Activities that generate income from external sources are potentially subject to taxation, specifically income tax and sales tax. While most of Harvard’s income is tax-exempt, as a 501 (c)(3) institution, Harvard University is subject to unrelated business income tax (UBIT) on activities not substantially related to education and research. Sales and rentals of tangible goods by Harvard to external customers may also be subject to state sales tax. Unrelated business income (UBI) can also create tax-exempt debt compliance issues. This policy establishes the protocols for reporting and remitting domestic income and sales tax on sales made by the University. Both income tax and sales tax are reported and remitted centrally by the Tax Reporting department within Financial Administration. Tubs must notify the central Tax Reporting department of any new or previously unreported potential UBIT- or sales tax-generating activities as soon as possible
Reason for Policy
The University is required to report and pay taxes on any unrelated business income generated by its academic and support units. Harvard is also required to remit sales tax on certain sales and rentals of tangible goods when Harvard is the vendor. The activity of all units under the umbrella of President and Fellows of Harvard College must be reported on a single combined return. Given the decentralized environment at the University and the complexity of federal and state tax laws it is imperative that the tubs coordinate with the central Tax Reporting department regarding activities that are potentially subject to UBIT or sales tax.
Who Must Comply
All consolidated (meaning included in Harvard’s annual financial statements) Harvard University schools, tubs, local units, Affiliate Institutions, Allied Institutions and University-wide Initiatives must comply. Consolidated entities, affiliates and allied institutions that are separately incorporated (e.g., Trustees for Harvard University) are subject to the overall tax compliance requirements of this policy but may file their own returns if pre-arranged with the Tax Reporting department.
- Understand potential triggers for UBI and sales tax. Any tub contemplating or already conducting sales to external or affiliated University parties should read Appendix A, UBI Basics and Appendix B, Sales Tax Basics, to understand the factors that give rise to UBI and sales tax. Units may also contact the Tax Reporting department directly.
Furnish information to Tax Reporting timely. If a unit plans to begin a UBIT- or sales tax-generating activity, or suspects it may already have such activity, that unit must contact Tax Reporting as soon as possible. In some cases, tax planning can reduce or eliminate UBI; Tax Reporting can help advise units on such matters.
Collect and/or pay taxes as applicable.
- UBIT: Tax Reporting will charge units for any tax they generate before the final close of the following fiscal year, i.e., UBIT generated in FYX1 will be charged to the generating unit before the final close of FYX2.
- Sales tax: units are responsible for collecting sales tax from customers at the point of sale and depositing it in the correct University sales tax account by Cash Management’s monthly deadlines. For units using Central Accounts Receivable (“Central AR”), note that Central AR does not monitor or automatically invoice for sales tax.
Responsibilities and Contacts
Financial deans or equivalent tub financial officers are responsible for communicating this policy to local units and for ensuring that local units abide by this policy.
Local units are responsible for contacting the Tax Reporting department for determination of any potential tax liabilities prior to conducting sales to any external or affiliated University parties.
Tax Reporting is responsible for collecting information and filing tax returns for any income determined to be unrelated to the University’s exempt purpose; Tax Reporting is also responsible for reporting and remitting sales and meals tax. Tax Reporting will work with departments and the office of the General Counsel to determine whether the external sales generate any income or sales tax obligations. UBI Contact: (617) 495-7792; Sales Tax Contact: (617) 384-9648
Office of Treasury Management advises on tax-exempt debt compliance matters. Contact: (617) 495-5630
Cash Management is responsible for setting units up to collect and deposit taxable sales and the associated sales tax. Contact: (617) 496-0853
Global Support Services provides operational guidance and resources to students, faculty, and staff traveling or managing projects abroad and advises units compliance related to international sales. Contact: (617) 495-1111 or http://globalsupport.harvard.edu/
Domestic: within the United States. For questions about external sales that occur internationally, please contact Tax Reporting or Global Support Services.
External sales: for the purposes of this policy, external sales are those not paid by a 33-digit code. Note that not all external sales are automatically subject to UBIT and sales tax; additional criteria apply. See Appendices A and B.
Sales tax: a tax imposed by state and local governments on the sale or rental of tangible goods. It is generally charged to the buyer, collected by the vendor and passed on to the state. Harvard currently collects and remits sales tax in Massachusetts, California, and Illinois; Harvard consolidated entities, affiliates and allied institutions may be subject to sales tax in additional states based on where they are registered to do business.
Meals tax: a type of sales tax levied on prepared meals and certain other food items. In Massachusetts, sales of meals to students by college dining facilities are generally exempt.
Unrelated business income (UBI): for tax exempt organizations, income from an activity that is not related to the tax-exempt purpose of that organization. At Harvard, all gifts, most tuition and most sponsored research are related to Harvard’s tax-exempt purpose and therefore NOT subject to tax. UBI is reduced by applicable expenses in order to arrive at taxable income.