Under United States tax law, most income accruing to nonprofit organizations is tax-exempt. However, income from "business related activities" is taxed at normal corporate (or trust) rates under the Unrelated Business Income Tax (UBIT). Nonprofit revenue is tax-exempt as long as it is considered "substantially related" to the organization's mission. For example, the tuition charged by a university is tax-exempt, but if the university also owns a restaurant which serves the general public, then those profits are not tax-exempt. This brief explores the rationale behind and the effects of the Unrelated Business Income Tax.
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