Procedures
- Establish a Center
- Determine Budget Type
- Recharge Center Budgets
- Rate Proposals
- Salaries
- Usage Estimates
- MAA Review Checklist
- Equipment
- Working Capital
- Financial Reports
- External Users
- Bill Customers
General
Institutional Overhead
Definition
Reconciling Institutional
Overhead on BARs/BSRs
Surcharges
Definition
Calculating the
Surcharge
Transferring
the Surcharge
Sales Tax
Unrelated Business Income Tax
Non-federal external user rates do not have to be cost-based like internal user rates. However, external user rates need to be set to recover at least the cost of providing the goods or services being sold. There are additional charges that may apply to external users including institutional overhead (required), surcharges, and sales tax.
If the center sells to external users, the center could be subject to Unrelated Business Income Tax (UBIT) if the exemption criteria are not met.
For additional information on sales to external users, refer to Administrative Policy Statement 59.5
Institutional overhead is a rate calculated by the Budget Office to reimburse the University for costs paid centrally such as rent, light, heat, etc.
Institutional overhead is similar to, but distinct from, facilities & administrative (F&A) costs charged to grants. Unlike F&A costs, institutional overhead is charged on revenue received from external users. Internal users are not charged institutional overhead.
This is a pass through charge for the recharge or cost center and the center should add institutional overhead to the rates charged to external users. The institutional overhead should be added after all surcharges have been applied.
The current institutional overhead rates are:
Recharge or cost center located on-campus: 15.6%
Recharge or cost center located off-campus: 5.919%
A quarterly JV is prepared by Financial Accounting to charge the recharge center for institutional overhead collected from external users.
The revenue that is shown on the center's BAR/BSR is the total amount collected including the institutional overhead. When Financial Accounting takes out institutional overhead, they first remove the institutional overhead already recorded in the revenue.
To calculate how much institutional overhead will be charged on external sales by Financial Accounting, use the following formula:
Total External Revenue on BAR for calendar quarter x [Institutional Overhead % / (1 + Institutional Overhead %)]
Example: The external revenue (including institutional overhead) posted to an on-campus recharge center budget for the quarter January - March is $20,000. The total institutional overhead charged by Financial Accounting will be: $20,000 x .156 / 1.156 = $2,698.96.
Surcharges are an additional amount that can be charged to non-federal, non-UW external users above the cost to provide the service. The surcharge amount is determined by the recharge center.
The surcharge is applied to the rate before institutional overhead is applied.
Scenario 1If the external rate has been established, but the surcharge is not known, the institutional overhead is first removed before the surcharge is calculated, as illustrated in the example below.
Example: The rate to internal users to provide the service is $50.00/unit. The maximum rate that can be charged to external customers is $75.00/unit because that is the normal amount charged by others providing the same service. This center is located off-campus so the institutional overhead rate is 5.919%.
If the surcharge to be applied is a percentage increase in the internal user rate, then the surcharge percent is applied first, then (1+ institutional overhead rate) is applied to yield the external rate. This method is illustrated in the example below.
Example: The internal customer rate is $35.00/unit. The desired surcharge is an additional 20% over the internal rate. The center is located on-campus so a 15.6% institutional overhead rate is applied.
The revenue collected from surcharges is deposited in the operating budget. The surcharge can be used to:
Surcharges used to pay for future equipment should be transferred to the equipment reserve budget on a quarterly basis with a journal voucher (JV). Only the surcharge portion of the external revenue should be transferred. The JV has the following coding:
| Budget | Object Code | Amount | |
| Debit | Operating | 9480-98 | Quarterly surcharges |
| Credit | Equipment reserve | 9480-98 | Quarterly surcharges |
Centers can submit the surcharge JV to MAA at the same time they submit their equipment depreciation or use allowance JV.
Surcharges used to reduce the rate to internal users or generate working capital can remain in the operating budget and do not need to be transferred.
Unrelated Business Income Tax (UBIT) is a tax that is charged on external sales that do NOT meet all of the following criteria:
If all of the above criteria are met, the activity is not subject to UBIT. Most recharge centers are exempt from UBIT. However, if you have sales to external users, contact the UW Tax Office for more information.
If your center is subject to UBIT, you will have to provide information to the UW Tax Office so they can prepare a tax return detailing the sales, expenditures, and profit of the recharge center
