Policy Call-to-Action: NEW tax could impact thousands of Georgia’s Nonprofits
On December 22, 2017, President Trump signed Public Law No. 115-97, which includes two new provisions regarding Unrelated Business Income Tax (UBIT). These provisions impact charities that pay for employee parking and transit, which may never have incurred these taxes in the past, and change how nonprofits subject to “classic” UBIT need to report them. Together, these changes could result in thousands of dollars in new taxes for each nonprofit affected.
We ask our members to sign on to our letter by noon on September 21, which asks our Georgia Congressional Delegation to request a delay in implementation, retroactive to Jan. 1, 2018, while appropriate guidance is developed by the IRS, and to support proposed legislation to remove the harmful nonprofit tax.
The consequences of the two provisions are as follows:
While guidance is still pending, nonprofits paying for parking or transit for their employees will have to pay a 21% federal tax and a 5.75% state tax on this expense, or the employees themselves will need to recognize the payment as taxable income. As currently worded, even if you provide parking or transit through an employer-owned lot or service, you will have to calculate the value of this benefit and remit the related tax. This means that any “free-to-employee” parking space transit is taxable; further, because UBIT payments must be made quarterly, these taxes would have already been due in April and June of 2018.
If your nonprofit incurs UBIT on a trade or business, your tax burden has also changed. In the past, nonprofits could calculate combined losses against combined revenue for multiple businesses or activities subject to UBIT. Under the new provision, nonprofits must calculate their UBIT separately for each activity.
Unfortunately, there is no clear guidance from the IRS regarding how nonprofits should comply with these new provisions. As a result, nonprofits and religious organizations are struggling to understand the changes and update their record-keeping systems.
The Georgia Center for Nonprofits, the Georgia Independent College Association, the Georgia Hospital Association, and the Southeastern Council of Foundations are working together on a state and federal level to seek clarification and make the concerns of nonprofits known. We are asking you, our members, to take the following action in support:
The IRS requests comments regarding the application of UBIT on more than one unrelated trade or business. If this impacts your organization, we encourage you to provide your recommendations by December 3, 2018.
Please note that a collaborative coalition is coming together to address the application of these provisions. We will keep you informed of our progress on this matter over the coming weeks. Thank you for your engagement in this important policy work.