing lists is subject to Florida sales tax.

 

TAA 96A-023 determined the sale of mailing lists is subject to Florida sales tax. The sale of mailing lists is considered a sale of tangible personal property and as such requires the collection and remission of sales tax on any sale made to a purchaser in Florida.

Bartering or Trading Property

If you plan to exchange property for another piece of property, sales tax must be collected on the deemed "sale" of property to the other party even though property, not cash, is received in return for the sale of that property.

 

212.02(15) F.S. defines a sale as any transfer of title or possession, or both, exchange, barter, license, lease, or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property for consideration. If you plan to exchange property for another piece of property, sales tax must be collected on the deemed "sale" of property to the other party even though property, not cash, is received in return for the sale of that property.

Public Record Requests - copying charges

Charges for photocopies made as a result of a public records request are not subject to sales tax. See Rule as described in the applicable Florida Administrative Code Section copied below.

 

Florida Administrative Code Section 12A-1.041 Photographers and Photo Finishers; Sales by Public Officials of Public Records states.

  1. The fee prescribed by law, or the actual cost of duplication, for providing copies of public records by public officers or public employees under Chapter 119, F.S., is exempt from sales tax.
  2. Actual cost of duplication means:
    1. The cost of the materials and supplies used to duplicate the record, but does not include the labor cost or overhead cost associated with such duplication; unless
    2. The nature or volume of records is such as to require extensive personnel assistance or resources, in which case a special service charge, based on the additional cost incurred, may be added to the actual cost of duplication; however
    3. The charge for copies of county maps or aerial photographs supplied by county constitutional officers may also include a reasonable charge for the labor and overhead associated with its duplication; and
    4. The fee charged by custodians of public records for remote electronic means, granted under a contractual arrangement with a user, which fee shall include the direct and indirect costs of providing such access.
     
  3. The charge for copying documents and other papers which are not public records and which can be copied by a dealer engaged in such business represents the sale of tangible personal property and is taxable.

Direct Support Organizations

A Direct Support Organization (DSO), such as the University of North Florida Foundation, Inc., of the University of North Florida is responsible for collecting and remitting sales tax on applicable taxable transactions processed in each organization's accounting system.

 

Each DSO is a separate legal entity and as such, has financial statements and a federal tax identification number separate from the university. Each DSO is responsible for collecting and remitting tax, including filing tax returns with appropriate taxing authorities such as the Florida Department of Revenue (DOR) and the Internal Revenue Service (IRS).

 

UNF Departments are ultimately responsible for complying with applicable tax rules and regulations. Each UNF department is liable for any interest and penalties that may be assessed during a DOR or IRS audit. When university departments process transactions using DSO accounts, it is the department's responsibility to coordinate with DSO accounting staff to ensure proper collection and remission of sales and other applicable taxes takes place. Sales tax must be remitted to the DOR by the entity (university or applicable DSO) that processes the transaction.

Recordkeeping Requirements

UNF must keep and preserve a complete record of all transactions, together with invoices, bills of lading, gross receipts from sales, Resale Certificates (Form DR-13), Consumer Certificates of Exemption (Form DR-14), Transaction Authorization Numbers or Vendor Authorization Numbers and other pertinent records and papers as may be required by the Florida Department of Revenue to determine the amount of sales tax due.

 

Records may be requested within 5 years after the date the tax is due, any return with respect to tax is due, or the return is filed, whichever occurs later or within 6 years after the date the taxpayer either makes a substantial underpayment of tax, or files a substantially incorrect return. (See F.S. 212.17(6), 212.18(2), and 213.06(1).)

 

Rule 12A-1.056, F.A.C., provides that all taxes required to be collected in any month shall be due on the first day of the month following the date of sale or transaction. The payment and return must either reach the DOR or be postmarked on or before the 20th day of the month following the date of sale or transaction.

 

UNF departments should retain all records for 6 years from the 20th day of the month following the date of sale or transaction.

How to Collect Sales Tax and Provide Receipt to Purchaser

This process describes the how to collect sales tax.

  1. When Tax Is Due

    Section 212.06, F.S., provides that the full amount of the tax on a credit sale, installment sale, or sale made on any kind of deferred payment plan shall be due at the moment of the transaction in the same manner as on a cash sale. Section 212.031, F.S., provides that the tax imposed on rental or license fees shall be due and payable at the time of receipt of such rental or license fee payment.

  2. Provide Receipt to Purchaser

    Section 212.07(2), F.S., states that a dealer shall, as far as practicable, add the amount of the tax imposed under this chapter to the sale price, and the amount of the tax shall be separately stated as Florida tax on any charge ticket, sales slip, invoice, or other tangible evidence of sale. Subsection (4) states that a dealer may not advertise or hold out to the public, in any manner, directly or indirectly, that he or she will absorb all or any part of the tax, or that he or she will relieve the purchaser of the payment of all or any part of the tax, or that the tax will not be added to the selling price of the property or services sold or released or, when added, that it or any part thereof will be refunded either directly or indirectly by any method whatsoever.

  3. Deposit the Tax Collected into the Appropriate Account

Unrelated Business Income Tax (UBIT)

  1. Overview
  2. Expenses Allocable to Unrelated Business Income
  3. Research Activities
  4. Advertising Income
  5. Sponsorship Revenue
  6. Suggested Sponsorship Language
  7. Exclusive Arrangements- Granting a corporation the exclusive right to distribute food, beverages or provide athletic apparel for example.
  8. Exploitation of Exempt Activity
  9. Royalties/ Licensing Agreements/ Passive Income
  10. Rental Income
  11. Lease of Space on Broadcasting Towers
  12. Athletic/ Recreational Facilities
  13. Bookstore Operations
  14. Entertainment Events
  15. Parking & Catering Services
  16. Travel Tours
  17. Training Seminars
  18. Convenience Exclusion
  19. Volunteer Labor and Sale of Donated Merchandise

Overview

Process Summary

Internal Revenue Service (IRS) Form 990-T is used to report unrelated business income (UBI) activities. UNF has a fiscal year end of June 30th. UNF's Form 990-T must be filed with the IRS on November 15th each year (6 months after fiscal year end). Revenue and associated expenses must be reported to the Controller's office by September 1st in order to allow time for preparation of necessary tax return forms and supporting documentation (see link to UBI Reporting Form under FORMS/ DOCUMENTS below).

