Nonprofits, churches may get hit with parking tax

Charities, churches and other tax-exempt organizations may need to become parking lot experts.

A provision in the tax overhaul enacted by Congress at the end of 2017 means that parking benefits that charities, churches, some hospitals and other nonprofits offer their employees may now be taxable.

“It was shocking to me. Somebody has too much time on their hands and came up with this,” said Chuck Gehring, CEO of Lifecare Alliance, which provides services such as Meals on Wheels.

Organizations that aren’t used to paying business taxes or, for that matter, filing tax forms with the Internal Revenue Service, may be in for a surprise, said Ted Johnson, a tax- and litigation-support partner with accounting firm

Parms + Co. in Columbus that has started advising clients about the provision.

“For a wide range of taxexempt organizations, it’s not in their mindset to worry about paying any kind of tax,” he said.

The change was included in the massive rewrite of the nation’s tax laws that cut corporate taxes and rates for many individuals and families.

As a result, groups must now figure out whether a tax bill is due for what is called “unrelated business taxable income” for the parking they provide to staff, regardless if it is for parking lots they own or rent. It may require them to keep track of such costs as paving, striping, insurance and removing snow, and there may be different calculations on whether the public has access to the lot or whether it is used exclusively by staff.

While determining an exact calculation is difficult, an estimate released Thursday said the tax could cost affected tax-exempt organizations $10,456 apiece based on a 21 percent tax rate. Administrative and tax-preparation costs could push those costs up up to $12,000 or more, according to Independent Sector, a group that represents nonprofits, foundations, companies and other groups.

“America’s houses of worship and faith-based social services organizations stretch to make every dollar count,” said Brian W. Walsh, executive director of the Faith & Giving Coalition. “To pay the substantial costs of this new tax on employee benefits, they will have to make painful financial cuts while continuing to care for the enormous spiritual, relational and physical needs of their diverse communities.”

“It will impact

organizations that never had to file these forms. Now they have to,” said David L. Thompson, vice president of public policy for the National Council of Nonprofits in Washington.

Churches may be particularly unprepared, he said.

“They don’t think of the IRS as their governing body,” Thompson said.

Before Christmas, the IRS issued guidance for what tax-exempt organizations will need to compute the tax.

“There has been some relief in the form of IRS guidance that softens the blow, but the rule has not been fully repealed,” said Brian Mittendorf, chairman of the department of accounting at Ohio State’s Fisher College of Business.

That IRS guidance, for example, allows nonprofits to retroactively remove the benefit. It also allows employers to use any “reasonable method” for 2018 to determine to the level of taxable income.

“Treasury is sensitive to the concerns of the tax-exempt community, and hopes that guidance can significantly limit the impact on nonprofit groups,” Treasury Secretary Steven Mnuchin said in a statement.

Getting rid of or reducing parking for employees may be one way nonprofits deal with the rule, Mittendorf said.

Thompson said Congress included the provision as a way to raise money in a bill that was becoming too costly, but even members of Congress now say the provision should be repealed.

Lifecare’s Gehring said he believes his organization is exempt from the provision, based on his reading of the law. Regardless, he doesn’t think there will be much payoff for the federal government.

“For the revenue they’ll get out of this, I don’t get why they are trying to do this,” he said.