The University may enter into affinity credit card agreements with commercial banks which grant the bank rights to market the bank’s credit card using the University name, logo, or mailing lists.
The income from affinity credit cards may be excluded from unrelated business income tax as royalty income considering it is passive income and the University does not share profits with the commercial banks.
To minimize unrelated business income, the University should carefully structure any affinity credit card agreement without the inclusion of services such as assisting in advertising or promotion, preparing labels, or handling correspondence or telephone inquiries. The agreement should also limit University control to activities designed to protect the University name and goodwill such as reviewing marketing materials for the matter of good taste and ensuring the quality of the product and services being provided (Bertrand Harding, The Tax Law of College and Universities, 2nd Edition).