The Umstead Act

The “Sale of Merchandise or Services by Governmental Units” law, commonly known as the Umstead Act was first passed by the General Assembly in 1939. In general, the Umstead Act, N.C. Gen. Stat. § 66‐58, prohibits North Carolina government agencies from competing with the private commercial activities of North Carolina citizens. As a state agency and constituent institution of the UNC System, North Carolina Agricultural & Technical State University and its employees must comply with the Umstead Act. Violations can be punished as a criminal misdemeanor.  

Umstead Act Prohibitions  

The Umstead Act specifically prohibits North Carolina government agencies from: 

  • Directly or indirectly selling goods in competition with N.C. citizens; 
  • Rendering services to the public that are ordinarily provided by private businesses; 
  • Leasing space in a state owned or operated building for purposes of selling goods or rendering services in competition with private business; 
  • Contracting with anyone to sell goods or render services in competition with private business.
     

Exceptions Involving University Activities  

Statutory exceptions allow state universities to sell several things and conduct certain commercial activities: 

  • Providing utilities and other services operated prior to January 1, 2005 (N.C. Gen. Stat. § 66-58(b)(8)a.) ; 
  • Selling items that are incident to educational research or the operation of instructional departments; selling food, books, and minor merchandise to employees, students, and their families (N.C. Gen. Stat. § 66-58(b)(8)b.); 
  • Selling food and merchandise to guests invited to the university for meetings or conventions N.C. Gen. Stat. § 66-58(b)(8)c.); 
  • Operating an inn or hotel and dining and other facilities usually connected with a hotel or inn (N.C. Gen. Stat. § 66-58(b)(8)d.); 
  • Anything incident to operation of the coliseum (N.C. Gen. Stat. § 66-58(b)(8)f.); 
  • Millennial Campus operations (N.C. Gen. Stat. § 66-58(b)(8)i.); 
  • Student health services (N.C. Gen. Stat. § 66-58(b)(8)j.); 
  • Activities set forth in N.C. Gen. Stat. § 116-1 that further the mission of the university (N.C. Gen. Stat. § 66-58(b)(8)l.); 
  • Activities that serve students and employees and their immediate families or guests (N.C. Gen. Stat. § 66-58(b)(8)m.); 
  • Activities that provide university related services or market university related merchandise to alumni of the university and their immediate families (N.C. Gen. Stat. § 66-58(b)(8)n.); 
  • Activities that enable the community or people of the state to utilize the university’s facilities, equipment or expertise (new activities require that notice be given) (N.C. Gen. Stat. § 66-58(b)(8)o.); 
  • The operation of gift shops, snack bars, and food service facilities physically connected to any of the university’s public exhibition space. (N.C. Gen. Stat. § 66-58(b)(8a); 
  • Selling products from experimental stations or test farms. N.C. Gen. Stat. § 66-58(c)(1); 
  • The sale by NC A&T State University at University-owned facilities of dairy products, including ice cream, cheeses, milk-based beverages, and the by-products of heavy cream, produced by the University Farm at NC A&T State University, so long as any profits are used to support the Agricultural Research Program and the College of Agriculture and Environmental Sciences at NC A&T State University. (N.C. Gen. Stat. § 66-58(c)(1c); 
  • Sale of learned journals, works of art, books or publications of the university. N.C. Gen. Stat. § 66-58(c)(2); 
  • Operation of 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. N.C. Gen. Stat. § 66-58(c)(3). 
     

Umstead Review Panel  

The Umstead Review Panel, established by the General Assembly, requires the UNC Board of Governors to establish a panel to review and determine whether constituent institutions may engage in certain activities in competition with an existing or proposed nongovernmental entity. Constituent institutions may rely on the determination made by the panel. Individuals seeking to begin a new activity that may implicate the Umstead Act should discuss the activity with the Office of Legal Affairs. Office of Legal Affairs staff can assist in determining whether a presentation to the Umstead Review Panel is appropriate.
 

Umstead Act Defenses and Remedies  

The simplest defense to an alleged violation of the Umstead Act is to establish a clear connection between the goods sold or the service rendered and the University’s educational purpose. In 1986, the North Carolina Attorney General stated that activities which are incidental to the legitimate function of a state agency do not violate the Umstead Act. (Attorney General's Opinion, March 4, 1986, 55 NCAG 101). Since the University’s function is to educate, the law permits any sale of goods or services that are a function of educational operations.  

North Carolina courts have held 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 for damages in civil court. See Bd. Of Governors v. Helpingstine, 714 F. Supp. 167 (M.D.N.C. 1989). However, the limitation on civil lawsuits only applies when employees of state institutions act in their capacity as employees. In 2011, the General Assembly amended the Umstead Act to allow civil suits for injunctive relief (a court-ordered remedy requiring a party to do or refrain from doing specific acts to prevent future, irreparable harm when monetary compensation is insufficient) in the Wake County Superior Court and declaratory judgments (binding court declarations that resolve legal uncertainty by defining the legal relationship, rights, or obligations of parties in a dispute without ordering any specific action, damages, or enforcement). 


Important Questions  

  1. Is the activity a direct or indirect sale of goods, wares, or merchandise? 
  2. Does the activity offer a service that is normally performed by private businesses? 
  3. Is the activity directly related to the University’s educational function? 
  4. 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 questions (1) or (2) is “yes,” then proceed to answer questions (3) and (4). If neither the answer to questions (3) nor (4) is “yes,” then the activity is likely prohibited by the Umstead Act.  

Consult with the Office of Legal Affairs if there are questions about whether the Umstead Act applies. 

Important Note: 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).