PANO seeks to repeal the provision in the H.R. Tax Cuts and Jobs Act passed in late 2017 that levies a tax on many tax-exempt employers, including churches, charities, and schools, on reimbursable and free employee transportation and parking benefits.
In December 2017, Congress passed the final Tax Cuts and Jobs Act. The bill was signed into law by President Trump on December 22. What does this mean for nonprofits? In addition to increasing the standard deduction, as discussed under Universal Charitable Deduction, H.R. 1 Tax Cuts and Jobs Act repealed the Affordable Care Act’s individual mandate, causing 13 million people to lose health insurance and raising premium costs for everyone.
Check out the National Council of Nonprofits Webpage: Resources on How the New Federal Tax Law Impacts Charitable Nonprofits.
Taxing Tax-Exempt Employers on Employee Parking Must be Stopped
H.R. 1 Tax Cuts and Jobs Act contains a troubling provision that applies federal income tax to transportation and parking benefits, as well as the use of on-premises athletic facilities provided by tax-exempt organizations to their employees. Tax practitioners who have evaluated Section 512(a)(7) generally believe that the result of this new provision is that tax-exempt organizations that provide these benefits to their employees will be subject to unrelated business income tax on the cost of the benefits provided. This may include a nonprofit organization that simply allows its employees to park in a parking lot or garage that is part of the organization’s facilities. To complicate matters further, measuring the costs of these benefits was released in December 2018, after reporting and tax payment obligations have already begun.
Because of this new tax, many tax-exempt employers, including churches, hospitals, charities, and schools, will be required to file federal Form 990-T and, in many cases, state corporate income returns, every year regardless of whether they actually engage in any unrelated business activity apart from the provision of these types of benefits.
Based on a study released in January from Independent Sector the new tax on transportation fringe benefits will cost nonprofits an average of $12,000 annually.
PANO believes this element of the new tax law should be repealed because:
1. The very purpose of tax exemption is not to have tax-exempt organizations’ charitable, religious, and educational activities on the same footing as taxable businesses because of the work they do to benefit their communities and the inherent challenges associated with raising money to support such work.
2. The federal income tax on unrelated business income is intended to apply to income generated from unrelated commercial activities conducted by tax-exempt organizations. Providing these kinds of benefits to employees does not constitute generating income from an unrelated commercial activity and there is no sound policy basis for applying a tax for commercial activity to these benefits.
3. These new obligations are likely to result in significant additional administrative and tax reporting burdens and costs on affected nonprofits, many of whom lack the necessary financial and other resources to manage these burdens and costs.
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