Other income-producing activities provide goods or services to a wide range of customers that include non-UC users, students, faculty, staff and other campus departments. There may be an overlap with the definitions of auxiliary enterprise, service enterprise and academic support activities categories. Due to strict federal costing principles, other income-producing activities, except conferences, publications and certain rentals of space, should not have any recharges to federal funds/sponsored research projects. Other income-producing activities frequently use contracts referred to as service agreements. A service agreement is a written legal agreement between the University and a non-UC source containing terms and conditions under which goods or services are to be furnished by the University. Service agreements must be signed only by persons having UCSD contracting authority.
There must be a need for the goods or services to be provided by the activity. The benefits, including relative prices and quality, of the proposed activity providing goods or services must be weighed against the benefits of obtaining similar goods or services from commercial sources or other University sources.
Goods or services should not be sold to the general public unless the goods or services are unique or sales will not compete with commercial sources. University facilities are not to be used for activities of a purely commercial nature except when it is shown conclusively that satisfactory facilities and such services do not exist elsewhere. If it is anticipated that the activity may generate unrelated business income, e.g., related to the sale of goods and services to the general public, the potential tax liability also must be considered in planning and budgeting for the activity.
A proposal must be submitted and approved at the proper levels prior to the start date of a new rate or activity. In some instances the activity may be retroactively approved to a date not preceding the beginning of the current fiscal year. The proposal should include, at a minimum, a business plan and the funding sources for anticipated or unanticipated operating deficits. For smaller activities (under $200,000 annual revenues), the business plan may be a statement describing the goods/services and the expected income and expenses. In addition to a business plan, larger activities (over $200,000 annual revenues) should include a projected income statement and the rate methodology used to establish the rate or price.
Rental of space may include short term or long term rentals. Because federal restrictions allow space rentals to be market-driven, rentals follow a different methodology from other income-producing activities.
Short term rentals or day use space rentals must comply with federal Office of Management and Budget Circular A-21, paragraph J43. Rental of space is allowed for all buildings except buildings constructed with federal funds or partially constructed with federal funds. A rental of space would include renting within the division/department, to other divisions/departments, and non-UC users.
Each department that wants to rent out space must develop a business plan in accordance with A-21 and should include the following:
Listing of comparable local rentals
Listing of proposed rental rates
If the plan proposes different rates for different customers, it must accurately describe each group and briefly indicate why some are charged less.
Proof of insurance
An agreement approved by BFS-Procurements & Contracts Office
There is language in A-21, Section J43-Rental costs of buildings and equipment that allows rental rates to be based on rental costs of comparable property. Since rental rates are market driven, the rate charged for all short term rentals to non-UC users will include the current overhead cost recovery rate, a.k.a. differential income, in order to recover indirect costs related to rentals.
The rental plan must be submitted and approved at the proper levels prior to the start date of a new rate or activity. In some instances the activity may be retroactively approved to a date not preceding the beginning of the current fiscal year. The plan should include a statement describing the goods/services and the expected income and expenses and should be sent to Financial Analysis Office, which will retain the plan as part of the inventory of campus rental practice.
Those rental activities that include services and/or rental of equipment will need to file a separate recharge rate proposal for the services and/or rental of equipment. Refer to the Academic Support Activities and Service Enterprise Activities documents.
Long term rentals of space are handled by the UCSD Real Estate Development Office. Prior to the start date of a new rental activity, the Real Estate Development Office will provide a brief description of the new rental activity, including the expected income and expenses to BFS-GA. In some instances the activity may be retroactively approved to a date not preceding the beginning of the current fiscal year.
Editorship funds are established for professional journals. Service contracts for editing services cannot be recorded in editorship funds. Editorship funds must follow the same processes as typical other income producing funds.
For conferences that have corporate sponsorships, UCOP has determined that almost all corporate sponsorships are gifts. Therefore, all corporate sponsorships must be processed through the Gift Processing office.
For conferences which include non-UC guests or any type of entertainment, the portion paid by departments must be processed through the Travel/Entertainment office.
