UT will remain exempt from federal taxes on its endowment investment income after Congress passed a tax bill in July that preserved special carve-outs for public universities.
House Resolution 1, or the One Big Beautiful Bill Act, introduces sweeping changes to the federal tax code, including adjustments to how university endowments are taxed. Under the new rules, private universities with large endowments will see millions of dollars of increased taxes to the income from their investments. However, lawmakers excluded public universities, leaving UT’s endowment shielded from federal taxes.
The UT System endowment is among the largest in the nation and is managed by the University of Texas/Texas A&M Investment Management Company, which oversees over $40 billion in assets shared across both university systems. While every UT System school receives some money from the endowment, UT also benefits from the Permanent University Fund, a constitutionally protected stream of revenue generated from West Texas oil and gas reserves.
The endowment contributes more than $500 million, or about 13% of the University’s annual operating budget, according to the UT Budget Office. These funds support many of UT’s core operational functions, including student scholarships, faculty salaries and facility maintenance.
Brady Williams, an associate professor in accounting, said UT has largely avoided endowment taxes since they were first introduced in 2017. Congress sought to offset the cost of that year’s tax reform by targeting well-funded universities with relatively small student bodies, he said.
The UT System Board of Regents structures its investments in a way that helps it stay below the tax threshold by pooling endowment funds across all nine campuses, meaning the tax calculation is based on the full 250,000-student system. Andrew Belnap, an assistant professor in accounting, said the structure significantly lowers the per-student endowment figure and helps shield UT from taxation.
The decision to only place taxes on private endowments comes as the Donald Trump administration and Republican lawmakers have attempted to strip private institutions of federal funding over diversity, equity and inclusion initiatives and charges of antisemitism. Harvard University has continued litigation over antisemitism claims since April, and Columbia University agreed on July 23 to pay a $200 million fine to the federal government over similar charges.
In a news release, Rep. Jason Smith, R-Missouri, chairman of the tax-writing committee in the U.S. House of Representatives, said the law was a way to ensure private universities “can no longer abuse generous benefits provided through the tax code.”
Belnap said he believes federal lawmakers are questioning whether universities with large endowments and relatively small student bodies are still fulfilling the public good that comes with tax-exempt status.
“It really appears excessive,” Belnap said. “(It) appears to be straying from the initial tax-exempt purpose versus a University of Texas System or University of California System, you can pretty easily argue ‘this is serving a large number of taxpayers.’”
The new endowment tax rules are written as permanent, but Congress could revise them in future legislation. Belnap said universities’ tax-exempt status is tied to whether lawmakers believe they are truly serving the public.
“(Legislators) have granted you tax-exempt status cases where (they) believe you’re providing a public good,” Belnap said. “If (they) see that you’re no longer serving the public good, then (they) believe you should be taxed like any other business.”
