California State University, Northridge (CSUN), is an agency of the State of California. As a California state governmental agency, the University is exempt from Federal income tax under Section 115 of the Internal Revenue Code. The University is not a 501(c)(3) public charity, however, charitable contributions to the University are tax deductible under Section 170(c)(1) of the Internal Revenue Code if made for a public purpose. Please note that our Federal tax exemption status cannot be verified on the IRS tax website.
What is UBIT?
Although CSUN is generally exempt from income tax, the University is required by law to pay tax on net taxable income generated from business operations that, under the Internal Revenue Code, meet specific criteria. This tax is referred to as the unrelated business income tax (UBIT).
Does CSUN file its own UBIT return?
Each fiscal year, on behalf of the entire California State University system, the CSU Chancellor’s Office collects UBIT related information from CSU campuses and files an Exempt Organization Business Income Tax Return (Form 990-T) with the Internal Revenue Service in order to comply with Federal tax law. It is the responsibility of each campus to identify Unrelated Business Income Tax (UBIT) activities for the University and prepare annual UBIT worksheets for submission to the Chancellor’s Office which are then included in the system-wide Form 990-T tax return.
What are the common activities that may generate revenue subject to UBIT?
a) Corporate sponsorship
b) University facility rentals
c) Professional entertainment events
d) Sale of advertising space in campus newspapers, journals, magazines
e) Alumni career services
f) Livescans & Notary services
These are examples of typical UBIT sources, however a further review of facts and circumstances surrounding the activities should be performed prior to making a final tax determination.
What kind of revenue is subject to UBIT?
If the revenue received meets all three prongs of the following UBIT test, it may be subject to UBIT unless other special exceptions apply.
1. It is revenue from trade or business
2. Such trade or business is regularly carried on by the University
3. the conduct of such trade or business is not substantially related to exempt purpose
Over the years, the IRS has issued numerous rulings analyzing whether different activities meet the three-prong UBIT test, however it is difficult to draw any hard and fast rules from these rulings and the IRS regulations. Please note that the UBIT tax review process often requires applications of the IRS rules and regulations that are open to an extraordinary amount of interpretation. Questions as to whether any activity constitutes an unrelated business should be referred to CSUN Tax Office at (818) 677-3865 or 7999.
What is “trade or business”?
The term “trade or business” generally includes any activity carried on for the production of income from selling goods or performing services. This broad definition almost includes any activity the University engages in with a clear profit motive intent. In making the profit motive determination, the IRS looks at whether the activity generated a profit on a consistent, year-after-year basis. However, no activity can be excluded from classification as a trade or business because the activity does not result in a profit.
What is “regularly carried on”?
The IRS regulations provide that a trade or business activity is regularly carried on if they show a frequency and continuity, and are pursued in a manner similar to comparable commercial activities of nonexempt organizations. Even though the activities seem to be conducted infrequently and intermittently, they may still meet the definition of “regularly carried on”. For example, the IRS found that the advertising income earned by an organization from an annual publication was taxable because of the organization’s extensive campaign of advertising solicitation that was conducted throughout the year.
What is “substantially related to exempt purpose”?
An activity is substantially related to the exempt purpose of the University if it contributes importantly to accomplishing that purpose. Our University’s exempt purpose is to provide a higher education to the public as a state educational institution. The IRS regulations defines the term “educational” to include the instruction or training of the individual for the purpose of improving or development of his capabilities. For example, If the University operated a swimming pool and offered access to the general public for a fee, that activity would be subject to UBIT. However, if the University offered swimming lessons in the pool to the general public, that activity would be exempt as part of the exempt educational mission of the University.
Once an activity satisfies the aforementioned three prong UBIT test, will the revenue be automatically reportable as unrelated business income?
No, there are a number of exceptions to the general definition of unrelated business income. For example, under the volunteer exception, an activity is exempt from tax if all of the work in carrying on the trade or business is performed without compensation. For more information about UBIT exceptions, visit the IRS Website.
Can the income used to advance the University’s educational activities be exempt from tax?
No. How the income is ultimately used is not the deciding factor. Even though the income is used to support the University’s mission, it may still be subject to UBIT. For example, using any revenue derived from a taxable UBIT activity to fund scholarships does not render the revenue tax exempt.
