Long after Tax Day passes, the implications of Congress’ new tax legislation will loom over Trinity University, its students, and scholarship offerings, President Danny Anderson said.
The federal tax bill includes a provision that taxes the net investment income of the nation’s wealthiest private universities. At Trinity, as at most private universities, that income comes from its endowment.
In a 2016-17 endowment report, Trinity Vice President for Finance and Administration Gary Logan said the university operates with an endowment of $1.2 billion that provided $51 million in financial aid to 93 percent of students. Anderson said the 1.4 percent federal tax will cost the university the equivalent of about 70 student scholarships.
“This plan uses student scholarships to subsidize the tax base,” Anderson told the Rivard Report last week. “It takes away from the education of future generations.”
The endowment also funds more than one-third of the university’s operating revenues, faculty salaries, and research, according to Logan.
St. Mary’s University School of Law professor Mark Cochran said this excise tax is a derivation of the taxes that typically have been assessed on universities. Historically, he said, universities only paid taxes on unrelated business income.
“For example, if a university operates a parking garage that is open to the general public, the income from that parking garage would be income that would not be related to educational activities,” he said.
With the passage of the Tax Cuts and Jobs Act of 2017, certain universities will pay taxes on funds related to students and their financial aid. The legislation’s current impact is limited to universities serving more than 500 students with investment income greater than $500,000 per student.
Trinity is among the nearly 30 universities across the country that will start paying the tax for their fiscal year starting in 2018, Cochran said. Others schools in this group are well known for their sizable endowments: Yale, Harvard, Stanford, Princeton, and Rice universities are among the 30. Harvard’s 2016 endowment, reported by U.S. News & World Report to be more than $35.6 billion, is the nation’s largest.
San Antonio’s other private universities, University of the Incarnate Word, St. Mary’s University, and Our Lady of the Lake University, will likely not have to pay this tax bill for quite some time – if ever – due to the size of their endowments.
“It’s unlikely we would hit that threshold for many years, if at all,” St. Mary’s University spokesman Andrew Festa said of the $500,000-per-student endowment fund mark.
Still, Anderson said universities should be wary of the future implications a bill like this could have. With the “current growth,” he said the bill will impact 50 universities in a couple of years, and the number will continue to grow.
Trinity’s president also questioned whether the scope of the tax bill would grow in future years to include public colleges and universities.
“While it only impacts private universities, would it expand to public [in the future]?” he asked.
In early March, Anderson said he and 48 other private university presidents wrote to Congressional leaders from both parties to convey “deep objections” and ask for the repeal or amendment of the provision.
“The new tax establishes a precedent that threatens all charities,” the letter said. “This is not simply an extension of policy from private foundations to colleges and universities. … Taxing college and university resources will reduce not just these resources, but also the impact of our institutions, and the impact of our students.”
The day after the university presidents sent the letter, U.S. Reps. John Delaney (D-Maryland) and Bradley Byrne (R-Alabama) filed the Don’t Tax Higher Education Act to repeal the endowment provision. The bill was referred to the House Ways and Means Committee on March 8, but the bill has not advanced.