External Rates

General

Non-federal external user rates do not have to be cost-based like internal user rates. However, external user rates need to be set to recover at least the cost of providing the goods or services being sold. There are additional charges that may apply to external users including institutional overhead (required), surcharges, and sales tax.

If the center sells to external users, the center could be subject to Unrelated Business Income Tax (UBIT) if the exemption criteria are not met. Further, centers selling to external users must provide a marketplace analysis to ensure the price charged to external users is at the fair market price. See our Marketplace Analysis Template.

For additional information on sales to external users, refer to Administrative Policy Statement (APS) 59.5

Institutional Overhead

Definition

Institutional overhead is a rate calculated by the Controller's Office to reimburse the University for overhead costs.

Institutional overhead is a rate calculated by the Controller’s Office to reimburse the University for overhead costs. All centers should read and be familiar with the University’s Administrative Policy Statement (APS) 33.2 Institutional Overhead Policy. Overhead costs are legitimate costs of conducting the business of the University. Failure to recognize and properly apportion overhead costs results in hidden subsidies to some programs or users. While the University may wish to subsidize certain programs as a matter of policy, these subsidy decisions should be explicit and considered on a case-by-case basis.

Institutional overhead is like, but distinct from, Facilities & Administrative (F&A) costs charged to grants. Unlike F&A costs, the institutional overhead assessment is charged on revenue received from external users. Internal users (where the internal service document or internal service document adjustment journals are used) are not charged institutional overhead.

As stated in APS 59.5 the service or recharge center charges for goods and services and charge rates/fees shall be determined taking into account their full cost, including University overhead, as well as the competitive price of such items in the local community. Institutional overhead should be added after all surcharges have been applied.

The current institutional overhead rates are:
•    Service or recharge center located on-campus: 15.6%
•    Service or recharge center located off-campus (please note, the off-campus overhead rate must be approved by the Controller’s Office before it can be used): 6.85%

Centers should assume that the on-campus overhead rate will be applicable to the fees/rates being developed. The Controller’s Office, in partnership with the Executive Office, is the only office with authority to approve a rate outside the off-campus rate. The center must have written approval from the Controller’s Office before using another rate for contracts or invoices. 

Centers shall work with their Dean/VP Finance Offices in developing fees/rates for the center. The Dean/VP Finance Offices are familiar with institutional overhead rates and when an exception/exemption may be appropriate, so discuss the appropriateness of requesting an exception/exemption with your dean’s finance office and the process they may have in place, before requesting exceptions/exemptions and finalizing rates.  If the Dean/VP Finance Office supports requesting an alternative overhead rate, they will work with you to submit the request form for consideration.

Example:

If the internal user rate is $100/hour, then a recharge center located on-campus should charge their external customers a minimum of $115.60 ($100/hour x 1.156). A recharge center located off-campus would charge external users a minimum of $106.85/hour ($100/hour x 1.0685). 

Surcharges

Definition

Surcharges are an additional amount that can be charged to non-UW external users above the cost to provide the service. The surcharge amount is determined by the recharge center.

Calculating the Surcharge

The surcharge is applied to the rate before institutional overhead is applied.

Scenario 1

If the external rate has been established, but the surcharge is not known, the institutional overhead is first removed before the surcharge is calculated, as illustrated in the example below.

Example: The rate to internal users to provide the service is $50.00/unit. The maximum rate that can be charged to external customers is $75.00/unit because that is the normal amount charged by others providing the same service. This center is located off-campus so the institutional overhead rate is 6.85%.

1. Removing Surcharge:
   External Rate / (1 + Off-campus Institutional Overhead)
   $75.00/1.0685 = $70.19/unit
2. Calculating Surcharge Amount:
   (External Rate - Institutional Overhead) - Internal Rate
   $70.19 - $50.00 = $20.19/unit (this is the surcharge)

Scenario 2

If the surcharge to be applied is a percentage increase in the internal user rate, then the surcharge percent is applied first, then (1+ institutional overhead rate) is applied to yield the external rate. This method is illustrated in the example below.

Example: The internal customer rate is $35.00/unit. The desired surcharge is an additional 20% over the internal rate. The center is located on-campus so a 15.6% institutional overhead rate is applied.

1. Calculating the surcharge amount:
   Internal Rate x 20%
   $35.00 x 20% = 7.00/unit (this is the surcharge)
2. Calculating the rate to charge external users:
   (Internal Rate + Surcharge) x On-campus Institutional Overhead
   ($35.00 + $7.00) x 1.156 = $48.55/unit (this is the external rate)

Transferring the Surcharge

Centers should submit JV’s directly to jvreq@uw.edu for processing. The center is also responsible for submitting and maintaining the necessary documentation supporting that only the “surcharge” revenue from external users is being transferred.  This documentation, along with the listing of transfers, including date and other supporting documentation, e.g., customer name, total invoice, surcharge portion of invoice, should be maintained on an ongoing basis and may be requested at various times by MAA or UW Internal Audit, State and/or federal auditors.  For sample reconciliation please see /fm/maa/recharge/templates. 

Revenues collected through surcharges from external customers can be used to:

• Pay for future equipment purchases
• Pay for non-reimbursable or unallowable costs per the Uniform Guidance
• Reduce the rate to internal users
• Generate working capital

The intended use of surcharge revenue determines the amounts that should be transferred from the center’s operating budget.

1. Surcharge revenue used to pay for future equipment, non-reimbursable or unallowable costs per the Uniform Guidance or to build a reserve for future costs should be transferred to the equipment reserve account on a quarterly basis using a journal voucher (JV). Only the surcharge portion of the external revenue should be transferred. Note, expenditures for unallowable costs should be charged directly to the reserve account or transferred to the reserve account if originally charged to the operating account. The operating account should not be charged for these expenditures. The JV has the following coding:

Centers should submit surcharge JV’s at least quarterly or at the same time they submit equipment depreciation or use allowance JV.

2. Surcharges used to reduce rates charged to internal users or generate allowable working capital should remain in the operating account and should not be transferred.

Sales Tax

Sales tax may need to be collected for sales of "tangible personal property" and certain services to external users. For example, copy services are subject to sales tax. For more information, contact the UW Tax Office.

Unrelated Business Income Tax

Unrelated Business Income Tax (UBIT) is a tax that is charged on external sales that do NOT meet all of the following criteria:

• The activity is a trade or business,
• The activity is regularly carried on, AND
• The activity is related to the University's educational mission.

If all of the above criteria are met, the activity is not subject to UBIT. Most recharge centers are exempt from UBIT. However, if you have sales to external users, contact the UW Tax Office for more information.

If your center is subject to UBIT, you will have to provide information to the UW Tax Office so they can prepare a tax return detailing the sales, expenditures, and profit of the recharge center.