Printed on: 08/22/2017. Please go to http://policy.umn.edu for the most current version of the Policy or related document.

ADMINISTRATIVE POLICY

Selling Goods and Services to External Customers

Responsible University Officer(s):

  • Associate Vice President and Controller

Policy Owner(s):

  • Assistant Controller

Policy contact(s):

Date Revised:

June 2017

Effective Date:

October 1996

POLICY STATEMENT

Units may engage in direct sales of goods and services to individuals, groups or external entities when the production of those goods or services is consistent with the normal activities of the unit and substantially supports the teaching, research or outreach mission of the University. In so doing, the University must not unfairly compete with the private sector.

Direct sales of goods and services means an exchange of tangible or intangible property or services by the University with external customers for monetary consideration. The following factors will be considered and weighed in determining whether a direct sale of goods or services will be authorized:

  • The goods or services represent the transfer of knowledge or expertize from the University to the public.
  • The goods or services support and extend the University’s teaching, research or outreach mission.
  • The prices charged for the goods or services take into account all direct and indirect costs of providing the goods or services as well as the competitive price of such items in the public market.
  • The goods or services are not commonly available or otherwise easily accessible in the public market.
  • The provisions of goods or services represents an opportunity to utilize existing capacity or under-performing assets in order to reduce the University's internal costs of providing the goods or services.

Obtaining Initial Approval

Any unit desiring to conduct external sales activity must obtain initial approval for the general sales activity. See Procedure: Conducting External Sales Activity. After receiving initial approval for the general sales activity, on-going accountability and oversight will be provided as defined in this policy.

Units must ensure revenue and costs of external sales activity are separated from internal sales activity when establishing sales activity operating accounts in the financial system. When generating any sales of goods or services from a sponsored project, units should also refer to Administrative Policy: Managing Program Income Earned on Sponsored Projects. When planning or approving business activities, deans, department heads, and other administrators must ensure that these activities are consistent with this policy and Board of Regents Policy: Direct Sales of Goods and Services.

Units are responsible for any taxes, fines or penalties resulting from noncompliance with this policy.

Assessing the Risk Profile of Sales Transactions

Units will use the online risk assessment survey to determine whether a sales transaction is classified as low, medium or high risk. These classifications will define the accountability and operating procedures that must be followed by units that sell to external customers, as well as the oversight and monitoring procedures that must be followed by central units.

Low Risk Sales
  • Units will self-monitor and provide local oversight regarding pricing decisions and financial implications.
  • Units have the discretion as to the method used to process sales activity. Units may choose to either use a University-approved contract or in lieu of a contract bill customers via the EFS billing system.
  • Units are responsible for management of compliance activities (e.g. collecting and payment of sales tax)
  • Controller's Office will review low-risk sales activities every 4-5 years for compliance with the policy
  • Controller's Office will keep a repository of all external sales contracts
Medium Risk Sales
  • Units will work with the Controller's Office to complete a business plan for sales activity that will be ongoing, a formal rate development, and a contract
  • Controller's Office will provide pricing assistance for units requesting the service
  • Controller's Office is responsible for monitoring and providing oversight
  • Controller's Office will review medium risk sales activities every 2-3 years for compliance with the policy
High Risk Sales
  • Units will work with the Controller's Office to complete a business plan for sales activity that will be ongoing, a formal rate development, and a contract
  • Deans or their financial officers will acknowledge lower than cost rates and other high risk factors
  • Controller's Office will provide pricing assistance for units requesting the service
  • Units will work with the Controller’s Office to evaluate market prices
  • Units will work with the Controller’s Office to determine the financial stability of the customer for high dollar contracts
  • Units will work with the Controller’s Office to determine any export compliance issues
  • Controller's Office is responsible for monitoring and providing oversight
  • Controller’s Office will review high risk sales activities every 1-2 years for compliance with the policy

Use of Contracts

For external sales transactions classified as low risk, units can either use a standard agreement found in the University Forms Library or bill customers via the EFS billing system, which incorporates University-approved terms and conditions.

For external sales transactions classified as medium or high risk, units must use an agreement (contract) that has been approved by the University for external sales transactions. This agreement, or contract, can be either a standard agreement found in the University policy library or a unique agreement approved by the Office of the General Counsel. To determine risk level, see the online risk assessment survey.

Pricing of External Sales

The price charged for goods and services to external customers should take into account all direct and indirect costs of providing the goods and services as well as the competitive pricing of such items in the public market. A best practice for pricing should always at minimum recover direct costs, and whenever possible recover overhead and profit to the extent the market allows. Units selling to both external customers and federal grants and contracts cannot unfairly charge federal grants and contracts.

