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IRS’ ‘church parking tax’ sparks questions and concerns

The 2017 tax overhaul could affect church employee parking benefits. Photo courtesy of Creative Commons

(RNS) — Like houses of worship across the U.S., Calvary Church in Santa Ana, Calif., typically hasn’t had to worry about filing a federal tax form.

But an obscure provision in the corporate tax overhaul approved by the Republican-controlled Congress at the end of 2017 may change that.

That provision imposes a 21 percent tax on employee parking benefits provided by thousands of congregations and nonprofits from coast to coast.

To pay that tax, some churches may have to file form 990-T paperwork with the IRS if they provide parking for employees.

“No one is ever excited to pay more taxes, especially on what used to be free parking for our employees, but we will comply with whatever the final guidance is on the new tax,” said Michael Welles, executive pastor of Calvary Church, a Southern California megachurch with 2,200 weekend attendees and a $5.5 million annual budget. “We would rather invest our funds into helping our community.”

Many pastors contacted by Religion News Service said they were unaware of the new tax.

Michael Welles. Photo courtesy of Calvary Church of Santa Ana

Others said they had reviewed the interim guidance on the tax — contained in a 24-page document issued by the Treasury Department this past December — and determined that the new provision won’t affect their congregation.

“This is not something which causes me concern,” said Patrick Ford, preaching minister for the West Islip Church of Christ on Long Island, N.Y. “Although we have significant parking-related costs for snow removal, we do not have any spaces reserved for staff.”

Even if the church did have dedicated parking for staffers, said Ford, it wouldn’t be enough to trigger the tax, based on the reporting threshold the IRS has established. But determining that requires a fair amount of computations.

The fact that houses of worship must make those calculations has upset leaders of national organizations — from the Jewish Federation of North America to the National Council of Nonprofits — that advocate for faith groups and charities.

Brian W. Walsh, a Washington, D.C.-based attorney and executive director of the Faith and Giving Coalition, said the tax sets a “terrible precedent.”

“When you tax the fringe benefits that churches, synagogues, mosques and other houses of worship offer their employees, you’re taking money directly away from their ability to operate,” he said.

A for-profit company, said Walsh, can pass the cost of the tax on to customers. A church or other house of worship can’t do that.

“They can’t raise prices,” he said. “They typically operate on very slim margins. So it can be a huge impact financially.”

Beyond the financial cost, Walsh said he objects to the tax on principle.

“It really runs counter to basic American values about how we understand the proper relationship between the church and the state,” he said. “So that alone is a reason why this provision should be repealed.”

Photo by Mike Petrucci/Creative Commons

According to The Wall Street Journalparking and transportation benefits were deductible for for-profit employers prior to the tax overhaul. When those deductions were eliminated, the rules for nonprofit employers were implemented to keep them from gaining an advantage in areas such as transportation costs and parking benefits.

A survey of more than 700 nonprofits found that the new tax on transportation fringe benefits will divert an average of about $12,000 per year from each charity’s mission, according to the Independent Sector.

The IRS’ complicated formula prompted the Southern Baptist Convention’s Ethics and Religious Liberty Commission to publish a recent primer titled “Does your church need to pay the ‘parking lot tax’?”

“For 350,000 churches and more than 1 million nonprofits, it’s going to create a tremendous headache — first of all to calculate how much does their parking benefit cost and then to figure out how much they owe,” said Galen Carey, vice president of government relations for the National Association of Evangelicals, based in Washington, D.C.

“In many cases, they’ll probably pay more to accountants to figure this out than the actual amount of the tax,” Carey told RNS.

A simple way for many churches to avoid the tax might be to remove any “reserved” parking signs for church employees such as the pastor, since the calculation considers how many parking spaces are reserved for employees versus the general public.

If churches take down those signs by March 31 of this year, the IRS said that they won’t be subject to the tax provisions that went into effect on Jan. 1, 2018.

Photo courtesy of Creative Commons

“So that’s a deadline fast approaching,” Carey said.

Churches subject to the tax were supposed to begin making quarterly payments last year, although the IRS guidance offered a temporary reprieve on penalties. The first form 990-T for those who must file it for calendar year 2018 is due by May 15 of this year.

More than 2,700 congregations and nonprofits signed a petition that the Evangelical Council for Financial Accountability sent to Congress last year, calling for a full repeal of the little-known provision in the Tax Cuts and Jobs Act of 2017.

So far, that repeal hasn’t happened.

“One of the confusing things about this new tax is that it is an income tax on expenses, not income,” said Dan Busby, president of the Evangelical Council for Financial Accountability, based in Virginia. “And it is a tax applied to tax-exempt organizations, including church, for providing parking to its employees that perform the tax-exempt functions of the organization.”

While some lawmakers have been willing to repeal the tax, others have demanded different changes in the corporate tax code as a condition for doing so, Busby said.

