Nonprofit Employee Parking Tax: Latest Developments

Last updated 8/15/18

Synopsis of the Issue:

In the months following the Tax Cuts and Jobs Act in late 2017, controversy has arisen over a largely unnoticed requirement on churches and nonprofits to begin paying a 21% tax on employee benefits including parking, transportation, and other related benefits. The provision will cause nonprofit organizations (including churches) to file federal income tax returns and pay unrelated business income tax on these benefits, including the cost of parking provided to employees.

In addition to filing federal income tax returns, many nonprofit employers affected by the new law will also be required to file state income tax returns and possibly pay a state income tax as a result of the new federal income tax.

The cost of compliance for churches and nonprofits could run into the tens of millions of dollars annually. The new tax initially escaped the notice of a number of lawmakers who approved the bill, including those who seek to protect the interests of nonprofits. Now months later, many charitable organizations are still unaware of the tax, and for those that are cognizant of the new requirement, there is a great deal of confusion as to how the tax should even be calculated.

According to a Politico article, House Ways and Means Committee Chairman Kevin Brady defends the provision because it creates “greater parity” between for-profit and nonprofit organizations.

Michael Batts, ECFA Board of Directors chairman and partner in the accounting firm Batts Morrison Wales and Lee, responds to this assertion in the article, saying, “The whole idea of tax exemption for nonprofit organizations that are doing charitable, religious, and educational work is for them not to be on the same playing field as for-profit businesses when it comes to taxes, in order to incentivize the good work they do to make our society better.”

ECFA circulated a position statement which was signed by over 2,600 churches and nonprofits, advocating for the repeal of this new burdensome provision in the law...either by legislation or effectively by action of the Treasury Department. The position statement has been distributed to nearly 100 members of Congress as well as members of the Treasury Department.

The position statement is available here: https://www.ecfa.org/DocSig.aspx

 

Latest Legislation on Capitol Hill:

S.3332 - A bill to amend the Internal Revenue Code of 1986 to repeal the inclusion of certain fringe benefit expenses for which a deduction is disallowed in unrelated business taxable income. – Sen. James Lankford (OK): https://www.congress.gov/bill/115th-congress/senate-bill/3332

Status: Introduced in the Senate and Referred to Senate Finance Committee 8/1/18

H.R. 6504 – Stop the Tax Hike on Charities and Places of Worship Act – Rep. James Clyburn (D-SC-6): https://www.congress.gov/bill/115th-congress/house-bill/6504

Status: Introduced in the House and Referred to the House Ways and Means Committee 7/25/18

H.R. 6460 – LIFT for Charities Act – Rep. Mark Walker (R-NC-6): https://www.congress.gov/bill/115th-congress/house-bill/6460

Status: Introduced in the House and Referred to the House Ways and Means Committee 7/19/18

H.R. 6037 – Nonprofits Support Act – Rep. Michael Conaway (R-TX-11): https://www.congress.gov/bill/115th-congress/house-bill/6037

Status: Introduced in the House and Referred to the House Ways and Means Committee 6/7/18

 

ECFA Analysis of Legislative Future:

The likelihood of seeing the Nonprofit Parking Tax matter resolved before the mid-term election is slim. The text of one of the House bills could be added to what is being called “Tax Reform 2.0” in the House. It is unclear if Tax Reform 2.0 will be approved by the House. Even if it does, it faces overwhelming opposition in the Senate.

This leaves the best prospect for undoing the Nonprofit Park Tax in one of the bills that will be passed in the “lame duck” session after the mid-term elections. With the heightened interest in repealing the parking tax provision and perhaps other fringe benefit elements which were included in the 2017 Tax Reform legislation, repeal is increasingly likely.

 

Latest Media Coverage:

August 7, 2018 – The Unintended Target of Tax Reform: Churches Now Face 21% Penalty

Source: Washington Times: https://www.washingtontimes.com/news/2018/aug/7/tax-reform-hits-churches-penalty-employee-benefits/

July 27, 2018 – New Tax Levied in GOP Overhaul Draws Laments from Churches, Other Nonprofits

Source: Dallas Morning News: https://www.dallasnews.com/news/politics/2018/07/27/new-tax-levied-gop-overhaul-draws-laments-churches-nonprofits

July 27, 2018 - Churches May Have to Pay Taxes, and Members of Congress May Pay Politically

Source: McClatchy DC Bureau: https://www.mcclatchydc.com/news/politics-government/article215653425.html

July 1, 2018 – Churches Slapped with Shocking New Taxes: Here’s What You Can Do to Stop It

Source: CBN News: http://www1.cbn.com/cbnnews/us/2018/june/churches-slapped-with-shocking-new-taxes-heres-what-you-can-do-to-stop-it

 

ECFA’s Role:

ECFA’s first public summary of the Parking Tax issue was released here on June 26. This was followed by a news item update on July 19 and then a webinar on July 26 by ECFA’s board chair, Michael Batts, with Q&A input from ECFA’s president, Dan Busby (webinar recording available here). ECFA will continue to report updates on legislation, media coverage, and networking efforts in this Knowledge Center article and in our In the News section.

 

What You Can Do:

1. Pray for wisdom and guidance for our nation's lawmakers.

2. Sign the position statement if you haven’t already.

3. Raise awareness and recruit assistance from your own constituency.

4. Contact appropriate legislators, especially if they come from your geographical district.

 

First Priority Contacts Regarding the Issue:

Congressman Kevin Brady (R-TX)
Chairman of the House Ways and Means Committee
Texas 8th District
1011 Longworth House Office Building
Washington, D.C. 20515
Telephone: 202.225.4901

Senator Orrin Hatch (R-UT)
Chairman of the Committee on Finance
Utah 1st District
104 Hart Office Building
Washington, DC 20002
Telephone: 202.224.5251

Members of the House Ways and Means Committee (link to contact information and representatives' websites)

Members of the House Ways and Means Committee (PDF)

Members of the Senate Committee on Finance (link to contact information and senators' websites)

Members of the Senate Committee on Finance (PDF)

Find Your Representative

Find Your Senators

 

 

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