Newly-Discovered Provision in GOP Tax Reform Law Slaps Tax on Church Parking
More than 1,500 organizations have signed a petition against a little-known provision in the Republican tax reform law that would levy a tax on parking and other fringe benefits provided to employees at tax-exempt organizations, like churches.
"The Tax Cuts and Jobs Act contains a troubling provision that applies federal income tax to parking benefits provided by tax-exempt organizations to their employees," a position statement from the Evangelical Council for Financial Accountability (ECFA) declares. "The idea that tax-exempt organizations should be taxed on parking they provide to their employees is highly inappropriate and must be stopped."
As of Friday, 1,557 organizations had signed the petition backing the statement.
"What we're talking about is an income tax on the church for providing parking to its employees — that's what we're talking about," ECFA Chairman of the Board Mike Batts told Politico. "It's absurd."
The newly added Section 512(a)(7) of the Internal Revenue Code effectively levies an income tax on tax-exempt organizations that provide parking to their employees. According to the ECFA position statement, this would apply to organizations that merely allow employees to park in a parking lot or garage that is part of the organization's facilities.
Some churches disagreed. "If we have a parking lot and there is no cost associated with that for the employees then this wouldn't apply to us, Ted Voltmer, executive pastor of Jacksonville Chapel in New Jersey, told the Christian Post. "If we were an urban church and employees had to pay for parking on the street or in a parking lot or something then that would probably apply but there is no cost to park for the employees. That's my interpretation."
Busby shot down this interpretation. "I'm not surprised you find that churches don't understand this issue," the ECFA president told the Christian Post. "It's only been in recent weeks that even tax professionals have dug this provision out of the law and we've begun to understand the implications of it, and so today I doubt if one percent of the churches in America understand that this provision was even put in the law."
Whether or not churches understand, Busby insisted that the law would apply to all churches that provide parking to their employees regardless of whether an employee is charged for parking. "If they are providing a place for their employees to park it's a universal problem," he said.
Beyond the direct tax — a hefty 21 percent — the new provision will create an administrative headache. "There's going to be huge headaches," Galen Carey, vice president of government relations at the National Association of Evangelicals, told Politico. "The cost of compliance, especially for churches that have small staffs or maybe volunteer accountants and bookkeepers — we don't need this kind of hassle."
To help defray the cost to the government of widespread tax cuts, the new tax law applied this new levy, part of an effort to slash tax breaks for worker's fringe benefits. Companies have long taken deductions for entertaining clients and providing meals for employees. Most of the trimmed deductions involve this kind of costs.
Republicans also wanted to treat non-profits equally, however. Since those organizations do not pay income taxes, lawmakers could not take away fringe-benefit deductions, so instead they created a 21 percent tax on the value of some non-profit employee benefits.
According to Politico's Brian Faler, the main benefits are transportation-related, such as free parking in a lot or garage and subway and bus passes. The tax also targets meals provided to workers and, in some circumstances, gym memberships.
Earlier this month, Rep. Michael Conaway (R-Texas) introduced a bill to kill the tax. But House Ways and Means Chairman Kevin Brady (R-Texas) has defended the provision.
"The Tax Cuts and Jobs Act included provisions that provided greater parity in the tax treatment of different types of employee compensation," Brady spokesman Rob Damschen told Politico. "These provisions apply to both employers that are taxable entities and those that are tax-exempt entities."
"Providing this greater parity helps to reduce the extent to which decisions about the elements included win the employee compensation package are driven by tax considerations," he added.
Many organizations, including the Boys & Girls Clubs of America, Goodwill Industries, the YMCA and the National Council of Nonprofits, are demanding the tax be delayed, arguing it is unfair to ask them to pay a levy they do not understand.
This tax may have been an effort to defray tax reform costs, but it seems particularly tough on churches and other small non-profits. "Working in the church world most of my career, by guess is that prior to this provision, there's probably only one or two percent of churches in America that file form 990-T," ECFA President Busby told the Christian Post.
"Small churches across America have to file a form 990-T that they've never even hear of," he explained. "And probably they're gonna need to secure professional advice and pay a professional to file the return, even though the money may not be a significant amount, it's just a ridiculous provision that was put in the law."
Whether or not the provision fulfills a good purpose, it threatens to undermine the large benefits Americans have already started accruing thanks to the tax bill. It also looks particularly bad for the Republican tax bill to levy a new duty on churches. Whatever Brady's defenses, Conaway may be spot on here — the measure likely needs to be repealed.