Historically, colleges have not paid income taxes on “royalties” received for sales of shirts, mugs, etc. containing their logo.  Might that change?



Denali Christian College (DCC) is a private college exempt under Internal Revenue Code section 501(c)(3) and section 170(b)(1)(A)(ii).  Their CFO heard that proposals for tax reform might create a UBIT issue for DCC with regard to their “deal” with a vendor whereby they receive royalties from sales of items and apparel that contain their logo – Go Kodiaks!

First, we answer that this may be true.  Congress appears to be considering 2014’s “H.R. 1” (or the “Camp Draft”) as a foundation for tax reform.  That document contains a provision that would make any sale or licensing by a tax-exempt organization of its name or logo subject to UBIT.

Second, there are some sales (to alumni and/or the general public) that could currently be subject to UBIT.

Also, we tell them that many, many schools – not just DCC – would be affected by this proposed tax rule change.  In our 2017 eQuery survey, almost 90% of respondents noted that they sell “logo apparel” or other such products.



From 2014’s H.R. 1 (proposal):

Sec. 5002. Name and logo royalties treated as unrelated business taxable income. 

Current law: Current law designates certain activities as per se unrelated trades or businesses for UBIT purposes, including advertising activities and debt management plan services.

Provision: Under the provision, any sale or licensing by a tax-exempt organization of its name or logo (including any related trademark or copyright) would be treated as a per se unrelated trade or business, and royalties paid with respect to such licenses would be subject to UBIT.

From 2017 Capin Crouse eQuery #4:

Does your institution sell apparel or other products with your school logo on them to the public via a bookstore, website, or catalog?

  • Respondents = 147
  • Percentage  of  “Yes”  answers  =  89.80%

Virtually 90% of responding institutions sell “logo apparel” (or products).  This can be a great revenue generator for colleges, seminaries, and universities.  Especially for some larger institutions who are able to “license” their logo and receive “royalties” for sales of clothing and products from a third-party.  There are a few “speedbumps” however for the unwary.

First, in varying degrees, we have generally seen the IRS deem the following “logo sales” to be unrelated business activities:

  1. Sales to the general public
  2. Sales of clothing and products that do not have a “connection” to the institution
  3. Internet sales

Next, it can be cumbersome to discern or calculate the amount of sales to the general public.  Even though any reasonable method (given all facts and circumstances) is the standard, how does your institution’s accounting system navigate this issue?



  • Many, many schools sell products with their logos on them.
  • Sales to the general public may already be technically generating UBIT.
  • Tax reform proposals may result in more unrelated business income taxes for many colleges on sales of “logo apparel.”

It would behoove colleges to keep an eye on tax reform as it unfolds in 2017 – and beyond.

Specific questions? Email Dave Moja


The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.