A specific business activity is regularly carried on if it is conducted with a frequency, continuity, and manner of pursuit comparable to the conduct of the same or similar activity by a taxable organization. To be substantially related, the business activity must contribute importantly to the accomplishment of a purpose for which the university was granted tax exemption, other than the mere production of income to support such purpose. The primary exempt purpose of a college or university is education and research. The activities are exempt regardless of their nature. Examples are food service, bookstores, laundry, telephone service and vending machines.
Examples are dividends, interest, rents, etc. earned from stocks, bonds and rental property.
All but dividend income may be subject to the tax. Again, due to complexities, each must be examined individually. The activity is probably taxable if the operation is profitable. The income is tax exempt except for testing or inspection of materials, products, design or construction of buildings, etc. In addition to reviewing activities based upon the above guidelines, managers should make certain that adequate records are in place to account for revenues and allocable expenditures of exempt and non-exempt activities.