External sales activities generally should be self-sustaining. However, in situations where University facilities would otherwise sit idle, incremental revenue may be desirable even if allowable indirect expenses are not fully recovered. Many University facilities carry fixed overhead costs that will be incurred regardless of how a facility might be used with an external customer base. In these situations, units are allowed to conduct external sales to help partially cover indirect costs that would otherwise be paid by the University.

Tax Requirements

Units conducting external sales have a legal obligation to collect Minnesota sales tax on taxable sales.

Units are permitted to engage in activities that generate unrelated business income and are responsible for complying with the related tax procedures.

Exceptions

The Senior Vice President for Finance & Operations and Chief Financial Officer may grant exceptions to the policy based on written justification. Gifts and sales related to sponsored projects are handled through different policies and procedures (see Related Information below). License for intellectual property rights under a University patent, trademark, or copyright are handled through different policies and procedures (see Related Information.)

REASON FOR POLICY

To implement Board of Regents Policy: Direct Sales of Goods and Services and to ensure that external sales activity complies with federal and state regulations. The intent of the policy is to help units identify and mitigate legal, insurance, and tax financial risks; to streamline the process for establishing external sales activity; to accurately accumulate all costs within an identified, segregated set of accounts; to recognize subsidies to the operation; to establish rates based on total costs; and to ensure that an external sales unit is self-supporting.

PROCEDURES

FORMS/INSTRUCTIONS

APPENDICES

FREQUENTLY ASKED QUESTIONS

CONTACTS

SubjectContactPhoneFax/Email
Primary Contact Sue Paulson 612-624-5007 spaul@umn.edu
Procedural Questions Keith Jansen 612-624-5540 kkjansen@umn.edu
Overall Process Internal/External Sales 612-624-5540 extsales@umn.edu
Indirect Cost Calculations SPA David Hagen 612-626-9895 hagen027@umn.edu
Contract Approval/Legal Office of General Counsel Don Amundson 612-624-4100 amund015@umn.edu
Insurance Risk Management Steve Pardoe 612-625-0062 pardo012@umn.edu
Tax Tax Management Office Kelly Farmer 612-624-1053 kdf@umn.edu
Delegation of Authority Compliance Office Michele Gross 612-624-8081 deleg@umn.edu
Accounts Receivable Services David Laden 612-624-0929 Laden003@umn.edu
Environmental Health and Safety questions Environmental Health and Safety Joe Klancher 612-626-3611 klan0001@umn.edu
Office for Technology Commercialization Rick Huebsch 612-626-3760 rhuebsch@umn.edu
Information Technology Infrastructure Kemal Badur 612-625-0567 kemal@umn.edu
Information Technology Security Brian Dahlin 612-625-1505 bdahlin@umn.edu

DEFINITIONS

External Sales
An external sale involves the transfer of funds by a third party to the University which meets all the criteria set forth below:
  • The funds are in exchange for (i) services performed by the University and any tangible goods produced as a result of such services, (ii) use of laboratory equipment, (iii) a license to use information on University maintained databases, or (iv) software as a service;
  • The transaction is not a Sponsored Project, Gift, or an excluded transaction; and
  • The transaction is consistent with the scope, guiding principles, and criteria set forth in Board of Regents Policy: Direct Sales of Goods and Services.
TRANSACTIONS NOT CONSIDERED EXTERNAL SALES UNDER THIS POLICY:
  • Room and board;
  • Instruction offered in the University's regular, extension, evening or continuing education programs, including non-credit instruction;
  • Services provided in the practicum aspects of the University's instructional programs, including academic affiliations;
  • Retail food and beverage services, including catering;
  • Admission to University sporting or entertainment events;
  • License for rights under a University patent or trademark;
  • License for rights under a University copyright, beyond right-to-use for software;
  • Use, sale or transfer of University real property;
  • Naming rights or athletic promotions and signage;
  • Sale of University equipment, fixtures, or supplies;
  • Delivery of health care services to individuals;
  • Delivery of veterinary care services to individual animals; and
  • Delivery of services by University to either Fairview or University of Minnesota Physicians.

For further definition of External Sales see Appendix - Gifts, Sponsored Projects and External Sales.

