What is UBTI?
The Unrelated Business Taxable Income tax is imposed on the unrelated business taxable income of most exempt organizations. The purpose of the tax is to prevent unfair competition by exempt organizations that could use their tax exempt status to gain an advantage over taxable businesses. Gross income subject to the tax consists of income from a trade or business activity, if the business activity is not substantially related to the organization’s exempt purposes and is regularly carried on by the organization. The deductions directly connected with the business income as well as specified modifications are taken into account in determining unrelated business taxable income. The tax is imposed at the corporate or trust income tax rates, depending upon the legal form of the exempt organization.
Unrelated business taxable income, or UBTI, is income that is taxable to an otherwise tax-exempt institution or account. UBTI usually comes into play for individual investors when they consider holding MLP units in nontaxable accounts such as IRAs. PVR has rental activities which generate UBTI, although this has been a UBT loss over the last several years due to accelerated depreciation for tax purposes. PVR’s natural gas midstream business will also generate unrelated business taxable income or loss.
