A new provision in the corporate tax code has some churches and other tax-exempt nonprofits wondering if they’ll really be on the hook for paying a “parking tax” this year.
2018 was the first year nonprofits were subject to a tax of 21 percent on employee benefits like parking and transportation stipends, under tax reforms passed by the GOP-controlled Congress the year before. The new tax is expected to cost nonprofits $1.7 billion over the next 10 years.
Experts suggest that many churches do not meet the parking tax requirements, as described in an interim guidance released by the Internal Revenue Service (IRS) in December. But evangelical groups have still rallied in opposition. As recently as last month, the Southern Baptist Convention’s Ethics and Religious Liberty Commission continued to lobby Congress to repeal what its president Russell Moore called a “deeply un-American tax on churches.”
“There has been a great deal of rhetoric but no results,” he toldBaptist Press. “We now find ourselves weeks away from the tax deadline while many elected officials seem to hope this issue will get lost in the circus of the daily news cycle.”
The Evangelical Council for Financial Accountability (ECFA), the National Association of Evangelicals (NAE), and the Council for Christian Colleges and Universities joined the ERLC’s plea to lawmakers, as did Catholic, Orthodox Jewish, and Seventh-day Adventist leaders.
“The whole idea of tax exemption for nonprofit organizations that are doing charitable, religious, and educational work is for them not to be on the same playing field as for-profit businesses when it comes to taxes, in order to incentivize the good work they do to make our society better,” said Michael Batts, attorney and chair of the ECFA board of directors.
The IRS notice from late last year offers guidance on parking expenses for tax-exempt organizations alongside for-profit companies. Many religious liberty advocates have challenged efforts to tax houses of worship on principle, raising concerns that a tax measure like this one threatens church-state separation and could open the door to further financial regulations over churches.
ECFA flagged the parking tax last summer, when it estimated that its members provide about 150,000 parking spaces to employees, amounting to millions in taxes under the new law.
But the temporary guidance indiates that not all churches that offer parking will have to file. Essentially, it depends on how much of each parking lot is designated or used for employee parking, and how much churches pay to maintain them each year.
The costs associated with spots for staff count as a benefit for the nonprofit and, if they amount to over $1,000, require a form 990-T, which is how otherwise tax-exempt organizations report unrelated business taxable income, according to Elaine and Frank Sommerville, CPAs and editorial advisers for CT sister publication Church Law and Tax.
“A simple way for many churches to avoid the tax might be to remove any ‘reserved’ parking signs for church employees such as the pastor, since the calculation considers how many parking spaces are reserved for employees versus the general public,” they wrote. “If churches take down those signs by March 31 of this year, the IRS said that they won’t be subject to the tax provisions that went into effect on January 1, 2018.”
The 24-page IRS guidance instructs churches to calculate the percentage of staff parking, other reserved parking, and public parking as well as annual expenses, including “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 a rent or lease payment” to determine their level of liability. (It includes a series of examples that read like math problems: “D’s parking lot has 500 spots that are used by its visitors and employees. D usually has approximately 400 employees parking in the lot in non-reserved spots during normal business hours on a typical business day…”)
But even doing the math to see whether they meet the requirements for the parking tax can be a burden on individual churches.
“For 350,000 churches and more than 1 million nonprofits, it’s going to create a tremendous headache—first of all to calculate how much does their parking benefit cost and then to figure out how much they owe,” Galen Carey, NAE vice president of government relations, told Religion News Service. “In many cases, they’ll probably pay more to accountants to figure this out than the actual amount of the tax.”
The NAE has advised members to contact their representatives to ask for a repeal—but also to comply with the tax in the meantime. Most organizations will file their first quarterly tax forms by May 15.