Tax Services

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Michigan State University (MSU) is both a public institution and 501(c)(3) organization that is exempt from both federal and state income tax. However, revenue-generating activities not related to MSU’s tax-exempt purposes of education, research, and public service may be subject to federal unrelated business income tax (UBIT). The federal government instituted UBIT for exempt organizations as a way to eliminate unfair competition, by placing tax-exempt organizations on the same playing field as for-profit companies.

In order for an activity to be subject to UBIT, all three criteria must be met: 1) Activity is a trade or business (i.e. generate a profit), 2) Regularly carried on, 3) Not substantially related to the organizations exempt purpose.

Of the three criteria the last one, not substantially related to the exempt purpose, is the most difficult determination. The IRS has issued numerous Private Letter Rulings and guidance regarding this topic. Along with the guidance, there are exceptions the IRS has provided for some taxable activity. Most notably, activities carried on primarily for the convenience of its students, faculty, and staff or activities conducted primarily by volunteers are exempt by the IRS.

The UBIT rate is based on the corporate tax rate. Based on recent changes to the tax laws, income generated for the tax year 2018 and beyond will be taxed at the rate of 21%, the flat corporate tax rate. The tax rate for years prior to 2017 will be based on aggregate MSU unrelated income and can range from 15% to 34%. The department that engages in the activity generating the UBIT will bear the tax liability.


Below are examples of activities that may generate taxable income:

  • Advertising space for commercial businesses on the internet or in printed materials.
  • Catering or food service to non-University users.
  • Routine analytical or testing services to non-University users.
  • Corporate sponsorships that include advertising return benefits.
  • Rental of space that includes services (includes meeting rooms, dorms, office space, etc.).
  • Sales of t-shirts or other tangible personal property to the general public.


While the Office of Tax Services evaluates potential activity through account review, executive notification, and other informal routes, it is important for departments to be aware of UBIT as they engage in new activities. While determining the price to be charged to external customers based on direct and indirect costs, if the activity is considered unrelated the tax should also be included in the pricing. Below is a work aide that should be used to help departments review their activity. If you question whether the activity would be subject to UBIT, please contact the Office of Tax Services for assistance (355-5029 or We can evaluate the activity and determine if there are any exceptions as well as assist you in documenting proper direct and indirect costs to limit the net income that may be subject to UBIT.

General Activity UBI Work Aide
Testing Services UBI Work Aide


Along with evaluating UBIT for activities, please be aware that sales of tangible personal property and rental of space or equipment to the general public in Michigan should include the collection of Michigan Sales tax. Please see Manual of Business Procedure Section 50.

Interdepartment activities are not considered UBI (i.e. department services internally billed). Activities that collaborate or co-sponsor with external partners and support the University mission are not considered UBI.

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