Congress is poised to reverse a decision it made in the sweeping 2017 tax rewrite that angered nonprofits across the nation offering transportation benefits to their employees.
The “parking tax,” as the provision was called, was bitterly opposed by a wide swath of nonprofit and advocacy organizations. The provision changed how the unrelated-business income tax was applied to nonprofits, resulting in a new 21 percent levy on parking and transportation benefits offered to nonprofit employees.
The provision reversing the levy is tucked in a larger spending package that must pass by the end of the week to keep government agencies operating. The House passed the bill today, and Senate action is expected to follow quickly.
“We came out of the woodwork on this issue,” said David Thompson, vice president for public policy at the National Council of Nonprofits. “There was a great deal of frustration and genuine anger from nonprofits.”
Independent Sector issued a statement calling the provision “a significant victory for the health of the whole nonprofit sector and the communities it serves.”
Also included in the legislation is a measure that would simplify the foundation excise tax.
Widespread Opposition
The parking issue gained steam on Capitol Hill because of the breadth of the organizations that were hit by the tax for the first time, said Steve Taylor, senior vice president and counsel for public policy at the United Way Worldwide. Nonprofits representing a large set of causes in every congressional district made their dissatisfaction known, he said, particularly churches and other faith-based organizations.
“They stepped into this discussion and really helped it reach a tipping point in Congress,” Taylor said.
Over 10 years, the cost of the repeal to the U.S. Treasury would be $1.9 billion, according to the Congressional Budget Office.
The repeal of the parking tax would be retroactive. Nonprofits could file amended forms with the Internal Revenue Service to get a refund. Thompson said that if the repeal of the parking tax passes, the Internal Revenue Service should streamline the refund application process to help ease the administrative burden on nonprofits, many of which have already expended staff time and paid outside consultants to compute their tax payments.
Taylor held out hope that more tax legislation next year might become a vehicle for nonprofits’ biggest priority: a universal charitable deduction. In the 2017 tax overhaul, the standard deduction was doubled, giving most taxpayers no financial incentive to make charitable gifts. A universal deduction would give donors the ability to write off gifts even if they use the standard deduction.
Changes for Foundations
The bill would also eliminate the two-tiered excise tax on foundation investments. Currently, foundations pay a tax of either 1 percent of their investment gains or 2 percent. Foundations pay the lower rate if their charitable distribution exceeds the average payout during the previous five years.
The legislation would set a single rate at 1.39 percent, at a cost to the Treasury of $6 million in lost revenue over a decade, according to the Joint Committee on Taxation.
The 1.39 percent rate was arrived at because it was almost revenue neutral over the long term, according to David Kass, vice president for government affairs at the Council on Foundations.
Getting rid of the two tax rates has been a longstanding priority for the council and other nonprofits. In November, the council and seven other organizations sent a letter to congressional leaders urging the single 1.39 percent rate. The dual rate system provides an incentive for foundations to keep grant levels low, even in times of emergency like natural disasters, out of fear that their five-year grant-making average will increase, making it more difficult to lock in the lower rate
Kass didn’t have definitive figures for how many nonprofit council members will pay a higher rate if the legislation becomes law. But he said a lot of foundation leaders are in favor of a single tax rate, even if they end up paying a bit more.
“A lot of people are paying accountants to monitor this stuff,” he said. “It’s really a hassle, and they’d rather have the simplification.”
Alex Daniels covers foundations, donor-advised funds, fundraising research, and tax issues for the Chronicle. He recently wrote about a $100 million grant from the Lego Foundation for play-based educational programs; the distribution of $1 billion to four research institutions; and grant making that gives grantees more power in decision-making. Email Alex or follow him on Twitter.