Occasionally, conferences may be co-sponsored by a federal or other restricted fund, which cannot accept recharges or other conference fees. In those cases, it may be necessary to have both a conference fund and a restricted fund. Conference fees will be recorded in the conference fund and costs will be split between the conference fund and the restricted fund.
Conferences occasionally charge a reduced fee to students. This is acceptable so long as all qualifying conference payers are paying the same rate.
All conferences will follow the same processes as typical other income-producing activities.
Rates must be sufficient to recover all costs to be charged to the activity. Goods sold to the general public may be subject to California sales tax. Therefore, sales tax, if applicable, must also be recovered. In addition to being sufficient to recover all direct costs, rates for sales made by activities to the general public will recover overhead costs, referred to as differential income. Certain activities are assessed an administrative overhead recovery recharge, in lieu of the differential income.
At the discretion of the activity’s Vice-Chancellor, unrestricted funds may be used to subsidize other income-producing activities.
The funds for most other income-producing activities will be operated on a no-gain/no-loss basis. Some activities are allowed to accumulate a surplus balance at the discretion of the activity’s Vice-Chancellor. Deficit balances must be corrected immediately. All activities must notify BFS-GA of surplus or deficit balance by October 1st following the fiscal year. For activities that are allowed to have a surplus balance, a confirmation that the balance has been approved by the activity’s Vice-Chancellor is required. For activities that have a deficit balance, a timeline to correct the overdraft is required. BFS-GA will send after October 1st a listing of all those activities not in compliance to the activity’s financial contact. If no response is received from the activity’s financial contact within 30 days, the listing will be sent to the respective Vice Chancellor’s Office.
Unrelated business income is a type of other income resulting from sales of goods or services to individuals or non-University entities. If sales are not substantially related to University educational or research purposes, proceeds from the sales are considered to be unrelated business income and are subject to Federal income tax reporting requirements. Examples include income from sales of recreation cards to the general public and sale of patron tours for the Stuart Collection.
The overhead cost recovery rate, also referred to as differential income, is the rate applied to all sales to non-UC users of activities, including service agreements, in order to recover the indirect costs related to the activity. Rates are based on the current Federal negotiated research rate for the campus, less four components: Equipment Depreciation, Sponsored Project Administration, Library and Student Administration & Services. In the case where a particular sales/service activity involves the resources of, or results in administrative burden/cost to, Sponsored Project Administration, Library or Student Services, the affected components should not be excluded. The activities must, at minimum, charge non-UC users the standard overhead cost recovery rates. The standard rates are for:
Campus - If a sales/service activity is located in campus space, the campus differential rate will be added to sales to the general public.
Off-Campus - If a sales/service activity is located in space that is not owned or maintained by UC, an off-campus differential rate will be added to sales to the general public.
Ship Use - If a sales/service activity is affiliated with the ship-use operation, with no space costs and all departmental support costs factored into the charge rate, a ship use differential rate will be added to sales to the general public.
The standard distribution for overhead cost recovery generated is as follows:
Full Differential Income Distribution
Full Differential Income Rate
Minimum Differential Income Distribution*
Minimum Differential Income Rate
In most cases, the overhead, a.k.a. Differential Income, is to be distributed in two parts:
(1) central administration and (2) departmental support or to the Vice Chancellor responsible for the activity. When an activity has obtained approval from its Vice Chancellor to charge the minimum overhead rate for non-UC sales, the central administration portion must be remitted annually.
*The table on minimum Differential Income distribution lists only the minimum Differential Income that is required for central administration. Each Vice Chancellor area may also require a minimum Differential Income portion to be remitted to the Vice Chancellor responsible for the activity. Consult your Vice Chancellor’s office for more information.
Differential income in excess of the standard rate will be distributed to, or as directed by, the Vice Chancellor responsible for the activity that generated the overhead cost recovery.
In certain circumstances, such as collaborative programs, there may be multiple differential income rates for profit and non-profit entities. However, the differential income rate cannot be less than the standard differential income rate.