Academic Affiliation
A documented affiliation with another entity, a purpose of which is the sharing of resources, facilities, or educators in furtherance of an educational program.
Academic Work
Scholarly, pedagogical, or creative work, such as an article, book, textbook, novel, work of visual art, dramatic work, musical composition, course syllabus, test, or class notes.
Administrative Service Charges
An amount assessed to departments for institutional support functions (payroll, accounting, purchasing) that benefit University activities.
Annual Support
The software support and maintenance services being provided by the University.
Auxiliary Enterprise
Exists to furnish goods or services to students, faculty, staff or incidentally to the general public. An auxiliary enterprise also charges a fee directly related to, although not necessarily equal to, the cost of the goods or services.
Blanket Tax Exemption
Exempt organizations whose purchases are never taxable (with the exception of those items that are always taxable regardless of tax-exempt status).
Commercialization
The process of introducing a new product or production method into commerce—making it available on the market.
Contract
A written agreement between two or more parties creating obligations that is enforceable by law. For guidance in distinguishing between sponsored project contracts administrated by SPA and other external sales contracts, see Appendix - 

Gifts, Sponsored Projects, and External Sales.

Current Operating Costs
The essential expenses that an organization or department must pay in order to maintain a business, such as: salaries and wages, employee related expenses, operations and travel.
Depreciation
The allocation of the cost of an asset over its economic life.
End User License
A non-exclusive, customer license to run computer software provided by the University. The software can be delivered via SaaS model or installed by a license on a customer owned computer.
External Customers
See Public, Public Customers, or External Customers.
External Sales Business Manager
Anyone within the unit who is responsible for managing finances related to external sales activity.
External Sales Risks
Risks related to external sales can include but are not limited to legal, tax, insurance, federal compliance, accounting, environmental health and safety, and public relations risks. These risks can be at a departmental or institutional level or both. Some examples include:
  • Incurring penalties or fines on unreported and underpaid sales or income tax liabilities.
  • Improper handling of sales (program income) generated from sponsored projects.
  • Allegations of unfair business practices resulting from underpriced products or services.
  • Litigation resulting from copyright, intellectual property, or product liability issues.
  • Discrediting the University name or reputation.
Facilities and Administrative Costs (F&A Costs)
The expenses of doing business that are not readily identified with a particular grant, contract, project function or activity, but are necessary for the general operation of the unit and the conduct of activities it performs.
Guarantee Account
A non-sponsored chartfield account designated by the RRC manager to absorb any losses generated from external sales activity.
Gift
A transaction involving the transfer of funds by a third party to the University without any requirement on the University's part to provide the third party (i) any direct economic benefit, or (ii) a return of any unused funds. See Appendix - 

Gifts, Sponsored Projects, and External Sales

Grant
Additional resources awarded to the University to support instruction, research or public service. Sponsored Project Administration administers sponsored grants. The appropriate University Foundation handles grants that are donated in nature without expectation of any tangible compensation. For guidance in distinguishing between gifts and sponsored projects, see Appendix - 

Gifts, Sponsored Projects, & External Sales.

Indirect Cost
See Facilities and Administrative Costs (F&A cost).
Intellectual Property
A work or invention that is the result of creativity, such as a manuscript or a design, to which one has rights and for which one may apply for formal protection via a patent, copyright, trademark, etc.
Internal Sales Activity
An activity that provides goods or services:
  • Predominantly to University departments
  • At approved rates
  • On a regular and continuing basis
  • Incidentally to the general public

Examples of units conducting internal sales activity: Graphics Services, Fleet services, Telecommunication Services, Physics Shop and University Stores

Public, Public Customers, or External Customers
All individuals (including faculty, students, and staff), private businesses, foundations, and government agencies that acquire goods /services from University departments or units and do NOT use the University internal billing system. Purchases are made by individuals or Non-University organizations.
Research
Systematic investigation, including development, testing and evaluation designed to develop or contribute to generalizable knowledge.
Service Unit
Each distinct good or service provided must have a unit of product or service (Service Unit) that becomes the basis for charging customers. A service unit: 1) is identifiable and measurable; 2) accurately captures the resources necessary to produce it, 3) is related to, or is a reasonable proxy for, the benefit received by the user.
Single Purchase Tax Exemption
Customers whose exemption is for a single purchase. These are customers who are not typically tax exempt but are purchasing items that are intended for resale. The customer must provide a completed Minnesota form ST3.
Software as a Service (SaaS) (as defined for this policy)
A licensing model that allows customers access to software and/or data that are housed on servers controlled by the University, including cloud-based servers. The data may be provided by the University, the customer, or both. The customer is granted a license to use but not distribute, modify or publicly display (e.g., post on an internet site) the University software and/or data.
Sponsored Project
A transaction, other than excluded transactions, involving the transfer of funds by a third party, other than an individual, to the University and which meets any of the criteria set forth in (A) - (J) in Appendix - 

