The following is general information offered as a resource to nonresident individuals at MTU.  It is not to be considered tax advice.  You particular situation may be not covered in the text below.  See specific IRS publications for additional information.  The tax department may not provide you with individual tax matters.

Unrelated Business Income

Michigan Technological University must report to the Internal Revenue Service on an annual basis our unrelated business income (UBI.)  MTU is exempt from income tax on income related to its exempt purpose.  Income from an activity carried on by an exempt organization is subject to unrelated business income tax if the following tests are met:

1. the activity constitutes a trade or business
2. the activity is regularly carried on
3. the activity is not substantially related to the institution’s exempt educational or scientific research purposes

There are basic exclusions and exemptions from unrelated business income.  There are as follows:

1. Convenience  
2. Investment Income
3. Royalties
4. Real property rents
5. Personal property rents-if incidental (less than 10 % of total real property rents)
6. Percentage rents-if based on percentage of gross revenue ( net income is taxable)
7. Sale of assets
8. Government research funding
9. College and University funding
10. Volunteer labor
11. Donated property

Advertising Revenue

As a general rule, if advertising income exceeds the related costs, the income will be treated as unrelated trade or business income.  There are some exceptions to the rule.  They are as follows:

1. if advertising is sold by students as part of an educational activity, then the activity may be related to its education purpose
2. if the advertising qualifies as an “acknowledgement” under the corporate sponsorship rules

Examples of situations that would be considered “acknowledgements” include:

1. Sponsor logo or slogans that do not contain comparative or qualitative descriptions of the sponsor’s products, services, or facilities.  Logos or slogans that are “an established part of a sponsor’s identity” are not considered to be comparative or qualitative.
2. Sponsor locations and telephone numbers.
3. Value-neutral descriptions, including displays and visual depictions of a sponsor’s product lines or services.
4. Sponsor brand or trade names.
5. Product or service listings.

Examples of situations that would NOT be considered “acknowledgements”, and therefore, would be considered advertising income include:

1. qualitative or comparative language.
2. price information or other indications of savings or value associated with the product or service.
3. a call to action.
4. an endorsement of the product or service
5. an inducement to buy the sponsor’s product or service

Examples of Potential Unrelated Business Revenue

1. Sale of computers and computer services to general public
2. Sale of programming services to general public
3. Sale of advertising in performance programs( sports, performing arts)
4. Rental of recreation equipment to the general public
5. Sale of recreation memberships to the general public
6. Sale of routine analytical services to general public
7. Rental of laboratory facility, with services, to general public
8. Rental of scientific instruments to general public
9. Provision of services for the lessee, or use of personal property, in connection with rental of real property
10. Rental of hotel lodging, restaurant operations, meeting areas, or student housing to general public
11. Rental of office space, with services, to general public
12. Catering and banquet services to general public
13. Mail order catalog sales to general public
14. Sale of audio-visual services to general public
15. Sale of printing services to general public
16. Sale of translation services to general public
17. Rental of campus facilities, with services, to professional sports teams or commercial enterprises
18. Rental of image analysis equipment to general public
19. Sale of childcare services to general public
20. Mailing list rentals to commercial organizations
21. Affinity credit card sales participation
22. Bookstore/campus store operations to the general public
23. Other advertising income
24. Corporate sponsorship payments
25. Travel tours
26. Parking lot income
27. Participation in partnerships
28. Professional entertainment events
29. Summer sport camps
30. Publishing activities
31. Concession sales
32. Golf course and ski hill fees by the general public
33. Alumni transactions
34. Conferences, meetings, and training programs
35. Athletic events, television and broadcast rights
36. Intellectual property issues
37. Internet fundraising and advertising issues
38. Ownership of S Corporation Stock

1099-Miscellaneous Information

• MTU is required to file Form 1099-MISC    for each calendar year, for the following items:
• Royalties- $ 10 or above-Box 2
• Rents-$ 600 or above-Box 1
• Prizes or Awards-$600 or above-Box 3
• Non-Employee Compensation( Parts/materials and services)-$600 or above-Box 7
• Direct Sales-$5000 or above
• Medical or Health Care Payments-$600 or above-Box 6
• Attorneys (professional services)-Box 7
• Attorneys (proceeds/damages)-Box 14
• Any individual or entity in which federal/state tax was withheld under backup withholding rules
• Deceased Employees Beneficiary- Other Income-Box 3

These examples may include individuals, sole proprietors, partnerships (including LLC, LLP), or d/b/a businesses.

• Exceptions include:
• Payments to corporations-Indications include “Corp”, “Inc.”, “Corporation”, “Incorporated”, “P.C.”(professional corporation)-Exception:  Attorney and Medical Payments to corporations are reportable.  Payments to LLC (limited liability corporations) and LLP (limited liability partnerships) need to be issued 1099’s.  P.C. should not be issued 1099’s unless an attorney or medical firm.
• Payments for goods and merchandise only
• Awards and/or Wages  paid to employee-Should be reported on W-2
• Business travel allowances or reimbursements-Accountable plan(need receipts)
• Scholarships/Grants/Fellowships for U.S. residents
• Tax-exempt organizations
• Governmental agencies
• Nonresident Aliens -Should be reported on 1042-S    

• Examples of services include all services performed (including parts and service), honorariums, director’s fees, guest lecturers, commissions, performances, entertainment, accountants, architects, etc.  This may even include payments for meetings, catering, printing, copying, software, fabrication, etc.

• We may be assessed penalties for the following:
• Incorrect Tax payer Identifications Numbers (TIN)
• Failure to issue 1099    when required
• Incorrect $ on 1099    
• Failure to back-up withholding for incorrect TIN-31 %

• Policy of :  No TIN, no Payment

• Collection of W-9 Form    from all potential vendors in which a Form 1099-MISC may be required.

• Form 1099-MISC    will be sent to all recipients by January 31.

For additional information regarding independent contractors, contact the Accounts Payable, Human Resources, and/or Purchasing departments