Private Business Use Rules and Expectations

General Description

The direct or indirect use by agreement or contract of a tax-exempt financed facility in a trade or business carried on by any person other than a governmental unit. At Purdue, most PBU is usually measured in square feet used by the third party.


10% Safe Harbor

  • Based on allocation of construction costs between bond proceeds and equity.
  • Allows ratio of up to 10% of bond proceeds (plus all of equity) to be used by 3rd party.

General Public Use

  • Reasonably available to general public without business or trade regardless of for or not-for-profit status.
  • Must not exceed 200 days, including all renewals.

Management Contracts

  • Compliant with 97-13 restrictions, largely around basis of compensation and term.
  • 2016-44 relaxes some of the restrictions for long-term (P3) contracts up to 30 years.
  • See “Safe Harbors and Exceptions.”

Short-Term Contracts

  • Less than 50 days, including any renewals.
  • Certain other exceptions for short-term durations.

Governmental Improvements

 (i.e., Repair and Rehabilitation and Qualified Energy Savings)

  • Made to building owned by the Issuer.
  • Facility was placed in service more than one year before the improvement undertaken.
  • Not an enlargement or improvement in interior space occupied exclusively for any private business use.
  • No portion of the building meets private security test (e.g., more than 10% of payments made by 3rd party).
  • No more than 15% of building is for private business use.


  • Sponsor gets no more than non-exclusive royalty-free license of intellectual property.
  • Certain measures of independence must be allowed to the researcher and cannot be stipulated by the sponsor.

Incidental Use

  • Contractual use for vending machines, phones, etc. as long as the total space does not exceed 2.5% of the facility.

Possible Compliance Issues

  • Non-compliant management contracts.
  • Sale or transfer of building ownership.
  • Naming rights, which convey special legal entitlement or economic benefit to 3rd party. 
  • Joint venture, which convey special legal entitlement or economic benefit to 3rd party. 

Measuring PBU

  • Annual requirement to analyze compliance of PBU limits.
  • Compliance is on debt series, not facility, basis.
  • Compliance is through life of series, although non-compliant status at any point in time could be of concern.