 

An exempt organization such as the University of North Florida (UNF) is subject to tax on unrelated business income (UBI) if the income is from a trade or business which is regularly carried on by the organization and which is not substantially related to the performance by the organization of its exempt purpose or function.

 

According to the Florida Statutes, UNF's Mission is:

  • Teaching,
  • Research, and
  • Public service.

Any activity undertaken in support of the above mission will be exempt from UBIT. If relying on the public service argument to exclude revenues from UBIT, you must be careful to show how this activity is related to UNF's exempt purpose by documenting your particular facts and circumstances in the event of an IRS audit.

 

Forms/Documents:

Process

Examples of activities that may result in UBI:

  1. Research Activities
  2. Advertising Income
  3. Sponsorship Payments
  4. Exclusive Arrangements (Examples: food, beverages, apparel)
  5. Exploitation of Exempt Activity
  6. Royalties/Licensing Agreements/Passive Income
  7. Rental Income
  8. Lease of Space on Broadcasting Towers
  9. Athletic/Recreational Facilities
  10. Bookstore Operations
  11. Entertainment Events
  12. Parking and Catering Services
  13. Travel Tours
  14. Convenience Exclusion
  15. Volunteer Labor and Sale of Donated Merchandise
  16. Expenses Allocable to Unrelated Business Income

ANY DEPARTMENT OR UNIT CONDUCTING UNRELATED BUSINESS ACTIVITIES THAT ARE NOT BEING REPORTED TO THE CONTROLLER'S OFFICE SHOULD SEE Contact Information for Questions regarding who to contact for additional assistance.

 

Trade or Business- The term trade or business includes any activity that is carried on for the production of income from the sale of goods or the performance of services.

 

The primary objective of the adoption of the unrelated business income tax was to eliminate a source of unfair competition by placing the unrelated business activities of certain exempt organizations upon the same tax basis as the nonexempt business endeavors with which they compete.

 

On the other hand, where an activity does not possess the characteristics of a trade or business, such as when an organization sends out low-cost articles incidental to the solicitation of charitable contributions, the unrelated business income tax does not apply since the organization is not in competition with taxable organizations. In general, any activity which is carried on for the production of income and which otherwise possesses the characteristics required to constitute a trade or business and is not substantially related to the performance of exempt functions presents sufficient likelihood of unfair competition and will fall within the policy of the unrelated business income tax.

 

Accordingly, the term "trade or business" generally includes any activity carried on for the production of income from the sale of goods or performance of services.

 

Regularly Carried On- Specific business activities of an exempt organization will ordinarily be deemed to be "regularly carried on" if they manifest a frequency and continuity, and are pursued in a manner, generally similar to comparable commercial activities of nonexempt organizations.

 

Income producing or fund raising activities lasting only a short period of time will not ordinarily be treated as regularly carried on if they recur only occasionally or sporadically.

 

Such activities will not be regarded as regularly carried on merely because they are conducted annually or on a recurrent basis.

 

The regulations provide specific examples to clarify when something will be considered regularly carried on. Where income producing activities are of a kind normally conducted by nonexempt commercial organizations on a year-round basis, the conduct of such activities by an exempt organization over a period of only a few weeks does not constitute the regular carrying on of trade or business. For example, the operation of a sandwich stand by a hospital auxiliary for only 2 weeks at a state fair would not be the regular conduct of trade or business. However, the conduct of year-round business activities for one day each week would constitute the regular carrying on of trade or business. Thus, the operation of a commercial parking lot on Saturday of each week would be the regular conduct of trade or business. Where income-producing activities are of a kind normally undertaken by nonexempt commercial organizations only on a seasonal basis, the conduct of such activities by an exempt organization during a significant portion of the season ordinarily constitutes the regular conduct of trade or business. For example, the operation of a track for horse racing for several weeks of a year would be considered the regular conduct of trade or business because it is usual to carry on such trade or business only during a particular season.

 

In determining whether or not intermittently conducted activities are regularly carried on, the manner of conduct of the activities must be compared with the manner in which commercial activities are normally pursued by nonexempt organizations. In general, exempt organization business activities which are engaged in only discontinuously or periodically will not be considered regularly carried on if they are conducted without the competitive and promotional efforts typical of commercial endeavors. For example, the publication of advertising in programs for sports events or music or drama performances will not ordinarily be deemed to be the regular carrying on of business. On the other hand, where the sales are not merely casual, but are systematically and consistently promoted and carried on by the organization, they will meet the requirement of regularity, thus will be taxable. Therefore in order to argue an activity is not regularly carried on for UBIT purposes, the facts and circumstances need to be evaluated to determine whether the IRS may conclude the activity is "regularly carried on."

 

Substantially Related- A trade or business is "related" to exempt purposes only where the conduct of the business activities has causal relationship to the achievement of exempt purposes (other than through the production of income); and it is "substantially related" only if the causal relationship is a substantial one.

 

Thus, for the conduct of trade or business from which a particular amount of gross income is derived to be substantially related to purposes for which exemption is granted, the production or distribution of the goods or the performance of the services from which the gross income is derived must contribute importantly to the accomplishment of those purposes. Whether activities productive of gross income contribute importantly to the accomplishment of any purpose for which an organization is granted exemption depends in each case upon the facts and circumstances involved (see UNF's mission statement).

Related Business Processes

Expenses Allocable to Unrelated Business Income

Process Summary

Expenses may be deducted from UBI to arrive at taxable income. Proper documentation of expenses must be retained for 5 years (from the date the tax return is filed) in the event of an IRS audit.

 

Once a method for computing taxable income has been adopted, the manner in which expense computations are allocated cannot be changed, (i.e., overhead computations, etc.) without formally filing a change in accounting method with the IRS. It is important to utilize consistent computation procedures from year to year.

