The University of Vermont is subject to post-issuance bond compliance requirements as a result of its outstanding tax-exempt bond (TEB) issues. One such requirement is Private Business Use (PBU) compliance. TEB-financed spaces must be monitored on a consistent and regular basis throughout the life of the financing to ensure compliance with the limitations on tax-exempt private business use. In general, the permissible amount of Private Business Use is 10%. For each tax-exempt debt issuance, the University is required to record, update, and retain private business use activity documentation to substantiate compliance.
In brief, private business use means use (directly or indirectly) of the “facilities” in a “trade or business” carried on by a “nonqualified user.” IRC § 141(b)(6):
- Use (directly or indirectly)
- PBU is usage of a tax-exempt bond (TEB)-financed property in trade or business by a “non-governmental person” such as nonprofit organizations, profit business entities, and federal or foreign governments.
- State and local government usage does not constitute PBU. Federal use does.
- An indirect usage example is heat supplied to other buildings from a bond-financed utility plant.
- of the “facilities” (facilities or assets financed by, or the proceeds of, a tax-exempt financing)
- in a “trade or business” (any activity carried on by a person other than a natural person)
- carried on by a “nonqualified user.” Nonqualified users are the federal government, its agencies, and any non-UVM user. Qualified users are limited to state or local government units and UVM-users.
PBU can occur primarily from usage in a TEB-financed space by a non-UVM user. A non-UVM user is anyone other than a student, paid staff, or paid faculty.
UVM complies with this requirement by tracking all usage arrangements in TEB-financed spaces, including sponsored research, management & service arrangements, and naming rights, economic benefit or legal entitlement.