Overview: Areas of Tax Concern
The University is committed to complying, in all respects, with the Internal Revenue Code, Regulations, Authoritative Pronouncements and Rulings by the Internal Revenue Service, and similar state and local laws and regulations. Many activities across the University have tax and/or regulatory implications and ramifications. It is the responsibility of every employee to understand the compliance considerations and requirements of their duties and actions.
The following sections note areas of particular tax concerns.
On this page:
- Unrelated Business Income Tax
- Non-Exempt Use of University Facilities
- IRS Regulation: Intermediate Sanctions
- Sales and Use Tax
- Employee vs. Independent Contractor Status
- Social Security Tax Exemptions for Students and Non-Resident Aliens
- Income Tax Exclusions for Scholarships and Fellowships
- Charitable Donations
- Provision of Mobile Equipment and Related Services (Cell Phones, etc.)
Unrelated Business Income (UBI) Tax
Stanford University is exempt from income tax under Section 501(c)(3) of the Internal Revenue Code on income from activities that are substantially related to its educational and research missions, which form the basis for the University's tax exempt status.
However, if Stanford were to carry on a trade or business activity that is not substantially related to its exempt purposes, Stanford would be subject to tax on the net income of such a business activity, even though it may bring in funds to support Stanford's exempt operations. It is crucial that Stanford employees understand types of income-producing activities that may be "unrelated" and therefore have tax ramifications. For detailed definition of Unrelated Business Income, examples of taxable and non-taxable income, and information on University policy regulating potential UBI activities, see Resources: Unrelated Business Income (UBI) Tutorial.
Contact the University's Tax Compliance Department with any questions regarding an activity's potential income tax ramifications.
Non-Exempt Use of University Facilities: Academic and Business Relationships with Third Parties
Administrative Guide Memo 14 establishes reporting requirements when the University enters into academic and business relationships with independent third parties. When such a relationship involves the use of buildings or other facilities on Stanford land, it should be reported to the Stanford Management Company and the Tax Compliance Director.
IRS Regulation: Intermediate Sanctions
These sanctions relate to the compensation of any persons having substantial influence over the affairs of Stanford, such as members for the Board of Trustees, officers who have ultimate responsibility for implementing the decisions of the Board and supervising the management of the organization and those who manage finances. Specifically, Intermediate Sanctions (IRS Code 4958) prohibit the transfer of assets to a person or other entity having substantial influence over the organization, which exceeds the value received from that person or entity. Punitive taxes may be levied on transactions in violation of this IRS code.
Stanford managers should identify Stanford-compensated persons to whom these sanctions apply and verify with the Compensation Office in Human Resources that their compensation is being reviewed by the Compensation Committee of the Board of Trustees. Managers should also be particularly careful when dealing with outside firms in which a member of the Board of Trustees, a significant donor, an officer, or other person or entity having influence over Stanford affairs, has material financial interest. Wherever possible, financial transactions with such firms should be based upon published fee structures available to a broad range of customers.
For more detail, see Resources: Intermediate Sanctions.
Sales and Use Tax
Sales of tangible property and purchases made by Stanford are subject to California law governing sales and use tax. There are many important considerations when determining how and when sales and use tax laws and rates apply to buying and selling activities at Stanford.
For definitions, explanation of current laws and rates, and examples applicable to Stanford, see Overview: Sales & Use Tax at Stanford.
Employee versus Independent Contractor Status
The determination of whether a worker is classified as an employee or as an independent contractor is directly related to whether employment taxes are withheld and paid by the employer. A worker is considered to be an "employee" if the employer for whom work is performed has the right to direct and control the worker. A worker is considered to be an "independent contractor" if the hiring entity has the right to direct the worker in terms of his or her work objectives, but not with respect to how he or she accomplishes these objectives. The IRS defines twenty factors used in determining the classification of employee versus independent contractor. Managers should review related Stanford guidelines and policy in the Administrative Guide Memo 35.
Visit the IRS web site for specific guidance.
Social Security Tax Exemptions for Students and Non-Resident Aliens
A student is exempt from social security taxes if he or she is employed by the University and is enrolled and regularly attending classes at the University. This exemption is limited by IRS regulations issued in 2004.
A non-resident alien is exempt from social security taxes if he or she is...
- An F, J, M or Q visa holder
- Performing services related to the purpose of his or her visa
A non-resident alien loses this exemption when he or she becomes a resident either through the acquisition of an alien registration card (green card) from the Naturalization and Immigration Service or through the satisfaction of the Substantial Presence Test.
Income Tax Exclusions for Scholarships and Fellowships
Scholarships and fellowships that qualify under Section 117 of the Internal Revenue Code are excludable from the recipient's gross income. To qualify for the Section 117 exclusion:
- An award must be a qualified scholarship (the award can only be applied to tuition and mandatory fees)
- The recipient must be a candidate for degree
- The award must be for the purpose of studying or conducting research at an educational organization
For IRS discussion of these exclusions, visit http://www.irs.gov/taxtopics/tc421.html.
The Internal Revenue Service has several requirements that relate to donor tax deductions for cash and noncash gifts to charities. It is Stanford's policy to issue receipts for all gifts (see Administrative Guide Memo 42.1: Acknowledgement of Gifts). The IRS requires a receipt to substantiate most charitable contribution deductions. The donor should retain the receipt in his/her records; it need not be filed with the tax return.
For both state and federal tax purposes, gifts to Stanford University are usually deductible at their full fair market value as of the date of the gift. One important exception to this rule is for gifts of tangible personal property that are intended to be resold by the University, in which case the donor is entitled to an income tax deduction that is the lesser of either the item's fair market value or the donor's cost basis. Contact the Office of Planned Giving at 650-725-4358 for more information.
Tax laws governing charitable gifts are complex; the University encourages donors to seek professional advice on tax issues.
For instructions on following tax regulations for charitable donations to Stanford, see Resources: IRS Requirements for Tax Deductions for Charitable Donations.
Provision of Mobile Equipment and Related Services (Cell Phones, etc.)
The use of mobile equipment (e.g. cellular phones, PDAs, PCs and similar devices) and related communication services by Stanford employees in the course of their work is common. Stanford often provides these devices and service to employees in order to improve communication, productivity and work efficiency; facilitate telecommuting and working between multiple campus locations; and to otherwise enhance the contributions of employees. As described in Administrative Guide Memo 81.3, departments must adequately demonstrate a business need for the device or service. Note: Administrative Guide Memo 81.3, Provision of Mobile Equipment and Related Services, will be updated December 15, 2010 to reflect this change in policy. The Mobile Equipment & Services Agreement Template is available as a guide for departments wishing to retain formal documentation of approval.
Disclaimer: Stanford University does not offer personal tax advice. Nothing on this web site shall be construed as the offering of tax advice. Stanford recommends seeking professional tax counsel whenever necessary.