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.
Exceptions
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.
Research
- 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.