North Carolina State University is an agency of the State of North Carolina and, as such, derives its tax-exempt status in accordance with the constitutional law doctrine of intergovernmental tax immunity.
The Internal Revenue Code provides that the exempt purposes of state colleges and universities include all of the purposes and functions described in Code Section 501(c)(3), and therefore for federal income tax purposes, the University may engage in activities which include charitable, scientific, testing for public safety, literary, educational, to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals. The University is not, however, exempt from tax imposed by Code Section 511, 512 and 513 on activities, which are unrelated to those exempt purposes. Therefore, each activity must be scrutinized to determine whether an exempt purpose is also being served.
Three elements must be present for an activity to be considered unrelated to the University’s tax-exempt purposes:
- The activity must be a “trade or business”,
- It must be regularly carried on, and
- It must not be substantially related to the University’s exempt purposes.