Process

To be directly connected with the carrying on of a trade or business activity, expenses, depreciation, and similar items must bear a proximate and primary relationship to the conduct of the activity. Where facilities and/or personnel are used both to carry on exempt activities and to conduct unrelated trade or business activities, expenses and similar items attributable to such facilities and/or personnel must be allocated between the two uses on a reasonable basis.

 

In Private Letter Ruling (PLR) 9147008, a state university owns and operates a multifunctional auditorium facility, which is located on campus and used for a number of educational activities, including class registration, intercollegiate athletic contests, and commencement activities. The university does not charge or allocate any student fees to the operation of the auditorium, and students were offered discounts to only three events during the year. During the year in question, 45 "ticket events" were held at the facility during 75 days. Those events included rock concerts, performances by professional entertainers, closed-circuit boxing matches, and professional basketball games. The university received income from ticket sales, concessions, and advertising associated with the events. The Service has ruled that the income from the 45 professional entertainment events constitutes unrelated business taxable income. The Service determined that the only criterion used by the university in the sponsorship of the events was profitability. "The emphasis on revenue maximization to the exclusion of other considerations," the Service said, "indicates that the trade or business is not operated as an integral part of the university's educational programs and that the activity, therefore, fails the substantially related test." The Service also ruled that the appropriate method of allocating the fixed expenses of the facility is a ratio based on 75 days of unrelated business use divided by the 365 days the facility was available for use. It concluded that the university's formula based on actual use was not reasonable under regulation section 1.512(a)-1(c), despite the decision in Rensselaer Polytechnic Institute v. Commissioner(see below). The Service believes that their position as argued in Rensselaer is the method of allocation that meets the "reasonableness" standard of section 1.512(a)-1(c) of the regulations.

 

In the case of Rensselaer Polytechnic Institute v. Comm., 53 AFTR2d 84-1167 (1984), an exempt educational organization's allocation of fixed indirect fieldhouse expenses (depreciation and overhead) on the basis of total actual use was found to be reasonable. The numerator of the fraction used was the total number of hours the fieldhouse was used for commercial events, and the denominator was the total number of hours the fieldhouse was used for all activities and events - student and commercial combined. The Service argued that the appropriate method of allocation of fixed expenses between exempt and nonexempt purposes should be based on the total available time.

 

Examples of deductible expenses:

  • Cost of goods sold
  • Cost of production salaries and benefits
  • Direct supplies and expenses
  • Utilities
  • Depreciation and
  • Overhead

Related Business Processes

  • UBI - Unrelated Business Income Activity Overview
  • UBI - Royalties/Licensing Agreements/Passive Income
  • UBI - Bookstore Operations
  • UBI - Athletic/Recreational Facilities
  • UBI - Rental Income

Research Activities

Process Summary

Income from research activities (those not considered testing activities - see distinction below) and deductions connected with that research income are excluded in computing unrelated business income, if these activities are undertaken:

 

For the U.S. or any of its agencies or instrumentalities or for a state or a political subdivision of a state;

 

By a college, university, or hospital, regardless of the person for whom they are undertaken;

 

By an organization operated primarily for the purpose of carrying on fundamental, as distinguished from applied, research the results of which are freely available to the general public, regardless of the person for whom they are undertaken. Fundamental research does not include research carried on for the primary purpose of commercial or industrial application.

Process

Research does not include activities of a type ordinarily carried on incident to commercial or industrial operations. Thus, "research" does not include the ordinary testing or inspection of materials or products or designing or construction of equipment, buildings, etc.

 

Testing is further defined as work performed by unsophisticated employees the purpose of which is to determine whether an item meets certain specs versus testing a specific hypothesis. Standard protocol is used, no intellectual questions are posed, work is routine and repetitive, and a procedure is a matter of quality control. The IRS's assumption is commercially sponsored testing undertaken to satisfy government safety or pre-marketing requirements or to assure compliance with environmental laws is "ordinary testing" incident to commercial or industrial operations rather than "scientific research in the public interest (thus will be subject to UBIT)."

 

Certain clinical trails may be considered testing if it is not done for the benefit of patients or it does not add to the body of scientific knowledge concerning treatment of disease through the use of particular drugs (thus will be subject to UBIT). Note that if it can be shown the activity is undertaken for the scientific education of students, in search for a cure for disease, performed in the public interest, or testing for public safety, etc. then it may be excluded from UBI. If a research project is excluded from UBI under one of the above exceptions, the information must be appropriately documented and retained for 5 years.

Related Business Processes

  • UBI - Unrelated Business Income Activity Overview
  • UBI - Volunteer Labor & Sale of Donated Merchandise
  • UBI - Royalties/Licensing Agreements/Passive Income
  • UBI - Exploitation of Exempt Activity
  • UBI - Lease of Space on Broadcasting Towers

Advertising Income

Process Summary

The IRS sponsorship rules do not apply to:

  • The sale of advertising in exempt organization periodicals. This is defined as any payment which entitles the payor to the use or acknowledgement of the name or logo (or product lines) of the payor's trade or business in regularly scheduled and printed material, published by or on behalf of the payee organization that is not related to and primarily distributed in connection with a specific event conducted by the payee organization,
  • Payments made in connection with qualified convention and trade show activities.

Process

The term advertising is defined as any message or other programming material that is broadcast or otherwise transmitted, published, displayed or distributed, and which promotes or markets any trade or business, or any service, facility or product.

 

Advertising includes messages containing:

  1. Qualitative or comparative language,
  2. Price information or other indications of savings or value,
  3. An endorsement, or an inducement to purchase, sell or use any company, service, facility or product.

A single message that contains both advertising and an acknowledgement is considered advertising.

 

Please note that specific rules apply to the calculation of UBI and deductions for advertising in exempt organization periodicals, and this information must be reported on Schedule J of Form 990-T. Schedule J allows certain "related costs," including readership costs and circulation costs to be deducted against net unrelated advertising income (but not below zero). If your area receives advertising income, please contact the Advisor in the University Controller's Officefor assistance in reporting the following information:

  • Advertising revenues and directly connected advertising expenses,
  • Circulation income and circulation expenses,
  • Readership costs, and
  • Any other costs associated with publishing the periodical

See Contact Information for Questions if you need additional assistance.

