Nonprofits Now Subject to Tax on Parking-Related Expenses
If your nonprofit organization provides parking benefits to your employees pre-tax, or otherwise provides parking for your employees, than your organization may now be subject to unrelated business income tax.
The Tax Cuts and Jobs Act (the “Act”) included a provision that a tax-exempt organization must increase its unrelated business income by:
- employer-paid qualified transportation and parking benefits that are treated as tax-free benefits to employees, and
- the costs incurred in providing qualified transportation benefits to employees.
The IRS issued Notice 2018-99 (the “Notice”) providing further guidance on calculating costs incurred in providing qualified transportation benefits to employees as well as detailed examples to better understand how the Act may impact your organization. Once costs are identified, they must be allocated between parking related to employees and parking related to the general public. The Notice offers methodology and examples to work through this allocation.
What does this mean for you?
- If your organization provides to its employees tax-free benefits related to transportation or parking, those benefits may be subject to Unrelated Business Income Tax (UBIT).
- If your organization provides parking for its employees, in a facility/lot owned or leased by the organization, then the costs incurred in providing this parking may be subject to UBIT. The Notice specifically notes the following: repairs, maintenance, utility costs, insurance, property taxes, interest, snow and ice removal, leaf removal, trash removal, cleaning, landscape costs, parking lot attendant expenses, security, and rent/lease payments as subject to this calculation. The Notice excludes depreciation from the calculation. This list is not meant to be exhaustive.
- If your organization provides parking that includes spaces specifically designated (reserved) for employees, consider the benefit to your organization if the reservation was removed. The Notice allows a change to remove reserved spaces by March 31, 2019, that would be considered retroactive to January 1, 2018.
Following this article is a link to the Notice and a list of questions that will allow your organization to work through the factors impacting the cost and allocation of parking expenses. The questions will serve as a resource in working through the calculation.
The calculation of expenses subject to UBIT is complex and nuanced. Prior to offering its allocation methodology, the Notice states: “[the calculation of expenses subject to UBIT] may be calculated using any reasonable method,” effectively offering a range of possibilities in determining your organization’s expense that is subject to UBIT (see the Notice on further detail regarding reserved spots and their treatment).
We can help you in implementing this guidance. Call Herzl Ginsburg at 216-765-6947 or by email here for further assistance.