The Tax Cuts and Jobs Act, which was passed in late 2017, included a provision which eliminated the qualified transportation fringe benefits deduction for employers. In December 2018, the IRS issued new guidance on this provision that clarified how the elimination of the qualified transportation fringe benefits will affect tax-exempt organizations.
In summary, all tax-exempt organizations that provide parking to employees are required to evaluate their parking benefits under the new guidance, and potentially pay tax on the parking benefit provided to employees. The result of this is that tax-exempt organizations may be paying a tax on an expense incurred by the organization. The cost of parking and the related tax will be reported on IRS Form 990-T.
When determining the parking benefit provided to employees, the guidance is clear that the cost of parking is to be used, not the fair market value. This is a critical element to this guidance, as the benefit of parking to employees on a campus would likely have little fair market value. However, the cost of maintaining a parking lot can be quite high, as it includes snow plowing and removal, salt and sand, landscaping, utility costs, insurance, security, and rent or lease payments. It is notable that depreciation expense is specifically excluded from this analysis.
Unfortunately, the effective date for this provision was January 1, 2018. Therefore, colleges and universities need to include the parking tax on their fiscal 2018 IRS Form 990-T tax returns, even though the implementation guidance was not issued until December 2018. For those colleges and universities that have already filed the fiscal 2018 tax returns, filings will need to be amended to the extent that it is determined that parking tax is owed. The calculation of parking tax is very complicated and time consuming, and it is entirely possible that many colleges and universities may go through the exercise only to determine that very little tax is actually owed, or perhaps no tax at all. The analysis must be completed to comply with IRS guidelines, however. We recommend that you contact your professional accounting advisors to assist with implementation to ensure full compliance with the law.