Related Business Processes

  • UBI - Overview
  • UBI - Sponsorship Revenue
  • UBI - Exploitation of Exempt Activity
  • UBI - Convenience Exclusion
  • UBI - Volunteer Labor and Sale of Donated Merchandise

Sponsorship Revenue

Process Summary

The IRS finalized the corporate sponsorship regulations in April 2002. Treas. Reg. Sec. 1.513-4 describes circumstances when income from certain sponsorship payments received by an organization isnotsubject to UBIT.

 

A qualified sponsorship payment is defined as any payment of money, transfer of property, or performance of services by any person engaged in a trade or business with respect to which there is no arrangement or expectation that the person will receive any substantial return benefit. The use or acknowledgement of the payor's name, logo, or product lines is not considered a substantial return benefit.

 

Note: substantial return benefits include advertising, which is any payment that promotes or markets any trade or business, service, facility, or product.

Process

A substantial return benefit is described as all the benefits provided to a sponsor or persons designated by the sponsor which, when aggregated, exceed 2% of the total amount of the sponsorship payment. Each benefit must be identified, including items such as:

  1. Advertising,
  2. Exclusive provider arrangements,
  3. Goods (free mugs, tickets, t-shirts, dinners, etc.),
  4. Use of facilities, services or other privileges, and
  5. Exclusive or nonexclusive rights to use an intangible asset (trademark, patent, logo or designation of the exempt organization.

If the value of the substantial return benefit exceeds 2% of the sponsorship payment, then only the portion, if any, of the payment that exceeds the fair market value of the substantial return benefit is a qualified sponsorship payment.

 

A sponsorship payment may include the following information and still be excluded from UBIT:

  1. Logos and slogans that do not contain qualitative or comparative descriptions of the payor's products, services, facilities, or company. NOTE:Logos or slogans that are an established part of a payor's identity are not considered to contain qualitative or comparative descriptions;
  2. A list of the payor's locations, telephone numbers or internet addresses, including links to the sponsor's website unless the link contains an endorsement by the university of the sponsored company's products.Note:Records must be kept to document the web page did not contain endorsements by the university that would cause the payments to be classified as advertising subject to UBIT;
  3. Value-neutral descriptions, including displays or visual depictions of the payor's product line or services.NOTE:The sponsor may display or distribute its product to the general public at the tax-exempt entity's event that it is sponsoring); and
  4. The payor's brand or trade names and product or service listings.

A non-qualified sponsorship payment may be excludable from UBIT if the agreement is structured as a royalty payment or is an activity that is not regularly carried on.

Related Business Processes

  • UBI - Overview
  • UBI - Advertising Income
  • UBI - Sponsorship Revenue
  • UBI - Exclusive Arrangements

Suggested Sponsorship Language

Process Summary

The following examples help illustrate when revenue is received for a non-taxable acknowledgment, and when revenue is received for taxable advertising (subject to unrelated business income tax).

 

See Contact Information for Questions if you need additional assistance.

Process

TO ACKNOWLEDGE OR RECOGNIZE A SPONSOR:

APPROPRIATE WORDING NOT APPROPRIATE WORDING
We are grateful to our sponsors: (List them). Endorsed by the UNF College of XXXXX.
XYZ Computer Company, located at 123 Fowler Avenue, is proud to sponsor the UNF College of XXXXX fundraising event. We can be reached at (904) 555-5555. Please join us in thanking our sponsor, XYZ Hair Stylist, who specializes in unusual colors and does the best work in town (Jacksonville, or anywhere else).
For your sponsorship, you will receive two tickets to the event and recognition (or acknowledgement) in all printed materials. For your sponsorship, you will receive a quarter page ad (or advertising) in the event printed materials, or in other publications.
Sponsored by UNF Bookstore, located on Campus. Please be sure to stop by 123 Fowler Avenue and shop at our sponsor's store, XYZ Computing Company.

Related Business Processes

  • UBI - Bookstore Operations
  • UBI - Travel Tours

Exclusive Arrangements

Process Summary

An arrangement that acknowledges the payor as the exclusive sponsor of an exempt organization's activity does not, by itself, result in a substantial return benefit.

 

For example: if in exchange for a payment, an organization announces that its event is sponsored exclusively by the payor, and does not provide any advertising or other substantial return benefit to the payor, the payor has not received a substantial return benefit (i.e., when Coke sponsors a UNF art exhibit).

 

However, an arrangement that limits the sale, distribution, availability,or use of competing products, services, or facilities (i.e, when the sponsorship agreement states no Pepsi may be sold at the UNF art exhibit sponsored by Coke) in connection with an exempt organization's activity,this will generally result in a substantial return benefit and the value must be aggregated with any other substantial return benefits to determine if the total benefits given to the sponsor exceed the 2% safe harbor.

Process

Allocation of payment:

If there is an arrangement or expectation that the payor will receive a substantial return benefit with respect to any payment, then only the portion, if any, of the payment that exceeds the fair market value of the substantial return benefit (determined on the date the sponsorship arrangement is entered into) is a qualified sponsorship payment. However, if the exempt organization does not establish that the payment exceeds the fair market value of any substantial return benefit, no portion of the payment constitutes a qualified sponsorship payment.

 

Example:

 

Coke gives UNF $1,200 for a magazine advertisement and a sign on the Athletic field. Advertising normally sells for $500 per page in a regularly published Alumni magazine.

 

$500 is treated as advertising revenue subject to UBIT. Special reporting rules apply to periodicals that may allow publication expenses to offset advertising income - please consult the Tax Advisory in the UNF Controller's Office for additional information.

 

$700 may be a qualified sponsorship payment excluded from UBIT as long as the Coke Athletic field sign adheres to the corporate sponsorship requirements discussed above.

Contingent payments:

the term qualified sponsorship payment does not include any payment the amount which is contingent, by contract or otherwise, upon the level of attendance at one or more events, broadcast ratings, or other factors indicating the degree of public exposure to the sponsored activity. The fact that a payment contingent upon sponsored events or activities actually being conducted does not, by itself, cause the payment to fail to be a qualified sponsorship payment.

