Sr. Director, Office of Research Administration Policy and Compliance
Because of the risk of incurring large penalties for improper use of the University's not-for-profit status, Stanford is cautious about allowing external use of service center facilities. The primary reason service centers exist is to share resources and provide services for internal users. Inappropriate outside use of service center facilities could jeopardize Stanford's tax-exempt status for various purposes, give rise to claims of warranty and other liabilities, or appear to involve unfair pricing in relation to service providers in the local business community.
Situations may arise, however, where the unique nature of a service center's products or services and other factors justify allowing external users limited access to those products or services. Also, expanding a service center's volume of business may enable the service center to lower its rates, benefiting internal users.
Such limited external use of service center facilities requires prior written approval as discussed below. Additional accounting and monitoring is also required
1. What is External Use?
External use of facilities is any use of facilities which is performed by an entity that is not, for the purpose of that use, under the governance, supervision, or responsibility of the Board of Trustees of the Leland Stanford Junior University. Depending on several factors, external use of Stanford facilities is restricted or prohibited. Such factors include the category of outside user, where the service or use occurs, what direct benefits (other than financial) are provided to Stanford because of the use and other relevant circumstances. Restrictions and prohibitions are based on capacity concerns (Stanford’s own use must take priority over any other use) and legal constraints (principally income and property tax).
External/inter-company/affiliated users are categorized as follows:
The Stanford Health Care (University Hospital)– inter company
Faculty, staff, students, and patients of Stanford University are external when receiving services outside the context of their work for Stanford. (i.e. Faculty member uses services in the context of his private and separate consulting business.)
Affiliated organizations are those that have long standing relationships with Stanford and are often housed on or near the Stanford campus, that share in Stanford’s educational and research missions.
Certain entities whose presence on campus is solely to provide services under contract to Stanford University may be considered affiliated (e.g. American Building Maintenance, legal, consulting and accounting firms using office space and phone lines solely for a current engagement at Stanford)
Clearly independent entities with no ties to Stanford are external (e.g. drug companies)
A. The University Hospitals – inter company
There are generally no restrictions on the use of facilities by the Stanford Health Care, the University Hospital. Such use is considered to support the overall mission of Stanford.
B. Local Service Recipients
Services to faculty, staff, students and patients are usually protected from tax by the so-called “convenience exception” in the Internal Revenue Code. The exemption was created to allow organizations like Stanford to provide services locally to individuals in this category, rather than have them drive long distances to obtain the same service on the outside. However, such is not a blanket protection, particularly in cases where there is a ready market for this service in the surrounding community. The exemption therefore does not apply to services performed off campus. On campus services, if truly provided for the convenience of faculty, staff and students, and to clearly further Stanford’s mission and not merely to generate additional funds, will be allowed for this category.
C. Affiliated organizations
Services provided to affiliated organizations in the context of establishing and maintaining their physical presence on campus will be permitted (e.g. utilities, communications, maintenance, etc.). In the case of other services, there should be a showing that the provision of the services enhances the mission of Stanford or that obtaining similar services from an outside provider would create a logistical hardship for the entity.
D. Service Providers
Entities whose presence on campus is solely to provide services under contract to Stanford may draw only those services that would be considered essential to support their presence on campus, and then only in the context of serving Stanford. Such entities must not use Stanford resources to further the interests of other clients. The for-profit operator of a lunch room could use Stanford space to house her Stanford inventory. She would not be allowed to use that space for inventory used in a private catering business.
E. Clearly Independent Entities
Clearly independent entities are extremely limited in their use of Stanford facilities. Such use is governed by protocols such as Research Participation Agreements, where such external use provides a meaningful enhancement of the Stanford’s mission (other than financial gain), is not in conflict with Stanford’s regular use and where the facility is unique within a 50 mile radius of Stanford and the using entity.
In fiscal year 2012, the University Tax Officer, the Dean of Research and the Office of Research Financial Compliance and Services approved the following policy revisions addressing the UBIT 15% limitation on service center external users:
The following categories of external users are excluded from the UBIT 15% service center external user limitation as their activity is deemed to further the University’s mission of education, research and public service:
1. Higher Education External Users
Students, faculty, and staff funded by Domestic universities/colleges who use the service center to support their research, teaching, or public service commitments.
Foreign/International universities/colleges requestors must prove that the service pertains to research on US Federal Grants. If supporting documentation is provided then their income can exceed the UBIT 15% limitation up to 30%. (Chris Canellos, University Tax Director, revised the policy regarding foreign parameters and waivers starting in FY18. Please email Chris at firstname.lastname@example.org if you have any questions.)
2. Educational Outreach External Users
High school, junior high, and community college students supported by programs designed to enhance education. Support may be provided by government or non-government sources such as federal agencies, State of California, local school districts, non-profit foundations, and corporations.
Service centers may use the new exclusions in calculating the external user UBIT 15% limitation for fiscal year 2012 and after.
Service centers have the option of calculating the UBIT 15% limitation on service center external users using billed hours or billed units in addition to the current calculation based on revenue.
