Financial Services Manual (FIN)

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Effective: 7/1/2005

Revised: 11/1/2008

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FIN 126: Private Use of University Facilities

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Purpose

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To ensure appropriate use of university facilities and equipment that may be tax-exempt financed

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Sources

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Internal Revenue Service regulations
University policy

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Background

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Facilities and equipment owned by the university may occasionally be made available for use by or for the benefit of other parties. While these arrangements are often mutually beneficial, there are certain situations in which this practice can present serious tax problems for the institution.

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Policy

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Private use of facilities and equipment (henceforth referred to as “facilities”) financed with tax-exempt bonds require monitoring procedures to insure that the private use stays within legal limitations. Excessive private use may require refinancing of a debt issuance, and for this reason, private use of ASU facilities requires the review and approval of the vice president for finance and deputy treasurer. Private use also includes affiliation agreements with a nongovernmental entity where the other party occupies space, in conjunction with the affiliation agreement, in an ASU tax-exempt financed facility.

The approval by the vice president for finance and deputy treasurer is only to determine that a refinancing of a facility from tax-exempt to taxable interest rate debt is not needed in order to enter into the private use arrangement. This approval may not be the only approval needed and does not substitute for any other needed approvals.

Violations of the permitted use of facilities tax-exempt financed in accordance with IRS regulations can result in significant monetary penalties to ASU.

In addition, revenue from the private use of university facilities is subject to sales tax (see FIN 108), which should be added to the lease or rental payments received from the private user of the space. Contact Financial Services for the procedures to be followed for the handling of the sales tax collections and payments.

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Procedures

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Requests to use university facilities that are tax-exempt financed must be submitted to the vice president for finance and deputy treasurer for review and approval under the following conditions:

  1. use of an ASU facility by one or more ASU employees to operate a trade or business not owned or operated by the university

    or

  2. use of any facility by individuals not employed by the university or by non-ASU and nongovernmental organizations (private parties).

Exempted from the requirement to submit to the vice president for finance and deputy treasurer for review and approval are rental and facility use arrangements that meet the following stipulations:

  1. the university facility use or rental arrangement with an external (non-ASU) party is for no more than 50 days of total use, e.g., every Saturday and Sunday for 15 weeks, totaling 30 days of use (the days of use do not have to be consecutive days)

    and

  2. fair market value is charged for the use of space. To determine whether fair market value is being charged for the use of the space, each ASU department handling a facility use negotiation is to consult with the chief business or financial person of their college or vice presidential area, who in turn, may need to consult with the ASU Real Estate Development Department (480/965–6700).

There may be a provision in the rental or use agreement to automatically renew for additional periods of 50 days or less of total use as long as either party has the right to not renew.

For facility use arrangements contemplated to potentially be more than 50 days of total use, it is preferable that the contractual arrangement be for no more than 50 days at a time, subject to renewal if agreed to by both parties, so that potential disqualifying use for tax-exempt financing is not triggered.

This policy only applies to facility use by non-ASU parties in an ASU facility that is tax-exempt financed. A listing is contained on the Financial Services Web page of all ASU facilities and whether the facility has tax-exempt debt on it and if the facility has tax-exempt debt, the relative private use capacity that is remaining. Facilities having no tax-exempt debt are color coded “Green.”

For research sponsored by private nongovernment parties, if the sponsor obtains rights to any resulting technology or other intellectual property, nonqualifying use for a tax-exempt facility could be triggered. Specific procedures have been established between ASU’s Office of Research and Sponsored Projects and Financial Services to monitor this type of use. By university policy, all externally sponsored research is to be handled through the ASU Office of Research and Sponsored Projects.

Requests for use of university facilities will be evaluated on a case-by-case basis. The following are among the factors to be considered in making approval or nonapproval decisions.

How the Facility was Financed

The most important factor in approving use of any ASU space by or for the benefit of a private party is whether the facility was financed in whole or in part by tax-exempt debt. If debt financing is an issue, it must then be determined if the proposed use constitutes private use in excess of allowable limits. The applicable tax regulations are quite complex, as are the financing arrangements for many ASU facilities. Use of university space in violation of applicable tax rules and bond covenants can have very unfavorable consequences to the institution.

How the Use Advances University Research, Education, or Public Service Efforts

If the use of the space or equipment by a private party is to advance one or more projects conducted by the university, approval is more likely. There must be a direct benefit of the use of the particular space to a specific, clearly identifiable objective of the university.

Duration and Scope of the Use

Private use of a facility on a long-term or permanent basis may not be permitted due to legal restrictions imposed by the tax-exempt financing of the facility. Use of space or a piece of equipment by a member of the general public on a “first come, first served” basis will generally be more likely to be approved as not creating a problem with any existing tax-exempt financing of the facility.

If a request is approved, use of the facility by or for the benefit of a private party may not commence or continue until a written contract is signed by the private party and a duly authorized representative of the university.

Submission of Request for Facility Use Needing Vice President for Finance and Deputy Treasurer’s Approval

When submitting a request for private facility use, the following is needed:

  1. a copy of the draft facility use or proposed rental agreement
  2. the building and room number(s) being leased or rented

    and

  3. the square footage of the space being leased or rented.

Facility Use Agreement Form

A standard facility use agreement form is available on the ASU Office of General Counsel Web site. If a more extensive facility use or rental agreement is needed, contact the ASU Office of General Counsel. Facility use revenues must be coded to 5490 01. D

Summary Determination Checklist
  1. Is the private (non-ASU) use in an ASU facility that is tax-exempt financed (see the listing of facilities that are tax-exempt financed)?
___Yes (Go to Step 2) ___No (No further review needed)
  1. Is the facility use for research sponsored by private (nongovernmental) parties?
___Yes (Research must be handled by ASU’s Office of Research and Sponsored Projects) ___No (Go to Step 3)
  1. Is the facility use or rental arrangement with an external (non-ASU) party for no more than 50 days of total use, and is fair market value being charged for the use? The days of use do not need to be consecutive days. Also, the agreement can be automatically renewable for additional periods of 50 days or less as long as either party has the right to not renew.
___Yes (No further review needed) ___No (Agreement must be submitted to the vice president for finance and deputy treasurer for review and analysis)

Central Recordkeeping Requirement

Irrespective as to whether the vice president for finance and deputy treasurer needs to approve of the facility use, a copy of the executed facility use or lease agreement is to be sent to ASU Financial Services, Debt Management Section, Mail Code: 5812. The agreements must be filed in a central place at ASU for the life of the financing on a building in order to meet the record keeping requirements of the IRS, with ASU Financial Services being the department within ASU maintaining a copy of all facility use and lease agreements.

endtable

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Cross-References

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For information on sales tax, see FIN 108, “Sales Tax.”

For information on contract authority, see PUR 202, “Contract Signature Authority.”

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