Related Business Processes

  • UBI - Overview
  • UBI - Sponsorship Revenue
  • UBI - Royalties/ Licensing Agreements/ Passive Income

Exploitation of Exempt Activity

Process Summary

Exempt organizations that have gross income from an unrelated trade or business activity that exploits an exempt activity (other than advertising income) should complete Schedule I of Form 990-T. An organization may take all deductions directly connected with the gross income from the unrelated trade or business activity. In addition, any loss from the related activity can be used to offset income from the exploited exempt activity.

 

See Contact Information for Questions if you believe your activity may qualify for treatment as an exploited exempt activity.

Related Business Processes

  • UBI - Overview
  • UBI - Research Activities
  • UBI - Advertising Income
  • UBI - Royalties/ Licensing Agreements/ Passive Income

Royalties/ Licensing Agreements/ Passive Income

Process Summary

Dividends, interest, and royalties are excluded in computing unrelated business income.

 

Income will not meet the definition of a royalty and may be classified as UBI if the exempt organization is actively involved in the sale or endorsement of the product generating the royalty income.

 

A royalty is defined as:

 

Payment for the right to use intangible property. It does not include the provision of services, such as actively marketing licensed property and providing more than minimal administrative support.

 

The IRS will examine the business relationship between the parties to determine whether the organization is providing services in connection with a royalty activity. If so, it would value those services and treat an appropriate portion of the royalty payment as taxable compensation for services rendered (which may be UBI).

 

Another issue that arises in this area is whether the purported licensee is really the exempt organization's agent. If so, the IRS ignores the stated royalty because the income-producing activities of the purported licensee are treated as performed by the organization itself (thus may be UBI).

Related Business Processes

  • UBI - Overview
  • UBI - Research Activities
  • UBI - Exploitation of Exempt Activity
  • UBI - Volunteer Labor and Sale of Donated Merchandise

Rental Income

Process Summary

Real property rental income is not subject to unrelated business income tax except when:

Process

  1. Personal Property is Leased.

    To the extent personal property is leased (i.e., computer equipment, etc.) together with the real property, the rental exclusion will apply, but only if the amount of rent attributable to the personal property is incidental. If the rent attributable to personal property is:

    • Less than 10% of the total rent, the amount is treated as incidental and none of the rental payment is treated as UBI.
    • Between 10-50%, the amount of the rent attributable to the real property still qualifies for the rental exclusion but the personal property rental portion of the payment must be treated as UBI.
    • Exceeds 50% of the total rent, then none of the rent is eligible for the rental exclusion and all of the rental income must be treated as UBI.
     
  2. Services are Provided.

    The lessor must not provide significant services for the convenience of the occupant. The regulations define such services as maid service in the case of hotel occupancy. Other potential disqualifying services include: providing an IT Coordinator for computer problems, training users on how to use equipment, providing administrative support such as copying maps, answering phones, coordinating/providing catering and setting up tables. Services such as the provision of heat, light, cleaning of public space and collection of trash are not disqualifying services.

  3. Rent Based on Earnings or Profits

    The rent payment cannot depend in whole or in part on the income or profits of any person operating the property being rented. If it does, the rental income exclusion will not apply and the income earned will be subject to UBIT. It is permissible to base the rental payments on a fixed percentage of receipts or sales and still have the arrangement qualify for the rental exclusion.

APPLICATION OF RENTAL RULES TO UNF

Rental income received from the following groups outlined in A-C below for the purpose of holding training seminars and meetings is related to UNF's exempt purpose and thus not subject to UBIT, even if the personal property, services or earnings and profit rules outlined in #1-3 above are violated:

  • Students;
  • Faculty, staff and other university related use paid for with university funds;
  • Federal, state or local government or related agencies.

However, if an organization is renting space for use other than educational training seminars and meetings, please contact the tax manager in order to determine if income may be subject to UBIT.

Rental Income that may be subject to UBIT:

Real property rental income received from sources not listed in #A-C must follow the rules outlined in #1-3 above in order to exclude rental income from UBI, as renting to these groups is not related to UNF's educational mission:

 

Alumni, General public, For-Profit Corporations, and Personal Use by University Employees. Rental income subject to unrelated business income tax is reportable on Schedule C of Form 990-T.

Related Business Processes

  • UBI - Overview
  • UBI - Expenses Allocable to Unrelated Business Income
  • UBI - Suggested Sponsorship Language
  • UBI - Athletic/ Recreational Facilities
  • UBI - Bookstore Operations

Lease of Space on Broadcasting Towers

Process Summary

Broadcast towers are classified as personal property (see rental rules above), thus rental income received from lease of space on the towers to other not-for profit, governmental, and other for-profit groups will be considered unrelated business income (unless the organization is using UNF's tower space to conduct an educational activity). Expenses incurred for both exempt and non-exempt purposes may be allocated based on a ratio of number of antennas rented in unrelated activities divided by total number of antennas on the tower.

Related Business Processes

  • UBI - Overview
  • UBI - Research Activities
  • UBI - Athletic/ Recreational Facilities
  • UBI - Bookstore Operations
  • UBI - Travel Tours

Athletic/ Recreational Facilities

Process Summary

Most universities have athletic facilities (tennis courts, gymnasiums, canoe rentals, etc.) that are used in physical education programs and college athletic events. This is related to a school's exempt purpose. Often the school allows the general public to use these facilities for a fee. Use by faculty and staff will be considered related, howeveruse by alumni and the general publicmay result in unrelated business income, unless it meets theReal Property Rental Income exclusion or any other exception outlined in the internal revenue code and regulations.

Related Business Processes

  • UBI - Overview
  • UBI - Rental Income
  • UBI - Lease of Space on Broadcasting Towers
  • UBI - Bookstore Operations
  • UBI - Travel Tours

Bookstore Operations

Process Summary

Sales to students, faculty and other employees of items that are directly related to the school's educational purposes, such as books, records, tapes, general school supplies (notebooks, paper, pens, pencils and typewriters) and athletic wear used in the school's athletic and physical education program are generally exempt from unrelated business income tax (UBIT). Sales of non-educational items that are for the convenience of students, faculty and staff may be excluded under the "convenience exclusion" (See more information re: convenience exception on p.28 below). Sales to ALUMNI donotfall under the related or convenience exception. These sales will be subject to UBIT.

