Taxes – An Overview for a Public University in Ohio

Public universities in Ohio operate under a unique tax framework. As state institutions, they are exempt from many taxes that apply to private organizations, but they are not tax-free. Certain taxes still apply depending on the university’s activities, employees, and revenue sources. This overview addresses taxes paid by the university and does not address individual tax circumstances or advice.

Over the next several months, we’ll explore several of these tax categories in more detail. But first, let’s start with a general overview of the tax landscape at Ohio University.

Federal and State Income Taxes

As an instrumentality of the State of Ohio, the university is generally exempt from both federal income tax and Ohio state income tax. This exemption applies to the university’s core educational, research, and public service missions. However, income from activities unrelated to the university’s exempt purpose may be treated differently (see Unrelated Business Income below).

Unrelated Business Income Tax (UBIT)

If a public university regularly conducts a trade or business that is not substantially related to its educational, research, and public service mission, that income may be subject to Federal Unrelated Business Income Tax (UBIT). Each activity is evaluated individually and may or may not qualify for exclusions or exceptions.

Tip: When you are engaging in an external revenue generating activity, you must submit the Revenue Producing Account Questionnaire so that Finance can evaluate whether this income generating activity gives rise to federal or state tax collection and filing obligations.

Payroll Taxes

Payroll taxes apply to all employees and the university must comply with employment-related tax obligations, including:

• Federal income tax withholding
• Medicare taxes (required for employees hired after April 1, 1986)
• Social Security taxes, where applicable
• State and local income tax withholding for employees working in Ohio municipalities as well as other states with remote workers

Tip: The University uses an application called the Flexwork Tracker (for Staff) or Flexwork Tracker (for Faculty) to document all remote or hybrid work arrangements. It is critical that you keep this information up to date to ensure the University is aware of these arrangements and allows UHR to update your tax withholding records. *Payroll Services is unable to provide individual tax advice as tax obligations are the responsibility of the employee; please direct your questions regarding your specific tax situation to your personal tax professional.

Sales and Use Taxes

Public universities in Ohio are generally exempt from Ohio sales and use tax on purchases made for official university business. The taxability of sales depends on what is sold, who is purchasing, and how the transaction is structured.

However, when a university sells goods or services, the university must:

• Evaluate sales made through departments to make a sales and use taxability determination
• In many cases, external sales are often required to collect and remit Ohio sales tax, unless a specific exemption applies

Tip: Before you make a business expense on behalf of the university, make sure you have a copy of the sales tax exemption certificate, if applicable. In some cases, the university has obtained exemption from other states. Visit the Tax Exempt Purchases for additional information and copies of sales and use tax exemption certificates.

Property Taxes

Ohio University is generally exempt from paying property taxes. However, it’s usage, not just ownership, that is key in determining exemption status.

• Property owned and used by the university for public purposes (for our educational, research, and public service mission) is typically exempt from real property tax
• Property leased to or used by third parties for non-public purposes may be subject to taxation depending on the facts involved

Unemployment Taxes

In Ohio, public universities are generally exempt from the federal unemployment tax (FUTA). Under Ohio law, public universities can make alternative arrangements to reimburse the state for unemployment benefits paid rather than paying standard unemployment insurance benefits. This reimbursement model differs from private-sector employers.

Excise and Specialty Taxes

Depending on the situation or activities, the university may encounter taxes in this category for:

• Fuel or transportation-related taxes
• Lodging or event-related taxes in certain circumstances
• Fees or assessments tied to specific regulated activities

Many of these taxes include exemptions for public institutions, but not all are automatic. It is situation specific and must be evaluated each time for proper tax determination.

The Takeaways

• Public universities in Ohio are exempt from most income and property taxes
• Payroll, sales, and certain operational taxes still apply
• Tax treatment often depends on how an activity is structured, not just its purpose
• Tax issues can be complicated and compliance requires coordination across finance, HR, procurement, and planning units

Understanding these distinctions helps ensure the university remains compliant, transparent, and fiscally responsible while fulfilling its mission. In future editions of Business Matters we will explore UBIT, sales and use tax, and excise and specialty taxes.

Questions or Need Additional Information – Just Ask!

If you have questions about an activity that you think may need to be evaluated for tax implications (UBIT, sales and use, or excise or specialty taxes), please reach out to tax@ohio.edu