Gifts, Sponsored Projects, & External Sales

Taxable
Items that may or may not be taxed, depending on the tax status of the customer.
University-Developed Software and Services
Software owned by the University which the University retains the rights to license and the services required to provide support for the software.
Unrelated Business Income
Revenue generating activities not directly related to the University of Minnesota’s exempt purposes of research and discovery, teaching and learning, and outreach and public service. These revenues may be subject to federal unrelated business income tax (UBIT.) Determining whether an activity is considered unrelated for UBIT purposes is based on federal laws, regulations, Internal Revenue Service guidance and other opinions.
Useful Life
The length of time that a depreciable asset is expected to be useable as defined by the Controller's Office following GAAP (Generally Accepted Accounting Principles).

RESPONSIBILITIES

Internal/External Sales Office
Review and approve Internal/External Sales Approval Form for all new external sales activity. Monitor and provide oversight to sales activity. Assist units with pricing and market comparisons. Assist units in identifying customer financial stability, potential export, insurance, information technology and tax risks. Develop and update content in external sales training materials. Meet with units planning to sell and selling University developed technology and services to ensure the strategy is in the best interest of the University.
Chancellor / Dean / Vice President
Approve or deny external sales activity. Responsible for compliance with all University policy and federal regulations. Review external sales revenues and expenses throughout the year to evaluate financial solvency. Cover any deficits created by external sales activity under their direction. Review the sales business plan annually. Records of these reviews should be maintained at the RRC level.
External Sales Business Manager
Prepare business plans and rate analysis. Comply with established University policies and procedures. Provide competitive rates and services, and ensure all external sales activities are of an appropriate business type. Elect whether to use a standard University contract or use EFS billing for low risk external sales activities. Units are responsible for maintaining copies of all external sales agreements and managing record retention. Units are responsible for communication between the University and the customer.
Environmental Health and Safety
Provide environmental health and safety expertise to units conducting external sales activity on an as needed basis.
Foundations
Handle gift activity and forward other activity to SPA, central administration or departments.
General Counsel
Review and approve contract terms and conditions for external sales contracts that do not use an External Sales contract template located in the Office of the General Counsel forms library. Review and approve any changes to a University form or any non-University of Minnesota agreement.
Inventory Services
Update the accounting system for all capital equipment. Assist departments in determining depreciable life of capital equipment, appropriate method for disposal of capital equipment, and appropriate accounting for all capital equipment.
Office of Information Technology
Provide information technology expertise to units conducting external sales activity on an as needed basis.
Office for Technology Commercialization
Meet with units planning to sell and selling University-developed technology and services to ensure the strategy is in the best interest of the University.
Risk Management
Provide risk management expertise to units conducting external sales activity on an as needed basis.
RRC Manager/Chief Financial Manager
Set up accounting structure for external sales activity. Designate a guarantee account for use in the event of a deficit resulting from sales activity within the college. Actively participate in management of the sales activity processes and procedures. Actively participate in review process.
Sponsored Projects Administration (SPA)
Work with Foundations and Internal/External Sales Office in determining classification of revenue sources [i.e. gifts, sponsored projects, or external sales].
Tax Management Office
Provide tax expertise to the departments as needed.
University Services
Maintain space programming and management database.
Senior Vice President for Finance & Operations and CFO
Determine the types of businesses the University will engage in.

RELATED INFORMATION

Board of Regents Policies:

Administrative Policies:

