What is the Umstead Act?
DEFINITION:
In general, the Umstead Act (the "Act") prohibits North Carolina government agencies from
competing with the private commercial activities of North Carolina citizens. NC State University
and its employees must comply with the Act. Violations may be punished as a criminal
misdemeanor. G.S. 66-58(a).
The Act specifically prohibits North Carolina government agencies from:
1. directly or indirectly selling goods in competition with N.C. citizens;
2. rendering services to the public that are ordinarily provided by private businesses;
3. leasing space in a state owned or operated building for purposes of selling goods or
rendering services in competition with private business;
4. contracting with anyone to sell goods or render services in competition with private
business.
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EXCEPTIONS INVOLVING UNIVERSITY ACTIVITIES:
Five of the exceptions specifically permit the university to conduct certain commercial activities.
1. The first statutory exception (G.S. 66-58(b)(8)) allows state universities to sell several
things:
1. utilities and other services operated prior to January 1, 2005;
2. items that are incident to educational research or the operation of instructional
departments;
3. food, books, and minor merchandise to employees, students, and their families;
4. food and merchandise to guests invited to the university for meetings or
conventions;
5. anything incident to operation of the coliseum;
6. anything related to Centennial Campus operations;
7. student health services;
8. activities that serve students and employees and their immediate families or
guests;
9. activities that further the mission of the university;
10. activities that provide university related services or market university related
merchandise to alumni of the university and their immediate families;
11. activities that enable the community or people of the state to utilize the
university’s facilities, equipment or expertise; and,
12. operation by the university of an inn or hotel and dining and other facilities
connected to an inn or hotel.
2. A second exception allows the sale of learned journals, works of art, books or
publications of the university. G.S. 66-58(c)(2).
3. A third exception allows state universities to operate campus stores where profits are
used for student scholarships. Campus stores may sell educational supplies, gift items,
and personal use items. However, a campus store may only sell to students and their
families, employees and their families, and individuals who are on campus for a purpose
other than just to buy goods from the university store. Only educational supplies, gift
items, and personal use items may be sold. G.S. 66-58(c)(3).
1. The General Assembly created the UNC Umstead Review Panel to review and
determine whether or not a proposed activity violates the Umstead Act. The
University may rely on the determination made by the panel. Therefore, if you want
to start a new activity, please discuss with the Office of General Counsel to
determine if a presentation to the Review Panel is appropriate. You may read more
about the Umstead Act and the Review Panel.
2. The simplest defense is to establish a clear connection between the goods sold or the
service rendered and the University's educational purpose. In 1986, the NC Attorney
General stated that activities which are incidental to the legitimate function of a state
agency are not violations of the Umstead Act. (Attorney General's Opinion, March 4,
1986, 55 NCAG 101). The function of the university is to educate, so the law permits any
sale of goods or services that are a function of educational operations.
3. A federal court in North Carolina has ruled that the Umstead Act creates an exclusive
remedy. This means that although an agency or employee may be found criminally guilty
of a misdemeanor, a private citizen cannot sue in civil court. (See Bd. Of Governors v.
Helpingstine, 714 F. Supp. 167 (M.D.N.C. 1989)).
4. For employees of state institutions, the statute applies only when they act in their capacity
as employees. G.S. 66-58(a).
IMPORTANT QUESTIONS TO ASK:
1.
2.
3.
4.
Is the activity a direct or indirect sale of goods, wares or merchandise?
Does the activity offer a service that is normally performed by private businesses?
Is the activity directly related to the university's educational function?
Would the activity fall under any other exception, such as a product of an experimental
station or test farm, a learned journal or other exception?
**If the answer to 1 or 2 is "yes," then proceed to answer 3 and 4. If neither 3 or 4 is "yes," then
the activity is likely prohibited by the Umstead Act.
MOST IMPORTANT: Consult with the NC State Office of General Counsel if there is any
question about the applicability of the Umstead Act.
ADDITIONAL ISSUES:
An activity that is acceptable under the Umstead Act may still be inappropriate or raise other
legal issues. For example, revenue from an activity that is not substantially related to the
educational mission, as determined by the IRS, may be subject to Unrelated Business Income
Tax (UBIT).