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Making Room: UBIT and Third-Party Facility Usage

If your nonprofit provides facility usage to another organization, could any fees charged then result in tax liability? This question of federal unrelated business income tax often becomes relevant to many nonprofit property owners, as they consider potential opportunities for revenue generation, wise stewardship of their resources, and property tax exemption too. This article is third in a series on third-party facility usage, building on the importance of a facility usage policy and making sure the organization’s real estate continues to qualify for property tax exemption.

Making Room: Property Tax Exemption and Third-Party Facility Usage

If your nonprofit provides facility usage to another organization, could its property consequently lose tax-exempt qualification? That question often becomes extremely important to many organizations as they consider potential opportunities for revenue generation, wise stewardship of their resources, and issues involving current guest users who may or may not imperil this coveted tax-exempt status. This question becomes even more acute when a nonprofit organization seeks to submit a tax exemption application for property with third-party usage, or when potential tax liability for losing exemption is not presently known or otherwise factored into facility usage fees that are charged to third parties. It thus warrants careful attention and the legally correct answer!

Making Room: Third-Party Facility Usage Policy

Does your organization own real estate that could be used by others? Perhaps your organization’s building or other property is currently occupied in whole or in part by other occupants? While the nonprofit sector has occupants, usage fees, and related agreements, a parallel dynamic exists in the commercial world where occupants are known as tenants, usage fees are known as rent, and related agreements are comparable to leases. Oftentimes, the key driver for such an arrangement is financial, which is fully appropriate for a commercial setting. But in the nonprofit context, real estate may be exempt from property taxes, revenues preferably remain tax-exempt, and additional non-commercial considerations may warrant a different approach for third-party space usage.

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