Of the many provisions outlined in the original language of the Tax Cuts and Jobs Act (TCJA), few raised significant resistance like the new tax on qualified transportation fringe (QTF) benefits. Part of a reformation of unrelated business income tax (UBIT) expenses, this provision took aim at employee transportation, including parking spaces, bus passes and similar perks.
But, on Friday, December 20, 2019, President Trump signed a $1.4 trillion spending package that included the repeal of the nonprofit parking tax!
Recapping the “Church Parking Lot” Tax
The fight against taxes on QTF benefits for nonprofit organizations began raging immediately after the TCJA passed, with nonprofits lobbying for repeal. Per Section 274 of the TCJA, these organizations were forced to increase their UBTI by the cost of nondeductible transportation expenses. Subsequently, they’d then be taxed (at the 21%corporate rate) on any parking expenses determined to be a QTF benefits in excess of $1,000.
Charity organizations pointed to the new expenses generated by the provision, which required significant funds to be diverted from their mainline humanitarian efforts. It was nicknamed the “Church Parking Lot Tax” due to its disproportionate impact on houses of worship.
Research by the Urban Institute and the George Washington University (sponsored by Independent Sector) provided key figures in lobbying for the repeal of the tax. Their study concluded nonprofits would pay as much as $12,000 annually in QTF benefits taxes. The study also concluded that roughly 10% of nonprofits would need to discontinue offering these benefits to employees and volunteers as a result.
What to consider after repeal?
The terms of the repeal aren’t just favorable for nonprofits moving forward—they also retroactively mitigate the harm done to these organizations. If you paid tax on the transportation fringe benefit, you should file an amended 990T to claim a refund of the taxes paid.
The repeal of the Church Parking Lot Tax is a major victory for nonprofits and charitable organizations everywhere! And, with this good news comes the prospect of new accounting in the coming year. Make sure you’re working with a nonprofit tax CPA to account for the changes and how they affect you in 2020.
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