The WEST Act of 2025 would create a new 6% excise tax on the endowments of very large private colleges and universities. Introduced in the Senate by Senator Cotton, the bill adds a new Sec. 4969 to the Internal Revenue Code. The tax is calculated as 6% of the aggregate fair market value (FMV) of an institution’s endowment assets at the end of the preceding taxable year, for the first taxable year beginning in 2025. The tax applies to so-called “specified applicable educational institutions” that meet certain asset thresholds, with assets used directly for an institution’s exempt purposes excluded from the tax base. The bill also amends the tax code’s structure to add this new section and specifies that the amendments apply to taxable years beginning after December 31, 2024. In short, if enacted, very large private colleges and universities would owe a 6% annual excise tax on the value of their endowment assets (with certain exclusions), starting with the 2025 tax year.
Key Points
- 16% excise tax on endowments: The tax is imposed on each specified applicable educational institution for the first taxable year beginning in 2025, based on 6% of the end-of-year endowment asset FMV from the preceding year.
- 2Who is taxed (specified applicable educational institutions):
- 3- Non-religious private colleges/universities with endowment assets (excluding assets used directly for the institution’s exempt purpose) of at least $11.9 billion.
- 4- Institutions that operate a college on behalf of a State under state statute or contract, with endowment assets (excluding exempt-use assets) of at least $10.5 billion.
- 5Exclusions from the tax base: Assets used directly in carrying out the institution’s exempt purpose are not counted for tax purposes toward the endowment FMV.
- 6Effective date and scope: The new tax provisions apply to taxable years beginning after December 31, 2024, with the first year starting in 2025.
- 7Administrative changes: The bill adds a new Sec. 4969, titled “Excise tax on certain large private college and university endowments,” to Subchapter H of Chapter 42 of the Internal Revenue Code, and updates the table of sections accordingly.
- 8Rough political framing: The bill’s short title is the Woke Endowment Security Tax Act of 2025 (WEST Act of 2025). The text provided does not specify a sponsor beyond the introduced name (Senator Cotton) but this is reflected in the bill’s header.