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Lior Temkin, Partner, Tax
During these difficult economic times, we are seeing more Nonprofit organizations thinking differently about ways to raise funds. Some organizations are turning to activities that they never thought about before including, contracting with cell phone and/or solar energy companies. Depending on how these deals are structured there may be some UBI (Unrelated Business Income) consequences that the organization has to think about before signing up for these types of activities.
A Nonprofit organization may charge a fee (site license fee) to allow cell phone companies to operate antenna facilities (cell phone towers) on the organization’s property. If the organization does not own the cell phone towers, then the organization only leases the roof space or ground space for the cell phone company to install and maintain their cell phone towers. In that instance, then the lease is a real property lease and is exempt from UBIT. On the other hand, if the organization owns the cell phone towers and leases them to the cell phone company, the lease is a personal property lease and is subject to UBIT.
If the organization structures the deal as real property lease, generally this activity will not be considered as UBI. However, if the deal is structured as personal property lease (organization owns the tower), this activity will be considered as UBI.
The following are some of the other issues that the organization might want to consider when contracting with cell phone carriers about cell phone tower leasing:
Property Tax Exemption - Generally, exempt organizations enjoy state and local property tax exemptions for all real property. A major question that needs to be asked is will this type of arraignment have any effect on the organization’s welfare exemption? SingerLewak’s SALT (State and Local Tax) group has very knowledgeable professionals who can help you through this process.
Insurance – Will the current premiums increase due to this new activity, and will your insurance carrier allow this type of activity?
Contractual Terms –Depending on the length of the lease, it might constitute a “sale” of the property. Please consult with your accounting specialist. There may be other legal issues that arise from the contract legal counsel regarding the terms of the lease.
Zoning Laws – The property zoning must allow for these types of towers to be installed.
Health Concerns – Many organizations do not want to deal with any potential health risks relating to antenna transmission on the organization’s premises. A health advisor should be consulted with before entering into any cell phone tower leases.
Should you have any questions regarding the topic discussed above, please feel free to contact Lior Temkin, Tax Partner in-charge of the Nonprofit tax group at SingerLewak LLP.