Other Related Information

HISTORY

Amended:
June 2017 - Comprehensive Review, Minor Revision. The External Sales policy and procedures are being revised to include software as a service as a type of external sale activity. This activity was not specified in a particular policy in the past, even though it was listed under exceptions. This exception is now removed; definitions have been added; and roles and responsibilities for the External Sales Office, Office for Technology Commercialization, and Office of Information Technology have been revised/added. New material in this revision includes:1. External Sales Procedures 6 - Selling University Developed Software and Services - This is a new procedure that provides the procedures related to conducting this type of activity. 2. Appendix to Policy - Standard University Processes and Technology - This is a new appendix that outlines the standard processes/technology and related contacts for all external sales activity. 3. Appendix to Policy - Recovery of Project Costs for Commercialization - This is a new appendix that provides greater detail related to activity that begins as an External Sale and is later commercialized.
Amended:
December 2014 - Replaced A-21 and A-133 in Related Information with reference to OMB Uniform Guidance.
Amended:
February 2014 - Major Revision, 30 Day Review, Comprehensive Review. Changes reflects a risk-based approach to selling goods and services to external customers which scales the policy and procedures according to the risk characteristics of the activities. Shifts the management oversight from central to colleges and administrative units for low risk sales. The Controller’s Office will monitor and provide oversight for medium and high risk activities.
Amended:
December 2013 - Major Revision, 30 Day Review, Comprehensive Review. Applies a risk-based approach to sales to external customers. Management oversight shift to units with low-risk sales activities. As the level of risk increases, so do the unit requirements.
Amended:
February 2010 - Updated forms section. External Sales Action form replaced by Internal/External Sales Approval form. Added Business Proposal Template. Updated procedures to address use of these forms.
Amended:
October 2009 - Captures a more complete picture of the product's/service's viability by requiring approval of any subsidies by the dean, director, or department head; Directs departments to the appropriate central unit for subject matter expertise and advice (tax, insurance, legal, etc.); Aligns external sales practices with University internal sales practices; Provides procedures that address how to develop rates, create external sales contracts, and sales accounting structure.
Amended:
June 2008 - Policy completely revised to address the Enterprise Financial System rollout. Approving External Sales, Managing Business Activity, Reporting on Business Activity procedures updated to address EFS.
Amended:
October 2007 - Updated contacts section. Request to Conduct External Sales is renamed External Sales Action Form.
Amended:
April 2004 - The dual purpose External Sales Action Form (which was both a request to conduct external sales and an annual reporting form) has been superceded by two new forms: Request to Conduct External Sales and External Sales Annual Reporting Form. These forms are now fillable, and have been put into Standard University format for forms. Additional questions have been added regarding anticipated creation of intellectual property, condidentiality of information or results. Added the following JobAids to Appendices: Business Proposal Guidelines, Business Proposal Outline, Contract Decision Chart, External Sales Identification Grid, Sample Business Proposal. Added link to External Sales Process in the Financial Onestop to Related Information.
Amended:
January 2004: Added new appendix - Common Audit Recommendations - External Sales
Amended:
September 2003: Updated Contacts Section, and External Sales Office Address in the External Sales Action Form.
Amended:
February 2002: Updated Responsible Office from Budget and Finance to Controller and Risk Management and Insurance in both policy and procedures. Updated link to Standard Contracts in Forms section. Updated links to Standard Contracts in Procedure 3.2.3.2. Corrected External Sales Fax Number in Contacts Section.
Amended:
July 2002: Updated Contacts Section.
Amended:
August 2001: Updated Contacts Section.
Amended:
May 2001: Updated Contacts Section.
Amended:
March 2001: Deleted sentence in policy statement dealing with University Wide Risks. Deleted University of Minnesota Hospital and Clinic exclusion since it is no longer applicable; Removed language pertaining to activities generating less than $50,000 in Responsibilities section and Approving External Sales procedure. Updated contacts section. Added links to new Risk Management website when relevant.
Amended:
January 2001: Updated Contacts Section.
Amended:
November 2000: Updated Contacts Section.
Amended:
June 2000: Updated Contacts Section.
Amended:
May 2000: Updated Contacts Section.
Amended:
March 2000: Updated forms section. There are four (4) new pre-approved legal agreements (contracts) which replace the previous pre-approved legal agreements (contracts) in the policy.
Amended:
July 1999: Updated Contacts section.
Amended:
May 1999: Updated Contacts section.
Amended:
March 1999. Updated Contacts section. Updated Activity risk characteristics, and signature section of the External Sales Action Form.
Amended:
July 1998. Updated Contacts section. Updated all University Contracts listed in the forms section to include Force Majeure and Limitation of Liabilities provisions. Request to Conduct External Sales form has been replaced by the External Sales Action Form. The External Sales Action form serves both as a request and reporting form. Added appendix: Institutional Risks. Updated procedure 3.2.3.4 to reflect use of the External Sales Action Form.
Amended:
August 1997. Updated contacts section and added Request to Conduct External Sales form.
Amended:
June 1997. Added links to online versions of University Contracts in the Forms/Instructions section of policy and in Activities section of procedure 3.2.3.2.
Effective:
October 1996
Supersedes:
  • External Sales Policy - July 1993
  • External Sales Procedure - October 1993
Adopted for Policy Book:
Sales Tax Procedure - October 1993
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