 

Sales of other non-educational items (stuffed animals, clothing apparel, cameras and other photographic equipment and supplies, tape recorders, radios, television sets, and small appliances) will be subject to UBIT. As a general rule, any non-educational item with a useful life of more than one year does not fall within the convenience exception and will be taxable, except for novelty items with the school logo.

Related Business Processes

  • UBI - Overview
  • UBI - Athletic/ Recreational Facilities
  • UBI - Travel Tours
  • UBI - Convenience Exclusion
  • UBI - Volunteer Labor and Sale of Donated Merchandise

Entertainment Events

Process Summary

Entertainment events conducted by a university in which the school's own students put on the event (ex: play, recital or ballet) are treated as a related activity, even if a substantial portion of the audience and revenues come from the general public. Entertainment events involving professional entertainers may result in a problem with the IRS. Examples of these events include rock concerts, tractor pulls, and string quartets. The distinguishing characteristic is not the "cultural" nature of the event (or lack thereof) but rather whether it is a professional performance involving paid performers. The IRS views these paid entertainment activities as being related only if they are "operated as an integral part of the educational program of the university, but are unrelated if operated in substantially the same manner as a commercial operation."

Related Business Processes

  • UBI - Research Activities
  • UBI - Athletic/ Recreational Facilities
  • UBI - Volunteer Labor and Sale of Donated Merchandise

Parking & Catering Services

Process Summary

When sales are made to the general public or alumni, the IRS may treat the activity as unrelated to a university's exempt purpose, thus may be subject to UBIT.

Related Business Processes

  • UBI - Exploitation of Exempt Activity
  • UBI - Athletic/ Recreational Facilities
  • UBI - Bookstore Operations
  • UBI - Travel Tours
  • UBI - Volunteer Labor and Sale of Donated Merchandise

Travel Tours

Process Summary

As a general rule, income from travel tours will be subject to unrelated business income tax (UBIT) unless the trips are related to the sponsoring organization's exempt purpose. Whether travel tour activities are substantially related is determined by looking at the relevant facts and circumstances, including, but not limited to how the travel tours are developed, promoted, and operated.

Process

The University of North Florida (UNF) is an educational organization. To avoid paying UBIT, the focus of the tours it promotes should be academic, and include a substantial portion of the following factors:

  • Devoting a significant amount of time to organized study,
  • Preparation of reports,
  • Lectures,
  • Instruction,
  • Exams,
  • Use of textbooks, and/or
  • Awarding of academic credit.

If a travel tour is oriented toward attending cultural performances, sightseeing, and/or recreational destinations without an academic focus (see factors above) then income will be subject to UBIT.

Related Business Processes

  • UBI - Overview
  • UBI - Suggested Sponsorship Language
  • UBI - Athletic/ Recreational Facilities
  • UBI - Bookstore Operations
  • UBI - Training Seminars

Training Seminars

Process Summary

The following information is a general overview of unrelated business income tax (UBIT) rules as applied to Training Seminars.

Process

When holding seminars on UNF campus, if a seminar is related to UNF's exempt purpose (teaching, research, or public service), then income from the seminar will not be subject to UBIT.

Teaching

To be exempt from tax under the teaching provision, revenues must be earned from training activities furthering the university's exempt educational purpose. This is stronger if the seminar follows the university's course curriculum as discussed in various IRS rulings summarized below.

Rulings:
Related

Conducting training courses for a for-profit company was deemed substantially related to a university's educational purpose (see fact patterns in Rev. Rul. 68-504 [doc] and PLR 9137002 [doc]). These courses followed "the educational curriculum in place at the university, utilized professors and teaching assistants, and awarded academic credit to those who requested it." If the university passes along knowledge or the class improves the skills of the individuals, then the university most likely does not have UBIT as it is furthering its educational mission.

Unrelated

In PLR 9617045 [doc], the IRS has taken the position there is a distinction between providing services:

  • To the public at large (not resulting in UBIT where the activity is substantially related to the organization's charitable purpose) and
  • Tailored to meet the specific needs of a for-profit entity (resulting in UBIT).

The IRS acknowledges the unrelated business income (UBI) determination is more difficult in cases where the service provided to the public at large is the same as the service provided to a private party. The IRS may consider activities benefiting a specific private party rather than the public at large as not substantially related to the organization's exempt purpose (thus may result in UBIT).

Public Service

To be exempt from tax under the public service provision, the seminar must:

  • Help another charitable class under IRC 501(c)(3) or
  • Otherwise, tie into UNF's mission statement.

Since UNF is a state institution, its mission may be interpreted more broadly than the mission of the various 501(c)(3) institutions discussed in the rulings above. As a result, UNF may have more success excluding its training revenues from UBI if it is determined UNF is providing training as a public service to outside organizations in furtherance of UNF's overall public service mission.

 

The charitable classes mentioned in the first bullet above include:

  1. youth
  2. needy
  3. elderly
  4. infirmed

When training seminars benefit the charitable classes mentioned above, revenues may be excluded from UBIT.

 

A training course most likely does not result in UBIT if it was previously developed for UNF and is being offered to the general public (as UNF is helping disseminate knowledge to the general public, to better the community, in accordance with UNF's mission statement).

 

When UNF creates new training courses specifically tailored to the client's needs, it is not clear whether the training is related or unrelated to UNF's exempt purpose (see unrelated discussion based on PLR 9617045 above).

Related Business Processes

  • UBI - Overview
  • UBI - Research Activities
  • UBI - Suggested Sponsorship Language
  • UBI - Bookstore Operations
  • UBI - Travel Tours

Convenience Exclusion

Process Summary

IRC Sec. 513(a)(2) contains an exclusion from the definition of unrelated trade or business for any trade or business that is carried on primarily for the convenience of its students or employees. In Rev. Rul. 58-194, 1958-1 CB 240, a corporation organized for the purpose of operating a book and supply store and a cafeteria and restaurant on the campus of a State university primarily for the convenience of its student body and the members of its faculty was considered to be operated exclusively for educational purposes and qualified as a 501(c)(3) organization. In Rev. Rul. 81-19, 1981-1 CB 353, a 501(c)(3) organization's (formed to assist a specific university) operation of machines that provide soft drink and food vending services on campus is not an unrelated trade or business. The organization contracted with a vending company for placement of vending machines on the campus and purchased and managed other machines itself.