Example calculation using hours or dollars:
Billed hours/units subject to the UBIT 15% external users limitation
Total billed hours/units (external and internal)
Service centers may use billed hours/units in calculating the external user UBIT 15% limitation for fiscal year 2012 and after.
Please contact the University Tax Director, Chris Canellos, if there is any question on the identification of a user as an external user, subject to the UBIT 15% limitation vs. an associated organization, not subject to UBIT 15% limitation.
2. Sales to External Users
A. Approval Process
The required approvals, as described in a. and b. below, are essentially the same for both academic and administrative service centers.
For all service centers, prior approval is not required for the following external/inter-company/affiliated user transactions:
Cash sales to faculty, staff, and students.
Sales to the following external/affiliated organizations: Stanford Health Care (SHC), Lucille Packard Children’s Hospital (LPCH), the Stanford Credit Union, Alumni Association, Eating Clubs, and Stanford Fraternities and Sororities.
For sales to all other external users, the following approval process must be followed by both academic and administrative centers.
1. Collaborative Agreements with External Users
The University believes that most transactions between service centers and external users are not collaborative in nature. However, if a service center and an external user collaborate on the intellectual direction, interpretation and/or outcome of the requested service, the external activity is subject to the Research Participation Agreement (RPA) Policy. Please refer to the RPA policy and Implementation Guidelines for an in depth discussion of the approval process and accounting treatment.
2. Other Agreements with External Users
The majority of transactions with external users is not collaborative in nature and is subject to the following approval process and accounting treatment. The University has implemented revised policies and procedures for all service center sales (academic and administrative) that are not collaborative in nature. This policy requires that each service center that has, or anticipates having external users, must complete a Service Center External Sales Proposal Routing Sheet, found in "related items" below, and a proposal to provide services to external users. This procedure does not apply to associated organizations.
The proposal must include:
A description of the types of services to be provided and the rates to be charged for them,
An indication of the anticipated level of external sales, relative to total sales (e.g., 5% of total sales),
A discussion of whether or not the services to be provided are unique (i.e., are the services easily available locally, within 50 miles?),
A discussion of how the anticipated external user services support the University's academic mission of education and research,
The corporate status and industry of the anticipated external users (e.g., for-profit, non-profit or individuals, educational institutions, pharmaceutical companies, bio-technical companies, etc.),
A list of the equipment used in the conduct of providing services to external users (please provide SU tag number and asset description),
If the external user will be personally using the service center’s equipment the Standard Agreement, found below in "related items", should be signed by each external user prior to their initial use of the service center facility (the service center must retain each signed agreement in its records), Risk Management has required that external users who will be physically utilizing the center’s facilities formally acknowledge Stanford’s non-liability in case of any accident while they are working on campus and
The location where the service is to be performed.
The Proposal Routing Sheet (PRS) must be signed by either the school Dean (academic centers) or the Provost (administrative centers). The Service Center Manager is responsible for distributing the signed PRS and proposal to the following University departments for review and approval:
University Tax Officer
Property Management Office
Academic centers should renew their approvals every five years by completing a new PRS and proposal. Administrative centers are granted approval until circumstances dictate that an approval renewal is required.
B. Rate(s) Charged to External Users
The minimum rate charged to external users includes the rate charged to internal users, plus sales tax, where appropriate as determined by the University Accounting Officer (Controller's Office), plus the appropriate Facilities and Administrative (indirect) cost rate. A service center may charge an external user a premium rate above that charged to internal users for the same type of service if this is included in the center's proposal. Written approval must be obtained from both the University Accounting Officer and RAPC if the decision to charge a premium rate is made after the blanket proposal has been approved. This premium may be used to offset service center costs.
C. Sales Tax
One of several different state and county sales tax rates may apply. Any tax imposed will be a cost passed on to the service center user. Any sales tax collected becomes a University liability. Sales tax is assessed on cost of goods sold, the service center charge (mark-up) and applicable Facilities and Administrative cost. Refer to Fingate. Sales and Use Tax or contact the Accounting Officer, Controller's Office for assistance. Sales tax is not applicable if there is no exchange of tangible personal property, i.e. only services are involved. Note that photocopy charges for personal use by students, faculty, or staff are subject to sales tax
D. Facilities and Administrative (Indirect) Cost Rates
Unless waived by the Office of the Vice Provost and Dean of Research in writing, a Facilities and Administrative (F&A) rate is applicable to all sales to external users for both administrative and academic service centers. Administrative service centers shall charge external users an administrative F&A rate. Academic service centers shall charge external users the full organized research F&A rate unless they are described in the non-sponsored receivables rates website. Service center managers should contact RAPC if they have questions regarding these rates. Any F&A costs collected are retained by the University as general funds.
E. Accounting Treatment
Service center sales to external users (excluding cash sales) are recorded in receivable accounts (generally in award range ATxxx if opened by Misc Rev or AUxxx if opened by Sponsored Receivables Management). Or possibly in the SHC or LPCH hospital PTAs, with the income recorded to an external or misc. income revenue object codes. (See the document in "related items" below.)
