UBIT – It’s a Good Thing, It Means You’re Making Money!

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UBIT – It’s a Good Thing, It Means You’re Making Money!

If there ever was a subject that will stop an accountant is his or her tracks it is UBIT, which stands for unrelated business income tax. The origins of UBIT are obscure. This tax was placed on some taxpayers to «level the playing field» for certain businesses. The best example of how UBIT is used is for the competition between a non-profit and a for-profit enterprise. The college book­store sells books to students and others within the structure of their «non-profit» umbrella. The college bookstore, because it is non-profit, is not taxed the same way as a for-profit enterprise. A non-profit does not pay taxes on most operations and there­fore can afford to sell books at a lower cost than the for-profit store across the street. Since both the college bookstore and the for-profit bookstore are competing for the same customers, the college bookstore has the advantage of being treated differ­ently for tax purposes and the advantage of this preferential tax treatment may allow the college bookstore to sell their books for less, thus attracting customers away from the for-profit store.

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