The University, as a political subdivision of the State of Montana, is excluded from Federal income tax under Section 115(1) of the Internal Revenue Code, as amended.  Certain activities of the University may be subject to taxation as unrelated business income under the IRC code sections 511 to 514.

Unrelated business income is the income from a trade or business that is regularly carried on by an exempt organization and that is not substantially related to the performance by the organization of its exempt purpose or function, except that the organization uses the profits derived from this activity. 

Unrelated Business Income Tax (UBIT) is the tax imposed by the IRS on unrelated business income.  It prevents unfair competition by requiring tax-exempt organizations to pay taxes on revenues derived from activities not related to their exempt mission.

Montana State University Billings must identify and report unrelated business income on an annual tax return filed in conjunction with other MUS campuses with the Internal Revenue Service.  The revenue is compiled and analyzed for Montana State University Billings annually in the Financial Services Office.


There are three elements required for an activity to be considered an unrelated trade or business activity:

  1. the activity must be a trade or business,
  2. the activity must be regularly carried on, and
  3. the activity must not be substantially related to University’s exempt purpose

Federal and state income tax is imposed on the University's unrelated business income (UBI). This tax is commonly referred to as unrelated business income tax.

Income Subject to UBI Review

The following are examples of revenues that are subject to UBI review.  The list is not all inclusive. Each transaction must meet all of the three criteria listed above for unrelated business income.

  • Advertising, broadcasting, internet sales and sponsorship agreements
  • Lab testing services and commercial research
  • Revenues derived from goods sold or services performed by departments to unrelated parties
  • Use of recreational or athletic facilities by the general public for a fee
  • Meetings, conferences, and seminars that are non-educational
  • Rental of equipment, personal property or real property
  • Event income such as concerts and public events
  • Publishing, selling or distributing journals, papers or periodicals
  • Audio and/or video production, repair or duplication
  • Technical or professional consultations or advising
  • Travel tour programs
  • Revenues from joint ventures or partnerships of the University


Federal tax law provides exceptions to the above rules to exclude certain activities and types of income.  

  • Convenience – Income from activities conducted primarily for the convenience of university faculty, staff, and/or students is not an unrelated trade or business.  Examples include campus bookstores, parking lots, social facilities and vending operations.
  • Volunteer labor Income generated from activities where substantially (85%) of the work is performed by volunteers is not an unrelated trade or business.
  • Donated merchandise – Income from the sale of merchandise, substantially all of which has been received by the University as gifts or contributions is not an unrelated trade or business.
  • Qualified sponsorship activities –Income received for which the payer will receive no substantial benefit other than the use or acknowledgement of the business name, logo or product lines, is a qualified sponsorship payment.  Use or acknowledgement does not include advertising the sponsor’s products or services.

Allowable Deductions

Costs related to the operation of unrelated business activities can be deducted against the income.  These costs can be direct or indirect expenses. 

  • Direct costs are those that have a proximate and primary relationship to the generation of taxable income and include such things as salaries, supplies, services, communication, travel, cost of goods sold, capital and repair and maintenance expenses.
  • Indirect costs are overhead expenses that cannot be specifically attributed to any particular activity and include such things as administrative, utility, custodial, building and depreciation costs.

For instances where UBI activity costs can be readily identified, or if the revenue and expense are exclusively for an activity, those costs are reported.  However, when expenses support both unrelated business and exempt functions, they must be allocated between the two uses on a reasonable allocation basis. The part of an item allocated to the unrelated trade or business is then allowable as a deduction in computing unrelated business taxable income.



Subsequent to each fiscal year end, Financial Services staff will accumulate and review all revenue and expense to determine any income producing items that are reportable as unrelated business income and complete the UBI reporting template. Departments may be contacted for additional required information.


A 990-T, Exempt Organization Business Income Tax Return, is filed on an annual basis with the IRS in conjunction with all campuses of the Montana University System.



Questions concerning the taxability of an activity that generates income, the classification and allocation of associated expenses, or any other UBI related issue should be directed to:


Gina Herbert, Accountant
Financial Services
657-2625 | gherbert@msubillings.edu


Additional Resources: IRS Publication 598