FIN 127: Naming Rights of University Buildings
To manage the tax and financing implications associated with naming ASU buildings
Internal Revenue Service regulations
Situations may arise in which the university wishes to name a building, or a room or an area within a building, in recognition of the support of an individual or corporate benefactor. The purpose of this policy is not to discourage such situations, which can be in the university’s best interests.
However, many ASU buildings are debt financed through tax-exempt bonds. To maintain the tax-exempt status of these financings, the university must avoid situations that create private use or private benefit that exceeds limits imposed by federal tax law. Private use could result in the university having to refinance bonds from tax-exempt to more costly taxable interest debt.
Private use is generally not created when a building, or a room or an area within a building, is named for an individual or individuals when the name is not that of a company or a commercial name, e.g., the John and Mary Doe Building.
Private use could result under the applicable Internal Revenue Service regulations when a naming situation involves a company or commercial name, such as the XYZ Bank Building.
As soon as a corporate naming rights agreement is contemplated, the senior associate vice president for finance and deputy treasurer must be informed of the specifics of the proposal. A private use calculation will be made to determine whether such use would require all or a portion of the related tax debt to be refinanced from tax-exempt to taxable interest. A naming rights situation involving a company or a commercial name may require outside bond tax counsel review and/or a ruling request from the Internal Revenue Service, which could take six months or more. If such review or ruling indicates the need for refinancing, increased interest costs should also be considered in the naming rights negotiation.
For more information on private use considerations, see FIN 126, “Private Use of University Facilities.”
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