Regulatory Updates

UBIT Transportation Benefits Tax Repealed

Dec 23, 2019, 1:51 PM

(from Associations NOW, the NonProfit Times and Venable) Last Thursday, Congress repealed a section of the 2017 tax law that required tax-exempt organizations to pay a 21% unrelated business income tax (UBIT) on employee benefits, such as parking and transportation. The change was part of a larger bipartisan year-end spending and tax package. Trump signed the bill on Friday, December 20, 2019.

The repeal of the fringe benefits tax will be retroactive for taxes that nonprofits have paid or accrued after December 31, 2017. This not only means nonprofits will no longer have to pay the tax, but opens the door for the many nonprofits that have already paid the tax in 2018 and 2019 to seek a refund of the taxes paid. It seems likely that the IRS will release guidance regarding refund claims in the coming year, said attorneys at Venable. What’s not retroactive is the expense that organizations might have incurred to calculate the tax, according to David Thompson, vice president of public policy for the National Council of Nonprofits. Changes to the transportation tax and associated administrative cost will likely impact nonprofits by an average of about $12,000, according to Independent Sector.

Also included among the provisions in the spending package is a full repeal of the “Cadillac tax” on high-cost employer-provided health plans. Enacted as part of the Affordable Care Act, the Cadillac tax would have imposed a 40% excise tax on employer-provided health plans that exceed $11,200 for an individual and $30,100 for a family. The tax was set to take effect in 2022.

Over the past two years, NBOA participated in the UBIT coalition, a group of more than 115 nonprofit organizations that advocated for the repeal. Alongside NAIS, NBOA sent letters to Congress and encouraged member schools to reach out to their U.S. Representatives. The Coalition was organized by the American Society of Association Executives (ASAE). “The community not only mobilized quickly after this misguided tax was passed as part of the 2017 tax law, but sustained a years-long advocacy and grassroots campaign to educate lawmakers about how this tax unfairly expanded the UBIT statute to tax basic parking and transit benefits that nonprofits provide to their employees,” said Susan Robertson, ASAE’s interim president and CEO.