We’ve recently received several questions about the “Parking Lot Tax.” Here are three things you should know about it:

  1. What It Is:

When Congress passed the Tax Cut and Jobs Act (TCJA) in December 2017, Congress included a provision on qualified transportation fringe benefits. IRS Notice 2018-99 provided some guidance on the implementation of this new tax policy, but its exact implementation is still a bit unclear. For now, we know that employer-provided parking, parking fees, or mass transit passes constitute fringe benefits and can be taxed as unrelated business income (a fairly self-explanatory term, but nonprofits are required to pay taxes on income they receive unrelated to their nonprofit purpose). 

2. What It Means for Your Ministry

If your church or ministry provides mass transit passes or pays parking fees to a third-party vendor (i.e., the church doesn’t own its general parking lot), the analysis is straightforward. The benefits must be reported as unrelated business income on Form 990-T. However, if your church owns or leases a parking lot, the analysis is as follows:

  • If your church specifically reserves parking spaces for employees, the expenses related to those spaces create unrelated business income and are subject to tax. (Churches may remove signage designating such reserved spaces as late as March 31, 2019, and the IRS will consider it retroactive to January 1, 2018). 
  • Next, calculate the number of spaces in your parking lot used by employees in contrast to those available to attendees. For example, if your church has 100 parking spaces and at least fifty-one percent (51%) of those spaces are available to attendees (considered general public use), then all spaces are considered utilized for general public use and no unrelated business income is created. Continuing the example above, if your church has 100 parking spaces and 5 of those spaces are routinely used by employees, then all spaces are considered utilized for general public use. Therefore, no unrelated business income is created, and no tax is due.
  • These two steps address most if not all of the ministries we serve. However, if you use more than 51% of your parking lot for employee parking, the analysis continues and we recommend contacting us.

To boil it all down, here are our recommendations:

  • Avoid reserving parking spaces for employees (the IRS is allowing employers until March 31, 2019 to remove the reserved designations.)
  • Ensure your parking lot has more than twice as many parking spaces as employees regularly using parking spaces each day.

3. What It Means for the Future

As noted by Michael Martin of the Evangelical Council for Financial Accountability, this “parking lot tax” is the first such tax in U.S. history. Cash-strapped governments (from the federal level all the way down to your town/municipal government) are looking for revenue, and they are increasingly willing to ignore the strong policy reasons (such as the benefits to local communities/economies) for ministry tax exemptions. This is certainly a trend to watch in coming years.