The Republican tax plan, which passed today in the House of Representatives, includes one section that may cause worry for colleges and universities. According to Inside Higher Ed, the tax plan would include taxes on income unrelated to an institution’s academic vision, including licensed items.
The proposal specifically broadens the unrelated business income tax, which taxes activities that aren’t related to an institution’s charitable mission. Basically, this means that anything that isn’t actually teaching students would be taxable. This would be a significant change for universities, which focus heavily on licensed goods like apparel, drinkware, paper products and countless other items.
If it goes into place, the Senate planned to make two main changes to the tax, per Inside Higher Ed: taxing royalties generated by the university’s name or logo (which is currently tax exempt under the current plan), and requiring those educational institutions with more than one business activity unrelated to the core mission to list each one separately for tax purposes. This would include athletic events and sales from special events for students and the community overall.
“Any changes to such guidelines should not result in disparate treatment for nonprofit organizations by holding them to standards and rules not applicable to corporations,” Liz Clark, director of federal affairs for the National Association of College and University Business Officers, said to Inside Higher Ed.
Steven Bloom, the director of government relations at the American Council on Education said that the tax plan creates “unintended consequences,” such as making college bookstores differentiate which items are included in the new tax plan (like T-shirts) versus the ones that aren’t (like textbooks), but are sold in the same place.
The tax-exempt status of licensed goods benefits the students, too. Plenty of big colleges with big-name status funnel all of the royalties from licensing programs to support student financial aid programs and scholarships.
“Licensing activity provides nonprofit universities with a source of revenue that unlike, say, donations that come in with donor-directed restrictions, can be applied to the institution’s most pressing needs, including scholarships, student activities, athletic programs, renovating out-of-date campus facilities and even scientific research,” said Jessica Sebok, associate vice president and counsel for policy at the Association of Ameriacan Universities. “In fact, a typical university licensing policy requires that all royalties accrue to the institution’s overall educational and operational budget, in furtherance of that institution’s charitable mission.”
Furthermore, Sebok said that this would impact colleges with big athletic programs or sizable alumni networks, since these groups focus heavily on licensed goods. For every college and university, however large or athletically powerful, the new plan will complicate licensing their names or logos to third party companies. This includes trademarks or copyrights related to that name or logo.
