Tax Exempt “Parking Tax”

The 2017 Tax Cuts and Jobs Act included a small insert that did not receive a lot of publicity. For taxable entities, the Act made four types of employee fringe benefits non-deductible. But, the Act did not stop with taxable entities; it was expanded to tax-exempt entities as well. It is an addition to UBTI (Unrelated Business Taxable Income) for tax-exempt entities and UBTI is taxable at 21%.

This is not an exhaustive summary of the new law, but hopefully enough to catch your attention. The IRS has issued guidance in an IRS Notice, which may be modified if regulations are issued at a later date.

 

What you should discuss with your tax advisor

Step 1. Identify non-deductible fringe benefits that you may pay for, including:

  • Transportation in a commuter highway vehicle
  • Any transit pass
  • Bicycle commuting reimbursement
  • Qualified parking (see below for considerations)

 

Step 2. Are you including these benefits in the employee’s wages?

They may be taxable to you for only the portion not already included in their wages.

 

Step 3. Qualified Parking: Identify your costs for providing parking for employees.

Do you lease space from a third party or own your own parking facility? The notice says to exclude Depreciation Expense from costs of parking facilities.

You should identify items such as: 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 or lease payments or a portion of rent or lease payment. Also take into account the landscaping and lighting next to the parking facility. 

Be sure to gather information for all of your facilities. If you have multiple facilities, get additional guidance from your advisor.

 

Step 4. Qualified Parking: Determine the extent of employee parking provided.

Reserved parking spaces are subject to tax. How many reserved spaces? How many spaces in total? Of all your spaces, what percentage is reserved, for use by employees versus open to public?

 

Briggs & Veselka can help you compute your potential tax liability. But know that if you own or lease a facility and DO NOT have reserved parking for employees AND less than 50% of total spaces are used by employees and independent contractors, you will generally not be subject to the new “parking tax.”

Notice states that if an organization reduces or eliminates reserved employee parking spaces by March 31, 2019, the IRS will treat as retroactive to January 1, 2019. This is very helpful and should be considered by those becoming subject to this tax.

Our Parking Tax Framework will help you determine

if you are exempt from this tax.

Download the Parking Tax Framework

Download the Parking Tax Framework