The federal government has projected that it will raise $1.7 billion from churches and charities over the next 10 years from the parking and commuter benefits tax, he added.

“Raising taxes to offset the repeal of this onerous provision is generally considered to be a nonstarter in the Senate,” Busby said. “ECFA continues to hope for repeal of the parking tax in the short term.”

Back at Calvary Church, Welles keeps watching updates from organizations such as the ECFA to see if the tax will be repealed.

Based on his interpretation of the latest guidance, the pastor said, he doesn’t believe his church will owe much. Calvary Church’s parking serves the general public, and the congregation has no reserved spaces for employees.

“We do realize that we don’t pay income taxes, and we have exemptions for property taxes, so our goal is to invest those dollars we would have paid in taxes into our community in volunteer hours or direct contributions,” Welles said. “We will continue to do that whether or not we have to pay parking taxes, but we will just have less available from which to bless others.”

About the author

Bobby Ross Jr.

18 Comments

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  • Church and ministry corporations should be fully subject to income tax, actually. They would then be forced to avoid the tax by not having any net (net) income—–which is what a not-for-profit is supposed to be about in the first place, These things are supposed to receive contributions, spend every penny on program services, charity and functional necessities leaving nothing left over that could ever be measured as “taxable income”. That is how an organization should be taxable, yet not ever pay any tax. But, because citizens are stupid, we have given these outfits a tax dodge which actually allows many of them to not necessarily do what they say they are.

    Giving these religious things a separate kind of “privileged status” is the dumbest public policy in America. Seriously, mouthy ministries are the reason your politics are a mess. You have a class of religious shouters who should have been in the same economic muzzle that every American working person or company actually lives in. Can you go to your workplace and spread falsehoods all day to the detriment of you and your neighbors? Why do you think it is a good idea to set ministries up that way, giving liars a pass as long as they say they are religious (liars).

  • Wow. Using the taxing power of the government to go after entities you don’t like just because they are religious…. sounds petty and punitive. I think there just may be a law against that…
    On the other hand, the government under Barack Hussein Obama used the power of the IRS to delay 501c-3 type applications for Tea Party organizations back in the day; and even investigated some of their members.
    But hey, it’s all good when big government beats up a puny citizen when they’re of the conservative or Christian persuasion.
    The ends justify the means; right?

  • “When you tax the fringe benefits that churches, synagogues, mosques and other houses of worship offer their employees, you’re taking money directly away from their ability to operate,” he said.

    True (and did we really need this tax?) but that also applies to secular non-profits.

  • If a religious organization meets the requirements for a non-profit how can they be denied that designation?

  • “Church and ministry corporations should be fully subject to income tax, actually.” would run straight into the First Amendment along with presenting the absurd situation of allowing deductions to give them money and then taxing it where you sent it.

  • As a practical matter, they can’t be denied under present or recent law. The point is that we have altogether too many “non–profits” doing political persuasion, including the churches, and there is not a reason in the world for them to be double-tax-exempt. People have the funny idea these days that the exercise of religion means that the contributions to religious ministries or “educational” issue lobbying shops should be tax deductible and the corporations themselves should not be subject to income tax if they retain net income. That’s a crazy concept actually. The First Amendment freedom to exercise religion has nothing to do with either money or income tax.

  • To exclude them from getting this status even if the government deems them qualified is discrimination. Your opinion that there are too many non-profits and some don’t play by the rules has no bearing.

    Thank you for the First Ammendment tutorial but it’s not relevant as the religious organizations are not asking for or getting special treatment.

  • The sensible idea of tax exemptions for actual charitable work, including that of churches, got morphed into tax exemptions for message machines which have been entirely questionable—-to the point they made listeners both misinformed and anti-social. Examples of this through the years are Kenneth Copeland, Jim Bakker (in both his first go-around and his second go-around), Pat Robertson, Richard Roberts (after Oral), Paula White, and both Joel Osteen and Rick Warren for Prosperity Gospel. This accidental morph has launched the megachurch movement, where husband/wife teams create their own religio-entertainment houses, become local gurus and lead many people off to never-never lands like Pied Pipers. The results are that the preponderance of the fans of these ministries now think God sent them Donald Trump. It has stood real religion on its head and made America very, very foolish for the 21st Century.

  • Like you are somehow a judge of who is or isn’t a Deep Thinker!

    Where did you get your certification?

  • A person who can touch their two index fingers together at the tips is competent to judge he is not a Deep Thinker.

  • I take issue with this comment: “A for-profit company, said Walsh, can pass the cost of the tax on to customers. A church or other house of worship can’t do that.”Non-profits, like churches, already pass on that cost to the community by not paying their share of taxes. The public in fact ends up subsidizing them, whether the public likes it or not, by permitting them not to contribute as they would if they were not tax-exempt. The theory that supposedly justifies this benefit is that the non-profits are benefitting the wider community in other ways. But whether this actually happens and how broadly should be reexamined.

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