New Parking Expense Rules for Taxable Employers and Tax-Exempt Organizations

by Williams Mullen
Contact

Williams Mullen

The Internal Revenue Service issued guidance last December to help employers that own or lease employer parking facilities or reimburse employees for parking expenses to navigate the recent change to the parking expense deductions and unrelated business income rules in the Internal Revenue Code (the “Code”).

In December of 2017, the Tax Cuts and Jobs Act, (the “Act”) disallowed a corporate income tax deduction for expenses incurred with respect to qualified transportation fringe (“QTF”) expenses provided by employers to their employees.[1] Such expenses include the cost of parking lots, parking spaces, and garages. In addition, the Act also required tax-exempt employers to increase their unrelated business taxable income (“UBTI”) by the amount of QTF expense that would otherwise be disallowed as a deduction.[2]

The law changes became effective for the 2018 taxable year, and the IRS issued Notice 2018-99 late last year to assist both taxable and tax-exempt employers in determining how the change will affect their parking expense deductions and UBTI, respectively. The new rules apply to (i) all employers that own or lease employee parking facilities, e.g., parking lots, parking spaces, and garages, that their employees use; and (ii) employers that reimburse employees for parking expenses paid to a third-party owned parking facility.

The Department of Treasury is expected to issue proposed regulations, which will include guidance on how to determine the amount of the QTF parking expense. In the interim, taxable and tax-exempt employers may rely upon Notice 2018-99. The Notice provides that employers may use any reasonable method, or the safe harbor provided in the notice, to determine the amount of the QTF parking expense.

QTF Benefit Exclusion from Income

A fringe benefit is a form of compensation for the performance of services. Any fringe benefit provided by an employer to an employee is taxable income to the employee unless the Code provides an income tax exclusion. The value of a QTF benefit is generally excluded from an employee’s taxable income under Code section 132(f). QTF benefits include employer payment or reimbursement for the use of commuter vehicles, transit passes, and qualified parking on or near the employer’s business premises. Previously, employers could deduct all expenses that stemmed from QTF benefits made available to employees. Under the new Code provisions, the employer can still deduct expenses related to the portion of QTF benefits in excess of the exclusion amount, i.e., $265 per month for each employee receiving QTF benefits, which are taxable to employees. The expenses related to employer-provided parking that are excluded from an employee’s taxable income as a QTF benefit are no longer tax deductible by the employer.

Tax-Exempt Employers

For tax-exempt employers the expenses related to employer-provided parking that are excluded from an employee’s taxable income as a QTF benefit must be added to the organization’s unrelated business income.

Form 990-T Requirements

A tax-exempt employer is required to file IRS Form 990-T, Exempt Organization Business Income Tax Return, to report its aggregate UBTI generated if the amount is greater than $1,000. In general, if the UBTI amount is less than $1,000, a tax-exempt organization will not be required to file a Form 990-T.

Netting of Unrelated Business Income from Employer-Provided Parking

As a result of the Act, Congress eliminated the ability of tax-exempt organizations to offset income from one unrelated business activity with losses from another unrelated business activity if the activities both stemmed from separate trades or businesses. The UBTI originating from employer-provided parking is not considered to be a separate trade or business. Notice 2018-99 provides that a tax-exempt organization may offset UBTI incurred from employer-provided parking with a loss from another unrelated business income activity. The notice, however, provides no guidance if there is more than one source of UBTI.

Reasonable Methods to Determine QTF Expenses

To determine the amount of the QTF parking expense, Notice 2018-99 divides employer-provided parking into two categories: (i) third-party owned parking facility that the employer pays on behalf of its employees either directly or indirectly through a compensation reduction agreement; and (ii) Employer-owned or leased parking facilities available for employees.

  1. Third-Party Owned Parking Facility

Notice 2018-99 provides that the total amount paid to the third party minus any parking-related amounts included in employee income, will be the amount that is nondeductible for taxable entities (added to UBTI for tax-exempt entities).

If the amount paid for employee parking exceeds the Code section 132(f)(2) monthly limitation per employee, then it becomes taxable to the employee. For 2019, the permissible exclusion amount is $265 per month. Thus, if the employer pays to a third-party less than or equal to $265 per month per employee, such amount will be nondeductible or included in UBTI. Any amounts paid over $265 per month per employee must be included in the employee’s income, and the employer will be allowed to take a corresponding deduction.

  1. Employer-Owned or Leased Parking Area

“Any reasonable method” based upon the “total parking expenses” of the employer may be used to calculate the parking costs provided to employees when the employer owns or leases the parking area. Notice 2018-99 provides a four-step safe-harbor method that is deemed to be reasonable.