The United States federal tax law requires that the University apply special tax withholding and reporting regulations to all payments made to those individuals who are treated as “nonresident aliens for tax purposes” unless the payments are exempt under specific Internal Revenue Service (IRS) codes and treaties. The IRS is the US government agency responsible for tax collection and tax law enforcement.
What is nonresident alien for tax purposes?
If you are not a US citizen or a permanent resident (Green card holder), you are considered a nonresident alien unless you meet the special criteria known as the substantial presence test. It means that even if you are not a US citizen or do not possess a green card, you could be treated the same as a US citizen for tax purposes. Please see the Tax Residency Flowchart for your reference.
What is the substantial presence test?
You become a resident alien for tax purposes by meeting the days of presence in the US.
The substantial presence test consists of the following two parts:
- 31 days during the current year
- 183 days during the 3-year period that includes the current year and the 2 years preceding the current year.
The 183-day test is not straightforward. You cannot just count all the days you were present in the US during the 3-year period. For more information about the 183-day test, visit the IRS website.
Please note that if you are under an “F”, “J”, “M”, or “Q” visa, you cannot use the substantial presence test until you meet the additional years of presence in the US. For further questions and assistance, contact the CSUN’s Tax Office at (818) 677-3865 or (818) 677-7999.
Two years ago I was a resident alien for tax purposes under the substantial presence test. This year, I did not meet the test. What is my tax status?
Just because you became a resident alien for tax purposes in the past does not mean you may maintain that status permanently. It is possible to go from nonresident alien status to resident alien status and back to nonresident alien status. Please remember that unless you are a US citizen or a green card holder, you must compute your days present in the US using the substantial presence test. If you fail the test, you are a nonresident alien.
I neither have a green card nor meet the substantial presence test. Do I need a taxpayer identification number (TIN)?
If you won’t be filing a tax return or claim for refund, you don’t need a TIN. However, you must obtain a taxpayer identification number (TIN) if you are filing a US tax return. For more information about obtaining a taxpayer identification number, visit the IRS Website.
I am a nonresident alien for tax purposes. Am I required to file a US tax return?
For a US citizen or resident alien for tax purposes, there is a minimum dollar amount of income, which triggers a filing requirement. However, the dollar limit threshold does not apply to nonresident aliens unless your only US source income is wages and the amount of your wages does not exceed the personal exemption amount ($4,050 in 2016). Please consult your own tax advisor regarding your tax filing requirements.
I am an international student. Am I eligible to receive a social security number?
Generally, only noncitizens authorized to work in the United States by the Department of Homeland Security (DHS) can get a social security number. If you are authorized to work either on or off campus, you may be eligible to receive a social security number. For more information about obtaining a social security number, visit the Social Security Administration website or contact your designated school official.
I am a guest speaker from Brazil. The University agreed to pay me an honorarium of $1,000. I only received a $700. Why?
An honorarium is taxable. If you are a nonresident alien for tax purposes, you are subject to special tax withholding and reporting regulations. An honorarium is taxable and subject to 30% withholding. The honorarium may be exempt from tax withholding if the following three conditions are met:
- You have either a social security number or a tax identification number.
- There is an income tax treaty with your home country and the US.
- You complete IRS Form 8233.
Since the US has no income tax treaty with Brazil, the University was obligated to withhold a 30% on your payment. Consult with your own tax advisor whether you are eligible to file for a refund claim.
If the treaty is applicable, our tax office will submit your completed Form 8233 to the Internal Revenue Service and wait at least 10 days to determine whether the IRS has any objections to the Form 8233.
Please note that an honorarium exceeding $1,500 is subject to an additional CA withholding at the rate of 7%.
I am an F-1 student from Australia. I was awarded a scholarship of $12,000 by the University. I only received $10,880? Why?
Payments of taxable scholarships, fellowships, and grants to nonresident aliens are subject to withholding of US Federal income tax unless you are a resident of a country with which the US has an applicable income tax treaty. The US does have an income tax treaty with Australia, however the treaty does not provide an exemption for US-sourced scholarships/fellowships from US income tax. In this case, IRS regulations require that 14% of non-qualified scholarship and fellowship payments paid to F, J, Q or M visa holders be withheld as federal income tax. Since your tuition charge was $4,000 and the remainder was treated as non-qualified scholarship, the University withheld $1,120 (14% x $8,000). Consult with your own tax advisor whether you are eligible to file for a refund claim.