Related Business Processes

  • UBI - Overview
  • UBI - Advertising Income
  • UBI - Exploitation of Exempt Activity
  • UBI - Bookstore Operations
  • UBI - Volunteer Labor and Sale of Donated Merchandise

Volunteer Labor and Sale of Donated Merchandise

Process Summary

Treas. Reg. Sec. 1.513-1(e) provides that unrelated business income does not include:

  1. Any trade or business in which substantially all the work in carrying on such trade or business is performed for the organization without compensation. An example would be an exempt orphanage operating a retail store and selling to the general public, where substantially all the work in carrying on such business is performed for the organization by volunteers without compensation.
  2. Any trade or business that consists of selling merchandise, substantially all of which has been received by the organization as gifts or contributions. This exception applies to "thrift shops" operated by a tax-exempt organization where those desiring to benefit such organization contribute old clothes, books, furniture, et cetera, to be sold to the general public with the proceeds going to the exempt organization.

Related Business Processes

  • UBI - Overview
  • UBI - Research Activities
  • UBI - Advertising Income
  • UBI - Royalties/ Licensing Agreements/ Passive Income
  • UBI - Convenience Exclusion

Contact Information

Controller's Office

Name Phone Email
Anisa Bakiu (904) 620-2922 anisa.bakiu@unf.edu

UNF Exempt Status--IRC Section 115

As explained in IRS Publication 557 - Tax Exempt Status for Your Organization, every organization qualifying for 501(c)(3) tax-exempt status is a private foundation unless it falls into one of the categories specifically excluded from the definition of that term. UNF is a public charity rather than a private foundation as it meets the IRC Section 509(a) definition of a publicly supported educational organization that receives a substantial part of its support from a governmental unit or from the general public. UNF provides an essential public/governmental function under IRC Sec. 115.

 

UNF is exempt from federal income tax under Internal Revenue Code Section 115, which excludes from taxation income derived from the exercise of any essential government function and accruing to a state or any political subdivision thereof.? As such, UNF is exempt from most sales, use, and telecommunication taxes.

 

UNF is exempt from the following telecommunication taxes:

  • Federal Excise Tax
  • State Sales Tax - which is also referred to as Florida Communication Service Taxes
  • County Sur-Tax(es)

UNF should provide a copy of its Florida Certificate of Exemption to the telecommunication provider and review telephone bills to ensure these taxes are not charged to the university.

 

Under no circumstances should the Consumer's Certificate of Exemption be used for personal benefit to any individual. This exemption applies only for purchases made by the University, using the University's funds.

Information for Students

  1. 1098-T- This form assists students in determining if they qualify for an educational tax credit based on amounts of qualified tuition expenses billed for the calendar tax year specified.
  2. Taxability of Scholarships
  3. Taxability of Fellowships
  4. Taxability of Tuition Waivers or Remissions

1098-T: Purpose and Function

The federal government provides 2 types of tax credits for educational expenses paid by you during the tax year. However, not all expenses you pay to the university are considered qualified expenses. In general tuition and fees that are directly related to your attendance and education are allowable. Room and board, books, insurance, and other personal expenses are generally not allowed. You should review the IRS publication 970 for more information--or you may consult your tax professional.

What is a 1098-T?

Educational institutions are required to report to students the amounts of qualified tuition expenses that were billed to them during the 2008 calendar year. This form will assist students in determining if they qualify for an educational tax credit.

 

***Note: The Controller's Office or University staff cannot assist you with tax matters. If you need assistance completing your taxes, you should consult with a qualified tax specialist or a CPA accounting firm. The following FAQ is provided to assist you with some of the general questions that you may have regarding the 1098T form and is not intended to be provided as advice in completing your tax return.

What do the amounts in each box indicate?

  1. Box 1 is used for institutions who report on the amount paid by students. The University of North Florida does not report on amounts you paid, so box #1 will be blank on the form you receive from the University. You should keep your receipts and claim on your tax return the amount you paid out-of-pocket towards qualified educational expenses.
  2. Box 2 reports the amount of qualified tuition and related expenses that were assessed to your account during the 2008 calendar year. The figure reported here is the amount the University assessed you for these fees and does not necessarily represent the amount you paid toward qualified expenses during this tax year. You should keep your receipts and claim on your tax return the amount you paid out-of-pocket towards qualified educational expenses.
  3. Box 3 reports on whether or not the University has changed its reporting method. We have not.
  4. Box 4 reports on any adjustments made during the 2008 tax year for qualified tuition and related expenses that were reported on a prior year 1098T. For most students this box will be blank.
  5. Box 5 reports the amount of grants, waivers, and scholarships you received during the calendar year.
  6. Box 6 reports the amount of any adjustments made during the 2008 tax year for grants, waivers and scholarships you received in a prior tax year.
  7. Box 7 is checked to notify you and the IRS that some of the amount indicated in Box 2 relates to a semester that begins in the first quarter of 2009.
  8. Box 8 will be checked if you were enrolled at least half-time for one semester.
  9. Box 9 will be checked if you are a graduate student. This will identify you as already having a bachelor?s degree.

What is the difference between the Hope Scholarship and the Lifetime Learning Credit?

The Hope Scholarship is available for first & second year students only. If you meet the requirements as a student you may qualify for tax credits. You can claim 100% of the first $1000 you paid and 50% of the second $1000. (for example, if your expenses were $1500, your credit would be $1250). There is an income restriction and you should be aware that the credit is phased out for people in certain income tax brackets.

 

The Lifetime Learning tax credit is available to everyone. You may claim 20% of the first $10,000 paid ($2000 maximum) and that is per tax return, not per student. There are also income restrictions on the Lifetime Learning tax credit.

For more information on these credits, please refer to the U.S. Department of Education website.

Do I report the amount in the Box 2 on my tax return?