Differential Income Waivers:
Generally, waivers requests are approved for the activity’s Vice-Chancellor’s (Departmental Support) portion only. The central administration portion must still be collected and remitted.
Differential Income Exemptions:
For new activities, the classification process will determine the appropriate overhead rate, if any. If an external entity prohibits payments for overhead, the activity must produce documentation that demonstrates this exemption.
Use of Differential Income Funds:
Funds representing differential income, which are distributed to an activity's differential income reserve, cannot be used to fund operating costs of the activity; however, these funds may be used to fund non-operating costs, such as equipment and capital improvements of the activity. With the approval of the cognizant Department Chair or Administrative Unit Head, such funds also may be used for operating costs of the department or unit, other than those of the activity itself. Although differential income funds can’t be used to fund the operating costs of the activity, they can be used to subsidize the UC users of the activity.
Certain activities are assessed an administrative overhead recovery recharge instead of the differential income overhead assessment. Administrative overhead recovery recharge exemption requests must be submitted to the Financial Analysis Office for review and recommendation, with final approval by the Vice Chancellor of Resource Management and Planning.
Other income-producing activities will each have a specific fund number. Each activity will be assigned a unique fund number in the appropriate Chart of Accounts (COA) series by BFS-GA. The fund is referred to as the “operating fund.” The operating fund is the accounting mechanism used to record operating costs, UC recharges and income. For sales to non-UC customers, a revenue account code will be established. A revenue account code is also referred to as an “income account” and generally is a 5 in front of the fund number. Recharges are income received from charges for sales and services to campus departments or other UC campuses. Due to strict federal costing principles, other income-producing activities, except for conferences, publications and certain rentals of space, should not have any recharges to federal funds/sponsored research projects. For University financial reporting, a recharge is considered to be cost redistribution. Therefore, it appears as a credit in the expenditure account code 693900. Expenditures for the operations are recorded in the Index, Fund, Organization, Program (xxx030) codes using appropriate expenditure account codes that categorize the type of expense. For cost of goods sold expenditures, activities must use program code xxx070. The cost of goods sold program codes are used to separate expenditures for re-sale vs. operating costs of the activity. A specific expenditure account will be established if departments will be processing recharges. An index code will be associated with the above COA elements, a.k.a. IFOP = Index, Fund, Organization and Program codes.
A rule class is generally established for a recharge activity as a mechanism to record recharges.
A budget must be established for each other income-producing activity in accordance with campus budget procedures. Generally, the department prepares a transfer of funds. The department will also request a “BD” index to be set up by the Budget Office.
A differential income reserve fund is the accounting mechanism used to segregate and accumulate overhead cost recovery (differential income rate) from sales of goods or services to non-University individuals or entities. A differential income fund (75xxxx) may be established if it is expected that sales to non-UC users will be made. A differential income fund is not allowed to have a deficit balance.
During the year, the cash balance of all UC funds participate in the Short-Term Investment Pool (STIP). Distribution of the interest earned (surplus balances) or charged (deficit balances) will be in accordance with the procedures in Business and Finance Bulletin A-60, Short-Term Investment Pool Distribution of Income. Current campus procedures dictate that the STIP be recorded in the respective Vice Chancellors’ STIP funds.
There may be specific fiscal closing entries that are required. An instruction document is prepared each fiscal year, “Recharge & Other Income-Producing Activities Fiscal Closing Special Items Instructions”. The document is available by the end of April. All other income-producing activities must refer to this document for entries that may be required for the activity.
When an activity is no longer in operation, notify the BFS-GA contact to coordinate the closing of the fund(s). The funds need to zero-out prior to inactivating the index and fund numbers. If the activity had a Renewals and Replacement Reserve fund and/or Differential Income fund, those balances have to be zero and the funds and index numbers need to be inactivated. It is imperative to close the funds to avoid additional charges. In addition, if the activity has balance sheet accounts, such as credit card clearing accounts or accounts payable accounts, those accounts must be cleared also. The remaining inventory of an activity that is to be closed should be transferred at cost to another departmental activity or transferred to surplus sales in accordance with campus policy.