1. Research Participation Agreements
As discussed in above, if a center and an external user collaborate on the intellectual direction, interpretation and/or outcome of the requested service, the activity is subject to the University's RPA policy. Per the RPA policy, each agreement will be assigned an award in range UBxxx. The PTA attribute determination is based on the nature of the agreement's activities (e.g., organized research, sponsored instruction, or other sponsored activities).
The Office of Sponsored Research will open the sponsored account (PTA) after the center has obtained the required approvals as specified in the RPA policy. All service center costs associated with the RPA agreement shall be charged to the established RPA sponsored account using the approved billing rate(s). Similar to transactions with other internal sponsored accounts, the revenue is recorded to an interdepartmental revenue code in the service center account.
The Tax Director has determined that RPA agreements do not fall into the external user category and may be coded as internal income up to 10% of total income, above dollars should be coded as external. The limit on the combined total of both RPA – 10% maximum and external – 15% maximum is a combined total of 25% of total revenue.
Direct cost transactions less than $700, or less than $1,500 in annual aggregate single-user transactions, may be treated as cash sales. (See the following section.)
All billings to external users for direct cost transactions greater than $700, or more than $1,500 in annual aggregate single-user transactions, (except those transactions covered by the RPA policy) shall be sent out as invoices issued by Sponsored Receivables Management (SRM) office in ORA.
SRM will open a unique PTA per external user in the award range AUxxx. Please refer to the Exhibit K – Open a non-sponsored receivable PTA in the Service Center Policy website: You will need to have PTA Manager access.
Guide to Requesting a PTA using the Non-Sponsored PTA Manager in Oracle
The amounts to be billed are entered by service centers via their allocation journals which charge the receivable PTA and credit the service center account. The SRM then submits the bill to the external user and processes payment once it is received. SRM will attempt to collect any unpaid amounts. However, unpaid amounts ultimately become the responsibility of the service center's parent department. Uncollected amounts should be transferred to the center's guarantee account (academic centers) or to an unrestricted account (administrative centers). Uncollected amounts should not remain on the service center account-PTA. It should be considered an “unallowable” expense.
SRM assigns specific receivable PTA to each external user so that consolidated statements and invoices can be prepared on a monthly basis. The journals completed prior to each month-end accounting close are itemized in each service center's monthly statements and on-line files, just as they are for internal billings.
G. Cash Sales
Service center cash sales represent University income and must be properly credited to an income object code (46xxx). Direct cost transactions less than $700, or less than $1,500 in annual aggregate single-user transactions, may be treated as cash sales. Cash receipts should be deposited at the University Cashier Office in a timely manner. Cash sales are subject to the UBI limit since these payments are from external users who are not affiliates or from other Universities.
Cash sales for tangible personal property are subject to the sales tax and F&A policies discussed in B.2. through B.4. above. If the cash sale is for services only, sales tax is not applicable.
Contact RAPC when assistance is needed to determine the appropriate F&A rate, and the University Tax Officer (Controller's Office) to determine whether sales tax should be charged, and the appropriate rate.
Reason(s) why Stanford should provide the service/product to the potential external user.
Type of service to be provided, including as much detail as possible regarding the unique nature of the service.
Anticipated users of the service.
Names of any external businesses or entities that provide similar services. (Stanford may not compete with external providers of similar services).
Anticipated amount of external income at the service center's approved, nondiscriminatory rates; and any additional income expected for providing the service.
The location where the service is to be performed (for property tax considerations).
The Provost will review the request with regard to the following, seeking assistance from Legal Counsel, the Controller's Office, RAPC, and other offices as necessary:
intellectual property rights
faculty conflict of interest
whether this is a one time request or a request to provide a continuing service to an outside user
unrelated business income tax applicability
unfair pricing practices
appropriateness of indirect cost recovery
appropriateness of sales tax
If granted, a copy of the written approval will be provided to the service center and to RAPC. The service center must retain this documentation for as long as the service is provided to the outside user. When the service to that specific outside user ends, the service center should follow the instructions outlined in the record retention section.
Note: The Provost may, in rare cases, waive application of F&A costs to external users, where this is deemed to be appropriate and in the best interests of the University.
B. Academic Service Centers
The University has a Research Participation Agreement (RPA) policy. This policy defines the procedures for the establishment of agreements to make Stanford personnel, academic facilities and/or laboratory equipment available to non-Stanford entities. The RPA policy is applicable for all academic service center sales to external entities (except for entities and individuals specifically mentioned above).
In general, the policy requires that academic service centers prepare a proposal and RPA routing sheet. The proposal is reviewed by the Department Administrator and Dean who must sign the routing sheet to indicate their approval for the proposed agreement. The proposal and routing sheet is then sent to the Office of Risk Management, CMA, PMO, the University Accounting Officer, and OSR for review and approval. Blanket approvals may be granted for up to ten individual RPA agreements. More detailed instructions regarding the RPA implementation process and required accounting treatment are included in the RPA Implementation Guidelines (see RPH 13.5: Research Participation Agreements).
Please contact RAPC as soon as a center anticipates submitting an RPA proposal and submit the list of capital assets’ SU property tag numbers for review by PMO.