NO. This is the amount that we are reporting to the IRS that we billed you for this during 2007, not that you paid that amount

I received scholarships, grants, or waivers. How do I calculate what I paid?

You need to keep your receipts for accurate reporting. You can stop into the cashier's office for duplicate receipts.

I lost or didn't receive my 1098T. Can I obtain another copy?

You can print another copy of your 1098T via myWings. Click on the Student/Academic tab, then "check your records" then "tax notification." If your grants, waivers and scholarships exceed your qualified tuition expenses, we will not mail you a 1098T. However, you can obtain one from myWings.

Who do I call for more information?

There are a number of places for you to go to obtain additional information. Please note that the staff at UNF cannot assist you in determining the amount you can claim for a tax credit. Your tax professional should be able to help you determine if you qualify. In addition, you can call the IRS for assistance. Their toll free number is 1-800-829-1040. The IRS also has a number of forms and publications that will help you. For instructions on the 1098T visit the IRS website at: http://www.irs.gov/pub/irs-pdf/i1098et.pdf

Taxability of Scholarships

A scholarship is an amount paid for the benefit of a student (usually an undergraduate student) at an educational institution to aid in the pursuit of studies. Recipients must not be required to perform past, present or future services for the grantor or the UNF Department in charge of administering the award. If services are required the payment is compensation for services performed that is subject to federal income tax withholding and also Social Security and Medicare (FICA) tax withholding.

 

Scholarship payments made to U.S. citizens are not subject to Social Security or Medicare tax (FICA). Scholarship payments in excess of required tuition, fees and books are fully taxable for income tax purposes; however, they are not subject to income tax withholding. Individuals receiving scholarship payments in excess of tuition, fees, books, supplies and other equipment required for courses are responsible for making quarterly estimated federal and state income tax payments, if needed. Scholarship payments made to non-resident aliens in excess of required tuition, fees and books are subject to special tax provisions and withholding under the Internal Revenue Code. All scholarship payments should be processed via Financial Aid in order to ensure proper withholding for non-resident aliens.

  • If the payment is made in consideration for past, present or future services, it is compensation for services.
  • If the payment represents payment for services that are subject to the direction or supervision of the University, it is compensation for services.

Taxability of Fellowships

A fellowship is an amount paid for the benefit of an individual (usually a graduate student at an educational institution) to aid in the pursuit of study or research. To qualify as a fellowship, the payment must be a relatively disinterested, "no strings attached" educational grant with no requirement on the recipient's part to perform substantial services. A payment will qualify as a fellowship provided the University, as grantor will obtain no benefit, or only incidental benefit, as a result of the fellowship. If the University will receive more than incidental benefit, the payments are compensation for services performed that are subject to federal income tax withholding and also Social Security and Medicare (FICA) tax withholding. 

 

For example:

  • NIH training grants by definition are always classified as a fellowship.
  • Federal research grants generally provide funding for compensation for services.
  • Private instruction and research grants vary as to the nature of funding awarded (see guidelines below).
  • University general funds and endowment income funds generally provide funding for compensation for services (see guidelines below).
  • If the payment is made in consideration for past, present or future services, it is compensation for services.
  • If the payment represents payment for services that are subject to the direction or supervision of the University, it is compensation for services.

Guidelines for Fellowship Classification:

Fellowship Recipients:

  • Are only required to submit progress reports
  • Determine activities based on the terms of the fellowship (may be assisted by faculty advisor)
  • Do not provide teaching, research or other services that will benefit the University

Student Employees:

  • Are told by a University employee where, when and how to work
  • Perform work that is controlled or supervised by the University
  • Determine activities based on University needs/consultation with University representative (such as completing work on a University research grant)

Fellowship payments made to U.S. citizens are not subject to Social Security or Medicare tax (FICA). Fellowship payments are fully taxable for income tax purposes; however, they are not subject to income tax withholding. Individuals receiving fellowship payments are responsible for making quarterly estimated federal and state income tax payments, if needed. Fellowship payments made to non-resident aliens are subject to special tax provisions and withholding under the Internal Revenue Code. All Fellowship payments should be processed via Financial Aid in order to ensure proper withholding for non-resident aliens.

Tax Treatment of Scholarship and Fellowship Payments

(Table from IRS Publication 970 - Rev. Dec. 2004)

Payment for Degree Candidate Not a degree candidate
Tuition Tax Free Taxable
Fees Tax Free* Taxable
Books Tax Free* Taxable
Supplies Tax Free* Taxable
Equipment Tax Free* Taxable
Room Taxable Taxable
Board Taxable Taxable
Travel Taxable Taxable
Teaching Taxable** Taxable
Research Services Taxable** Taxable
Other Services Taxable** Taxable

* If required of all students in the course

** Does not include amounts received under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program.

Taxability of Tuition Waivers or Remissions

The following tuition waivers must be reported to the Payroll Department:

  • Graduate waivers/remission for individuals not engaged in teaching or research.
  • Undergraduate or graduate waivers/remission for individuals receiving wages (Payroll) that are not "reasonable compensation" for services required to be performed in order to receive the waiver (see discussion below).

"Qualified tuition reductions", granted to employees of educational institutions are excluded from gross income, however, the exclusion only applies to reductions in undergraduate tuition unless the recipient is engaged in teaching or research. Graduate waivers granted to individuals not engaged in teaching or research activities are taxable unless provided to an employee under a Section 127 educational assistance program.

Scholarship or fellowship grants represent payment for services (thus taxable income) when the grantor requires the recipient to perform services in return for the granting of the scholarship or fellowship. If only a portion of a scholarship or fellowship grant represents payment for services, the grantor must determine the amount of the scholarship or fellowship grant (including any reduction in tuition or related expenses) to be allocated to payment for services. The grantor must determine what is "reasonable compensation" or the fair market value of services required to be performed and treat the amount as wages subject to employment tax withholding. Suggestions for determining "reasonable compensation" are:

  • Amounts paid for similar services performed by students with qualifications comparable to those of the scholarship recipient, but who do not receive scholarship or fellowship grants;
  • Amounts paid for similar services performed by full-time or part-time employees of the grantor who are not students; and
  • Amounts paid by other educational organizations for similar services performed either by students or other employees.