Daderot [CC0], from Wikimedia Commons

November 14, 2018; Harvard Crimson

The Harvard Crimson reports that the university’s president, Lawrence S. Bacow, has already met with a representative of the US Treasury Department to discuss a new tax that will be levied on its endowment returns by the federal government. The 1.4 percent excise tax on annual endowment returns targets only 35 colleges and universities, those with assets greater than $500,000 per full-time student. This new tax on what were previously tax-exempt institutions takes effect for fiscal years beginning after Dec. 31, 2017. Harvard’s school’s endowment, just a smidge ($200 million) over $39 billion may require a payment of $40 to $50 million annually starting in 2019. This makes the City of Boston’s request for a payment in lieu of taxes in the amount of $6 million look like chump change, but in the end, the school only paid about half that this year.

Details on how universities will have to file with the feds have not yet been published and may not be before the tax must be paid—in which case, opines Harvard Law School Professor Thomas J. Brennan, the taxpayer, which in this case is the university, must interpret the law “the best they can.” (Luckily, the school has that law school handy.)

Brennan says that certainty about the law’s details may take years: “Every law, no matter how well it’s written, is going to have some non-specificity, some grey area, some lack of detail that can be filled in, and that’s the job of the regulations. The substantive content of the regulations should be determined by the professionals at Treasury in light of how they read the law.”

Meanwhile, Bacow says this is likely to affect future investment strategies. “We’ve not been tax-sensitive investors in the past. And the question is: do we need to become tax-sensitive investors going forward?”—Ruth McCambridge