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Selling Goods and Services to External Customers

Effective Date: October 1996
Last Update: February 2014
Responsible University Officer:
  • University Controller
Policy Owner:
  • Director of Treasury Accounting and Internal/External Sales
Policy Contact:

Printed on: . Please go to for the most current version of the Policy or related document.


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 takes 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 on-line 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 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 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 officer’s acknowledgement of lower than cost rates and other high risk factors
  • The Controller's Office will provide pricing assistance for units requesting the service.
  • Units work with the Controller’s Office to evaluate market prices
  • Units work with the Controller’s Office to determine the financial stability of the customer for high dollar contracts
  • Units work with the Controller’s Office to determine any export compliance issues
  • The 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 Appendix - External Sales Risk Assessment or the on-line risk assessment.

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.


The Vice President 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). License for rights under the University patent, trademark, or copyright, including software support and maintenance are handled through different policies and procedures (see Related Information.)


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.





  1. Will separate 501(c)3 Corporations be created to handle business activity?

    No. All businesses will be run within the University accounting system.

  2. When can I use a Standard University Contract to execute an external sales transaction?

    The Office of the General Counsel has approved the contracts listed below. These contracts can be used for any approved external sales activity.

  3. Does this policy apply to auxiliaries?

    No. The primary customers for auxiliaries are students, faculty, and staff. Auxiliaries directly support the mission of the University.


Primary Contact(s)
Procedural Questions
Keith Jansen
Overall Process
Internal/External Sales
Indirect Cost Calculations
David Hagen
Contract Approval/Legal
Office of General Counsel
Don Amundson
Risk Management
Steve Pardoe
Tax Management Office
Kelly Farmer
Delegation of Authority
Compliance Office
Carol Balthazor
Environmental Health and Safety questions
Environmental Health and Safety
Joe Klancher


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, or (iii) a license to use information on University maintained databases;
  • 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.


  • 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, trademark, or copyright, including software support and maintenance;
  • 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, educators in furtherance of an educational program.
Administrative Service Charges
An amount assessed to departments for institutional support functions (payroll, accounting, purchasing) that benefit University activities.
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).
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.
The allocation of the cost of an asset over its economic life.
External Customers
See Public, Public Customers, or External Customers.
External Sales Business Manager
Anyone within the Resource Responsibility Center 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)
F&A Costs represent 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.
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
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).
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.
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.
Sponsored Project
A transaction, other than excluded transactions, involving the transfer of funds by a third party, other than an individual, to the University which meets any of the criteria set forth in (A) - (J) in Appendix - Gifts, Sponsored Projects, & External Sales.
Items that may or may not be taxed, depending on the tax status of the customer.
Useful Life
The length of time that a depreciable asset is expected to be useable as defined by the Controller's Office following Generally Accepted Accounting Principles.


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, and tax risks. Develop and update content in external sales training materials.
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.
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.
Risk Management
Provide risk management expertise to units conducting external sales activity on an as needed basis.
RRC 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 RRC. Active participant in management of the sales activity processes and procedures. Active participant 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.
Vice President and CFO
Determine the types of businesses the University will engage in.


Related Policies

Other Related Information


December 2014 - Replaced A-21 and A-133 in Related Information with reference to OMB Uniform Guidance.
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.
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.
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.
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.
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.
October 2007 - Updated contacts section. Request to Conduct External Sales is renamed External Sales Action Form.
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.
January 2004: Added new appendix - Common Audit Recommendations - External Sales
September 2003: Updated Contacts Section, and External Sales Office Address in the External Sales Action Form.
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 Corrected External Sales Fax Number in Contacts Section.
July 2002: Updated Contacts Section.
August 2001: Updated Contacts Section.
May 2001: Updated Contacts Section.
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.
January 2001: Updated Contacts Section.
November 2000: Updated Contacts Section.
June 2000: Updated Contacts Section.
May 2000: Updated Contacts Section.
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.
July 1999: Updated Contacts section.
May 1999: Updated Contacts section.
March 1999. Updated Contacts section. Updated Activity risk characteristics, and signature section of the External Sales Action Form.
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 to reflect use of the External Sales Action Form.
August 1997. Updated contacts section and added Request to Conduct External Sales form.
June 1997. Added links to online versions of University Contracts in the Forms/Instructions section of policy and in Activities section of procedure
October 1996
  • External Sales Policy - July 1993
  • External Sales Procedure - October 1993
Adopted for Policy Book:
Sales Tax Procedure - October 1993

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Last modified on December 30, 2014