Batts Morrison Wales & Lee - News & Resources - Nonprofit Special Alert

The Nonprofit Parking Tax – Status Report

Updated August 22, 2018

By Mike Batts

What is the Nonprofit Parking Tax?

As part of the big tax reform law passed by Congress and signed into law by President Trump late last year (the Tax Cuts and Jobs Act), provisions were added that relate to certain fringe benefits provided by tax-exempt employers to their employees. Those provisions are effective for 2018 (now) unless the Treasury Department or Congress does something to change that. (More on that possibility below.)

One such provision says that tax-exempt employers (churches, charities, etc.) must treat as unrelated business taxable income the cost of providing parking to their employees.

Newly added Section 512(a)(7) of the Internal Revenue Code states, “Unrelated business taxable income of an organization shall be increased by any amount for which a deduction is not allowable…by reason of Section 274 and which is paid or incurred by such organization for any…parking facility used in connection with qualified parking…The Secretary shall issue such…guidance as may be necessary…including regulations or other guidance providing for the appropriate allocation of depreciation and other costs with respect to facilities used for parking…”

What that means in plain language is that Congress created a federal income tax on the cost of employee parking provided by churches, charities, and other nonprofits. The cost of providing parking facilities (parking lots and garages) will presumably include such elements as depreciation expense, maintenance, security, utilities, insurance, rent payments, and other related costs. Measuring the cost attributable to employee parking will require complex allocations of expenses between buildings and parking facilities as well as allocations between employee use and other use.

It appears that the source of this new tax on nonprofit organizations was Congressman Kevin Brady, Chairman of the House Ways & Means Committee. He and his staff have expressed support for the tax in response to criticisms and questions from the media – the only member of Congress we have observed doing so. According to Brady, the provision was added in an effort to “level the playing field” between nonprofits and for-profit businesses in the area of employee benefits – a premise that we have labeled “flawed at its core.” The very purpose of tax exemption for churches, charities, and other nonprofit organizations is that they are not on the same playing field with businesses when it comes to taxation because of the work they do to improve our society.

The law states that the Treasury Department (which includes the IRS) shall issue guidance on how nonprofit employers are to determine the cost of parking for purposes of calculating the Nonprofit Parking Tax – including guidance on how depreciation expense is to be factored into the calculation. No such guidance has been issued as of the date of this writing.

Confusion and misinformation

There is a lot of confusion about the Nonprofit Parking Tax. Some of the confusion is being caused by attorneys and CPAs who are describing detailed positions on how the tax will be applied even though the Treasury Department has not issued any guidance on the topic. For example,

Some are saying that the Nonprofit Parking Tax only applies to employers who pay third parties for their parking facilities.

Some are saying that the Nonprofit Parking Tax only applies if the employer’s parking has commercial value…that is, the employer charges others to park in the facility or other parking facilities in the area charge for parking.

Some are saying that what is taxable is the value (as opposed to the cost) of the parking provided to employees.

Positions like those described above are simply not in the law as it is currently written. Is it possible that the Treasury Department/IRS could issue guidance stating that one or more of these angles on the new law are applicable? Yes, that is possible. But until and unless it does, we do not have specific information about how and to what extent the Nonprofit Parking Tax will apply to nonprofit employers.

So, in practical terms, what does all this mean?

Unless the law is repealed or modified by Congress, or unless the Treasury Department/IRS issues guidance providing otherwise,

Tax-exempt employers that provide parking for their employees (whether in a lot or garage, whether onsite or offsite, whether owned or leased) need to know that they may be required to determine the cost of the parking provided to employees from January 1, 2018 forward – although IRS guidance describing how to make such calculations has not yet been issued;

With respect to exempt organizations to which the Nonprofit Parking Tax applies (something that cannot be known until the IRS issues guidance indicating which organizations are subject to the tax), if the total cost of parking provided to employees, together with revenue from any actual unrelated business income exceeds $1,000, they will be required to file a federal income tax return (Form 990-T) annually and pay a 21% federal income tax on the sum of the cost of the parking and the net income from any actual unrelated business activities; and

In many states, if an organization is required to file federal Form 990-T, it is required to file a state income tax return as well, and pay applicable state income tax.

Can something be done to stop this absurd new tax?

We at BMWL consider this new provision in the law to be both absurd and highly inappropriate.

It is an income tax assessed on a cost – applied to tax-exempt entities for providing parking to their employees in carrying out their exempt activities. It is hard to imagine a tax that is much more absurd than that. I have been quoted in a Politico article about the impact on churches, as well as in many other articles in the media, stating as much.

Our firm has initiated an effort to attempt to have this provision in the law repealed – either by Congress or effectively by regulation. Other organizations have joined in the effort. ECFA has initiated a sign-on position statement opposing the new tax, which as of this writing, has more than 2,500 organizations signed on.

Some members of Congress have been supportive and have filed legislation that would repeal the Nonprofit Parking Tax. The White House has also indicated that it is evaluating the issue. As of this writing, there are two credible bills in the House and two in the Senate that would repeal the tax. But we are a long way from seeing that happen. I was on a call recently with two members of Congress, one of whom was Kevin Brady and the other was Michael Conaway, who has filed one of the bills that would repeal the Nonprofit Parking tax. I tried to help Mr. Brady understand the potential adverse impact of this new provision in the law. He expressed a willingness to look at it further but did not commit to helping repeal it.

Some are trying to have the effective date of the Nonprofit Parking Tax delayed. That would be helpful, but only as a temporary measure.

We are working hard to try to kill it.

We remain hopeful that one way or another, these efforts will be successful.

In the unfortunate event that the Nonprofit Parking Tax is not effectively repealed, our firm will be ready, willing, and able to assist our clients in complying with the new requirements once guidance is published on its applicability.

Let Us Know If We Can Help 

If you are a BMWL client and would like assistance addressing the information described in this Nonprofit Special AlertSM, we would be glad to help! It is our pleasure and privilege to serve you.

Are your organization's financial bases covered? BMWL is the CPA firm nonprofits trust when they absolutely need to know. Click here to contact us now.

The contents of this publication do not constitute legal, financial, accounting, tax, or any other type of professional advice. For professional advice regarding the subject matter addressed herein, the services of a competent professional should be obtained.

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