CHICAGO, IL (June 28, 2018) – The Evangelical Covenant Church has signed a petition along with more than 1,200 other faith-based organizations that calls on Congress to repeal a new provision in the tax code passed last year that would force churches and other nonprofits to pay tax on free parking spaces provided employees.
The provision would impose a 21-percent unrelated business income tax (UBIT) on the value of the free parking, even if the organization doesn’t actually conduct unrelated business activities, according to the Evangelical Council for Financial Accountability, which is circulating the petition. UBIT is any income not substantially connected to the normal functions of an organization.
The Treasury Department is supposed to provide guidance on how the cost is to be determined. The new law also could require many nonprofits to file state income tax returns and possibly pay a state income tax.
The provision was added at the last minute to gain support for the 400-page Tax Cuts and Jobs Act, which Congress passed last December. It cuts some fringe benefits—mostly transportation related expenses such as parking, as well as garage and subway passes—in order to fund other cuts.
According to a recent Politico article, House Ways and Means Committee Chair Kevin Brady supports the provision because it provides “greater parity” between for-profit and nonprofit organizations.
Mike Batts, chair of the ECFA board, called the provision “absurd.”
The ECFA said in a position statement, “This premise is flawed at its core. The very purpose of tax exemption for nonprofit organizations is not to have their charitable, religious, and educational activities on the same footing as taxable businesses because of their important work and the inherent challenges associated with raising money to support such work. Furthermore, 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 parking to employees does not constitute generating income from an unrelated commercial activity and there is no sound policy basis for applying a tax intended for commercial activity to the essential element of parking by employees of tax‐exempt organizations.”