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“Parking Lot Tax” Officially Repealed

A controversial 2017 provision affecting churches nixed through spending packages signed in late 2019.

Last Reviewed: March 30, 2021
“Parking Lot Tax” Officially Repealed
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The controversial “parking lot tax” provision included with the Tax Cuts and Jobs Act of 2017 (TCJA) was officially repealed on December 20, 2019, after then-President Trump signed into law two bipartisan-supported spending packages worth a combined $1.4 trillion.

The potentially costly provision (Internal Revenue Code (IRC) Section 512(a)(7)) placed a tax on qualified transportation fringe benefits provided by nonprofit employers, including employer-provided parking meeting certain criteria. The tax was assessed utilizing the unrelated business income tax system. Churches and other tax-exempt nonprofits were affected by this change. Widespread criticism from across the nonprofit sector erupted almost immediately after the TCJA was passed in December of 2017.

Along with the criticism, the provision also created much confusion in the church community. To help weed through the confusion, the Internal Revenue Service (IRS) issued IRS Notice 2018-99, offering guidance for implementing the provision. If certain criteria were met, churches and nonprofits then needed to go through a four-step analysis to determine how much tax they owed on their employer-provided parking.

The repeal operated retroactively, “as if the tax was never in the original law,” noted national CPA firm Batts Morrison Wales & Lee (BMWL). After the repeal, churches and other tax-exempt organizations that paid this tax were able to file an amended Form 990-T and subsequently receive a full refund or credit for any tax paid.

The backstory

When Congress developed the TCJA, the goal was to cut both individual and corporate tax rates. But such a tax cut meant a revenue shortfall. As part of its effort to make up for the revenue loss, Congress chose to disallow the tax deductions that for-profit employers could claim related to any transportation fringe benefits provided to employees.

Taxing for-profit employers, however, would not have accomplished the entire revenue goal Congress needed to replace the tax cuts. Almost one-third of American employees work for tax-exempt employers, either through nonprofit organizations or governmental entities. Since these employers do not pay federal income taxes, the disallowance of an expense deduction they would not claim anyway meant no additional revenue generation.

So, to apply the tax burden equally to all employers, and to capture as much tax revenue as possible from all transportation benefits provided to employees, Congress classified the costs of providing the targeted fringe benefits as “income” considered as unrelated business taxable income (UBTI) for tax-exempt employers.

As a result, exempt employers also were required to follow the formula determining if parking provided to their employees triggered the tax. If triggered, the exempt employers then had to calculate how much UBTI resulted on Form 990-T and pay tax on it at the corporate tax rate of 21 percent.

This planned revenue stream, however, ultimately failed, allowing affected churches and other nonprofits to seek refunds through amended Form 990-Ts. The IRS provided details on the refund process through these instructions.

Elaine L. Sommerville, a senior editorial advisor for Church Law & Tax, is licensed as a certified public accountant by the State of Texas. She has worked in public accounting since 1985.

Frank Sommerville, a senior editorial advisor for Church Law & Tax, is an attorney and shareholder in the law firm of Weycer, Kaplan, Pulaski & Zuber, P. C. in Houston and Dallas, Texas, and an Editorial Advisor for Church Law & Tax.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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Posted:
  • December 23, 2019
  • Last Reviewed: March 30, 2021

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