Q: Does your nonprofit need to be concerned about the parking lot tax?

A: The short answer is: Yes. A new law within the Tax Cuts and Jobs Act of 2017 taxes employee transportation benefits, such as providing free parking when others would normally pay.

There are some nuances to the law, and attorneys and accountants are debating how they might affect churches, schools, colleges, and nonprofits. For example, organizations with access to ample free parking won’t likely pay any additional taxes. But ministries in crowded urban areas where parking is at a premium should work closely with a tax professional to determine whether they owe a tax payment.

There is some confusion as to how the law will apply in specific situations. Until the IRS provides additional guidance, nonprofit ministries should consider the following: 

Q. How does this new tax apply?

A. If you reimburse employees for using public transportation or parking fees, or incur the cost of providing a parking facility for the benefit of employees, the cost to provide these benefits will be taxed as if they were unrelated business income (UBIT) received by a nonprofit organization. For example, it would apply if you lease parking space for your employees, faculty, or staff, from an adjacent business. It also applies if you provide passes or tokens for employees to ride mass transportation to and from work.

Q. What is the cost of the new tax?

A. Nonprofits will pay UBIT on any amount that exceeds $1,000/year to reimburse or offset parking or mass transit expenses for employees. The cost of parking can include maintenance, security, depreciation, and other costs. The UBIT is currently rated at 21 percent for any amount greater than $1,000. For example, if you pay $1,200 annually to lease parking space, the 21 percent tax would be applied to $200. See the IRS tax form 990-T and its instructions to help compute your estimated payment.

Q. Will this provision affect my church, school, college, or nonprofit?

A. Attorneys and CPAs have conflicting views on the effect of this provision of the Act. Some take the position this tax only applies to nonprofits that pay for their employees’ transportation or parking. Others believe the tax will affect all nonprofits that provide parking for their employees, at least in areas where ample free parking is not available. This would likely have the greatest effect on nonprofits in urban or downtown areas. 

Q. Are there additional forms we will need to provide to the IRS?

A. Nonprofits subject to this expanded unrelated business income tax will have to file an Exempt Organization Business Income Tax Return (Form 990-T).

It’s important for nonprofits to work with their tax professionals on this issue because the new law took effect January 1, 2018.

For additional information, please read this article found on the Church Law & Tax website. (https://www.churchlawandtax.com/web/2018/august/separating-fact-from-fiction-regarding-parking-lot-tax.html?paging=off)

 

*Important information: Brotherhood Mutual is pleased to provide Legal Assist as a complimentary resource. The services we offer through Legal Assist are intended to provide general legal information to our current and prospective policyholders.

The information we provide is intended to be helpful, but it does not constitute legal advice and is not a substitute for the advice from a licensed attorney in your area. Accordingly, no attorney/client relationship is created through this process, and no legal advice will be provided. We strongly encourage you to regularly consult with a local attorney as part of your risk management program.