Generally, the “total cost of parking” includes, but is not limited to: rent or lease payments, repairs and maintenance costs, insurance costs, utility costs, property taxes, interest, snow and leaf removal, cleaning, landscape costs, security, and parking lot attendant expenses. Depreciation and additional expenses paid for items not located in the parking area are not considered to be included in the cost of parking. Capital expenses and improvements are not included in the “total cost of parking” for the employer.

Four-Step Safe Harbor Method To Calculate QTF

Employers should first calculate the “total parking expenses” (not the fair market value of parking) and the total number of parking spots it provides.

The following steps allow the employer to classify each parking spot, and its allocated parking expense, as tax deductible or non-deductible (or included in UBTI).

  1. Step One: Calculate Reserved Spots for Employees

Employers must determine the total reserved spots for employees in comparison to the total parking spots and calculate the percentage of employee spots that are reserved. There are numerous ways in which parking spots are reserved for employees. Examples include limited access parking areas or signage depicting that parking is only for employees.

To calculate the cost of the reserved employee spots, the percentage of employee spots must be multiplied by the total cost of parking.

If a parking spot is reserved for an employee, then the cost allocated to such spot is not a tax deductible expense (or it will be includable in UBTI). Employers have until March 31, 2019, to decrease or eliminate reserved employee spots, and the change will be retroactive to January 1, 2018.

Example: Tax-Exempt Organization K is a hospital and owns a surface parking lot adjacent to its building. K incurs $10,000 of total parking expenses. K’s parking lot has 500 spots that are used by its patients, visitors, and employees. K has 50 spots reserved for management and has approximately 100 employees parking in the lot in non-reserved spots during the normal operating hours of the hospital. Because K has 50 reserved spots for employees, $1,000 ((50/500) x $10,000 = $1,000) is the amount of total parking expenses that is nondeductible for reserved employee spots. K must increase its UBTI by $1,000, the amount of the deduction disallowed.[3]

  1. Step Two: Determine Primary Use of Remaining Spots aka “The Primary Use Test”

Employers must determine the primary use of the parking spots that are not reserved spots for employees, owners, or independent contractors of the organization. Usage of the spots is determined during normal business hours on a normal business day.

If greater than 50% of the remaining spots are provided to or reserved for the general public, such as visitors, customers, clients, patients, or students, then 100% of expenses allocated to these parking spots is a deductible expense (and not included in UBTI).

If less than 50% of the remaining spots are provided to or reserved for the general public, then the employer is required to calculate the actual employee use of the spots using a “reasonable method” in comparison to the total remaining parking spots and to calculate the percentage of parking spots used by employees.

If a parking spot is used by an employee, then the cost allocated to such spot is not a tax deductible expense (or will be includable in UBTI).

Example: Tax-Exempt Organization J, a religious organization that operates a church and a school, owns a surface parking lot adjacent to its buildings. J incurs $10,000 of total parking expenses. J’s parking lot has 500 spots that are used by its congregants, students, visitors, and employees, and 10 spots that are reserved for certain employees. During the normal hours of J’s activities on weekdays, J usually has approximately 440 non-reserved parking spots that are empty. During the normal hours of J’s activities on weekends, J usually has approximately 400 congregants parking in the lot in non-reserved spots and 20 employees parking in the lot in non-reserved spots.

Because usage of the parking spots varies significantly between days of the week, J uses a reasonable method to determine that the primary use of the remainder of J’s parking lot is to provide parking to the general public because 90% (440/490 = 90%) of the spots are used by the public during weekdays and 95% (470/490) of the spots are used by the public on weekends. The empty, non-reserved parking spots are treated as provided to the general public. Thus, expenses allocable to these spots are excepted from the disallowance under the primary use test, and only $200 of the expenses for the provision of the QTF will result in an increase to UBTI.[4]

  1. Step Three: Calculate Allowance for Reserved Nonemployee Spots

Reserved nonemployee spots are fully deductible. Employers must determine the total reserved nonemployee spots in comparison to the total parking spots and calculate the percentage of spots that are reserved for nonemployees. To calculate the cost of the reserved nonemployee spots, the percentage shall be multiplied times the total cost of parking.

  1. Step Four: Determine Use for Remaining Spots and Allocate Expenses

If any parking expenses remain that are not otherwise categorized as deductible or nondeductible, then the employer must reasonably determine employee use of parking spots during normal business hours. An employer may specifically identify spots actually used by employees or make a reasonable estimation of employee usage. Employee usage may be based on the number of employees, number of parking spots, hours of use, or other reasonable considerations.

[1] Code section 274(a)(4).
[2] Code section 512(a)(7).
[3] Notice 2018-99, Example 10
[4] Notice 2018-99, Example 9

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Williams Mullen | Attorney Advertising

Written by:

Williams Mullen
Contact
more
less

Williams Mullen on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.