By Kari Jolly, Tax Associate | Not-for-Profit Team
Parking Tax: Impact on Not-for-Profit Organizations
1/6/2020 Update: the Nonprofit Parking Tax has been repealed. Learn about the changes.
One of the more controversial outcomes of the 2017 Tax Cuts and Jobs Act (the Act) was Congress’ transformation of what was once a deductible expense into an item of taxable income. In brief, before the Act, businesses were permitted to deduct expenses for Qualified Transportation Fringe (QTF) benefits paid on behalf of their employees. The Act disallowed such expenses, which include certain items associated with providing/maintaining parking lots used by employees.
For-profit businesses are no longer permitted to deduct QTF expenses from their taxable income. However, by virtue of their tax exempt status, a Not-For-Profit (NFP) organization is only required pay income taxes on their Unrelated Business Income (UBI). Congress declared that QTF expenses incurred by NFPs would be an “increase” to UBI, effectively turning an expense into taxable income. NFPs which historically had no UBI to report and thus had no income tax liability, suddenly found themselves in a taxable position simply because they provided parking facilities for their employees.
Since the Act was signed into law on December 22, 2017, by President Trump, NFP advocates have been tireless in their efforts to either repeal this portion of the Act or attain a carve-out of some sort. For a time, it looked as if Congress may pick the matter back up and offer some relief. Recently, however, it has become clear that is not to be the case. At the AICPA’s annual Not-For-Profit conference in Washington, DC earlier this month, attendees had the opportunity to hear from representatives on each side of the political aisle. Christopher Arneson, Senior Tax Policy Advisor with the U.S. Senate Finance Committee Democratic Staff, advised that pending legislation related to tax matters is in the final stages of development. Negotiations are essentially closed and changes are unlikely to be forthcoming. John Schoenecker, current Investigative Counsel at Senate Finance Committee and former Majority-staff Counsel to the U.S. House Committee on Ways and Means, agreed, affirming that the legislation is here to stay for the foreseeable future. Both men acknowledged that the Act was hastily drafted (only 50 days passed between the dates the bill was introduced in the House and when it was signed into law). The haste regrettably resulted in unintended consequences like this, as churches, schools and public charities are forced to reduce program services in order to meet unexpected income tax obligations.
The transformation of an expense to taxable income began as an effort to create some sort of parity between for-profit and not-for-profit entities. Setting aside whether or not parity was achieved (perhaps a discussion for another day), one thing for certain is that charitable organizations across the spectrum are feeling the pain – and their program recipients are suffering consequences.
Unsure how your NFP organization should respond to this legislation? The Not-for-Profit Opportunity Advisors at Keiter are here to help you understand how it effects your organization and craft a solution.
Additional Not-For-Profit Resources:
- IRS Issues Interim Guidance on “Parking Tax”
- Not-for-Profit Lobbying Activites: Know Where to Draw the Line
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.