Houses of worship subject to parking lot tax

By Sharon C. Lincoln

In the context of paying one’s taxes, the New Testament counsels the faithful in Matthew 22:21 to “Give to Caesar the things that are Caesar’s, and to God the things that are God’s.” When it comes to taxation in the United States — for nearly all of this country’s history — federal and state governments have refrained from levying taxes on houses of worship and have maintained a clear separation between the public fisc and religious worship.

However, it now appears that “Caesar” (in the form of the federal government) is interested in taxing church-owned parking lots. Unless Congress amends the Internal Revenue Code, all faith-based organizations will remain liable for excise taxes on amounts spent to provide parking to their employees.

How did we get here? Well, among the many new revenue raising measures imposed on the tax-exempt sector in the Tax Cuts and Jobs Act (TCJA), Congress amended the unrelated business income tax (UBIT) rules to include an excise tax at the new corporate income tax rate (21 percent) on expenditures made to furnish certain employee benefits. Included among these benefits are qualified transportation fringes that are not deductible as business expenses.

Essentially, in a creative twist, the new UBIT rule establishes that certain expenses paid or incurred by tax-exempt organizations shall be treated as unrelated income and taxed under the UBIT rules.

Parking lots (and amounts incurred to provide or secure parking for employees) are a qualified transportation fringe under these rules. All tax-exempt organizations subject to the UBIT rules are liable for this excise tax — including houses of worship.

So, as tax-exempt organizations complete their annual Form 990 information returns for tax years beginning after 2017, houses of worship now also need to determine the extent to which they owe tax in connection with amounts spent to furnish parking to their employees. If they are liable for this new excise tax, they will be expected annually to prepare and file Form 990-T, the tax return for tax-exempt organizations that are liable for UBIT. This may result in state-level tax liabilities as well.

To assist organizations in determining their liability for this new excise tax, the IRS released guidance in Notice 2018-99 that describes the applicability of this tax to employers that provide qualified transportation fringes, particularly those that furnish or subsidize parking for employees.

The notice, issued shortly before the government shutdown in December 2018, provides interim answers to several questions left open by the plain language of the new law:

What is a parking facility?

A “parking facility” includes indoor and outdoor garages, parking structures and parking lots or other areas where employees may park on or near the business premises of the employer. It also includes those placed near a location from which the employee commutes to work. The facility can be owned by the employer, an affiliate of the employer, or by a third party, so long as employees park in some or all of the facility.

Can the value of employee parking be used to determine expenses allocable to employee parking in a parking facility owned or leased by the tax-exempt employer?

No. The new excise tax must be calculated based on the total parking expenses incurred in connection with providing the parking.

What are total parking expenses?

“Total parking expenses” are expenses paid by the employer that include (but are not limited to) repairs, maintenance, utility costs, insurance, property taxes, interest, snow and ice removal, leaf removal, trash removal, cleaning, landscaping, parking lot attendant expenses, security, and rent or lease payments.

Are parking facilities that are open free of charge to congregants, customers, the general public and employees on an equal basis subject to this provision?

If the primary use of the parking facility is to provide parking to the general public, then the total parking expenses are exempt from the excise tax, except for expenses related to any spots specifically reserved for employees. To count for this exemption, more than 50 percent of actual or estimated use must be for the general public.

Can parking expenses be aggregated among multiple parking facilities?

Yes, to a limited extent. Parking expenses related to parking facilities located in a single geographic location may be aggregated; those that are in different geographic locations, like different cities, may not be aggregated.

What is the method by which to allocate costs related to dual-use facilities, like one for mixed general public and employee use?

If the primary use is by employees, the tax-exempt employer will need to allocate the costs related to employee use of the parking facility pursuant to any reasonable method; however, any method that fails to allocate expenses to reserved employee spots is not a “reasonable method” under the IRS notice.

Is there a safe harbor method for determining liability for the new excise tax?

Yes. The notice provides a four-part safe harbor method:

  • First, calculate costs related to any reserved employee parking spots.
  • Next, determine the use of the remaining parking spots. If the primary use of the parking facility is to provide parking to the general public, then the total parking expenses are exempt from the excise tax.
  • If they are not exempt, then the third step is to calculate costs related to reserved non-employee parking spots. These costs are exempt from the new tax.
  • Finally, if there are any spots remaining, make a reasonable determination of employee use of the remaining parking spots during the normal hours of the tax-exempt organization’s activities on a typical day. Determine the related expenses allocable to such employee spots.

The IRS notice makes it clear that if a tax-exempt organization’s gross unrelated business taxable income, including applicable expenses related to qualified transportation fringes, is less than $1,000, it does not need to file IRS Form 990-T and no UBIT is due.

Impact on the Tax-Exempt Sector

In a November 2018 study, the Urban Institute and Georgetown University surveyed over 700 independent sector members and partner organizations. The results of the research provide some eye-opening insights into the impact of the new excise tax on tax-exempt organizations, including:

  • Among the respondents to the survey, two-thirds provide qualified transportation fringes;
  • The largest group of organizations impacted by the new law are organizations with revenues of $10 million or more (38 percent), followed by organizations with revenues between $1 million and $4.99 million (28 percent).
  • Sixty-one percent of organizations reporting an estimated UBIT liability collectively owe over $2.1 million in transportation-related UBIT. The average cost per organization is just over $10,000.
  • Sixty percent of organizations reporting an estimated UBIT liability based their estimates on the value of parking lots or parking spaces.

Combined with the administrative costs of compliance, the study estimates that new tax on qualified transportation fringes will “divert an average of about $12,000 away from each nonprofit’s mission per year.”

Possible Repeal?

Congress’ stated justification for this new excise tax is that there should be parity between commercial enterprises and tax-exempt organizations. However, unless they are engaged in commercial activities, tax-exempt organizations —especially houses of worship — generally are not intended to be on par with commercial enterprises.

Further, unlike commercial corporate enterprises that saw their tax rate plummet to 21 percent due to the TCJA, tax-exempt organizations became subject to a host of new excise taxes under the TCJA, including a tax on executive compensation that will require houses of worship to make publicly available tax filings regarding compensation for certain highly paid executives.

A measure was introduced in the House of Representatives in December 2018 to repeal the new excise tax, but it did not pass in the Senate.

For the time being, organizations that would like to minimize their tax liability may want to consider limiting (or eliminating) reserved parking spaces for employees and following the safe harbor method described in the IRS notice to calculate tax due under the new law. For example, if an organization has no reserved spots for employees and over 50 percent of its parking spots are used primarily by the general public, then the safe harbor provides that no tax is due.


Sharon C. Lincoln is a partner at Casner & Edwards, LLP. She advises nonprofit entities on a wide range of issues related to their tax-exempt and corporate status. She also assists clients in matters directly involving the Internal Revenue Service, the Massachusetts Attorney General’s Office, and the Massachusetts Department of Revenue, including audits, appeals and ruling requests. She can be reached at Lincoln@casneredwards.com.

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