A free parking spot on campus is a nice perk for community college employees, but new IRS guidance on such benefits may prompt some colleges to pump the breaks on offering it.
The 24-page guidance issued in December focuses on tax-exempt organizations providing qualified transportation fringe benefits, including parking, for their employees. Specifically, on whether tax exempt organizations, such as colleges and universities, must treat these expenses for parking benefits as unrelated business taxable income.
Changes to the rules on parking and mass transit benefits were part of the Tax Cuts and Jobs Act that went into effect January 1, 2018. But, the IRS just released interim guidance for nonprofit, tax-exempt organizations on how to calculate the taxes — called the unrelated business income tax (UBIT) — on qualified parking benefits they provide to employees. As tax-exempt organizations, this is an important development for colleges and universities.
Although these fringe benefits include both parking and mass transit, this IRS interim guidance does not address mass transit issues.
Ownership of parking spaces matters
If a nonprofit, such as a community college, does not own the parking spaces but pays a third party for the employee parking, then the UBIT is calculated on how much the organization pays for those spots.
It’s more complicated if the college owns the parking lot or garage. In that case, colleges and other nonprofits have two ways to tally parking expenses subject to UBIT. The first option is to use “any reasonable method” to determine the cost of providing parking to staff, faculty, administrators and other employees.
The second is to use the “safe harbor method,” which is based on several steps to determine expenses related to employee parking. These include determining the number of reserved employee spots as a percentage of total parking spaces and how many spots are reserved for customers (such as visitors to the college) and non-employees. Then the college would calculate employee use of the spots during business hours.
Advocating for change
AACC, as well as other higher education associations and numerous other nonprofit organizations, continues to advocate for an elimination of this new tax rule. Rep. Kevin Brady (R-Texas), chairman of the Ways and Means Committee during the 115th Congress, introduced a tax package in late 2018 that, among other provisions, would repeal the parking tax provision. With the convening of a new Congress, Brady introduced an 88-page discussion draft to make technical corrections to the enacted tax law (including a repeal of the parking tax).
The new Ways and Means Committee chair, Rep. Richard Neal (D-Massachusetts), is expected to convene a hearing this month to consider amendments to the tax code. It’s now up to the 116th Congress to make the changes.