Reading Between the Lines: Transportation Benefits After Tax Reform
Editor’s Note: Sandra Swirski and her colleagues at the Washington, D.C., advocacy firm Urban Swirski & Associates offer regular analysis of public policy developments of interest to Southern grantmakers – reading between the lines so you don’t have to.
Following the passage of the 2017 tax reform bill, nonprofits are re-evaluating how they determine their unrelated business taxable income (UBTI) tax, specifically in regard to transportation benefits. This week, we’ll dive into what the new transportation benefits provision could mean for your organization and your grantees, as well as what’s being done in Washington to help provide guidance.
Transportation Benefits Are Now Taxable
The 2017 tax reform bill made substantial changes to how transportation benefits are treated. Congress wanted all parking and transportation costs to be paid with after-tax dollars, which was fairly easy to apply to for-profit companies and their employees. For nonprofits, however, Congress thought that by simply applying UBIT of 21 percent on any employer-provided transportation benefit would effectively push employers to stop offering the benefit, and employees would just pay for transportation with after tax dollars.
Likely unforeseen was that this UBIT assessment will have a significant impact on charitable organizations’ bottom lines. This will increase the UBIT owed by many organizations and will lead many nonprofits to pay UBIT for the first time.
Also likely unforeseen is that many nonprofits will be unable to escape this UBIT assessment. In certain localities such as Washington, D.C., New York City, and the Bay Area, larger organizations – including nonprofits – are mandated to provide transportation benefits to employees. Thus, nonprofits and foundations in these areas will have no choice but to pay UBIT on benefits they are required to provide.
As currently written, nonprofits will have to determine the value of any provided transportation benefit. This is especially problematic for organizations in rural or suburban areas that do not have a clearly defined cost for parking, putting the obligation on the nonprofits to determine the market value of the provided parking.
Waiting for Guidance
The Treasury Department has been working on guidance for several provisions of the tax reform legislation, but as of now, it is unclear when there will be more details on how to calculate UBIT on transportation benefits. This is especially problematic as organizations with UBIT liabilities over $500 must file and pay quarterly, and the April 15th deadline for the first filing has come and gone.
Whether Congress contemplated these issues is unclear, but as of now there is no runway for a legislative fix on this issue. Democrats are in no mood to work with Republicans to fix the partisan tax bill that passed without a single Democratic vote, and they plan to highlight complications and errors such as this ahead of the November midterm elections.
So where does that leave us? We’re continuing to keep an eye on the issue in Washington, but in the meantime, it’d be advisable for nonprofits to consult legal counsel on the issue. Stay tuned.
Sandra Swirski is a partner at Urban Swirski & Associates; Sara Barba is assistant vice president at the firm.