04/12/2019

Coalition Urges Fairness in Nonprofit Taxes

The UBIT Coalition is standing up to unfair taxes on this sector

The Unrelated Business Income Tax (UBIT) Coalition, of which OSAE is a member and is led by the American Society of Association Executives (ASAE), will send a letter that urges Congress to repeal unfair taxes on certain employee benefits provided by associations and other tax-exempt organizations. With over 600 signatories from all 50 states and the District of Columbia, the letter will help build awareness of the harmful impact UBIT has on tax-exempt organizations, including nonprofits, associations and places of worship.

26 USC Section 512(a)(7), established by the Tax Cuts and Jobs Act (TCJA), requires tax-exempt organizations to pay a 21-percent excise tax on certain fringe benefits (i.e., parking and transit) offered to employees. Until passage of the tax law, UBIT was applied only to income sources. For the first time, however, TCJA applied UBIT to an expense. The new UBIT diverts mission-oriented funds that would otherwise support communities in need.

Additionally, several cities and towns require tax-exempts of a certain size to provide transportation fringe benefits to employees. This means many organizations are subject to the tax simply for complying to local mandates. Several states also couple their laws to federal law, thus exposing churches and charities to additional tax liability.

The administrative burden is also significant for tax-exempts, many of which must file 990-T forms for the first time. According to a study commissioned by Independent Sector, the average UBIT for nonprofits will divert $12,000 from programs and services. And, for 156 organizations reporting UBIT for the first time, estimated administrative expenses to file UBIT will exceed $200,000. ^[1]

U.S. Congressmen Mark Walker (R-NC) and Tom Suozzi (D-NY) introduced legislation last February to repeal the UBIT on parking and transit benefits. The bill accompanies legislation introduced in the Senate by Senators James Lankford (R-OK) and Chris Coons (D-DE). Separate legislation to repeal UBIT was also introduced by Senator Sherrod Brown (D-OH) and Congressman Jim Clyburn (D-SC) and  Congressman Mike Conaway (R-TX).

This article was provided to OSAE by the Power of A and ASAE's Inroads.

^{[1] How the TCJA’s New UBIT Provisions Will Affect Nonprofits: A Tax on Transportation Fringe Benefits and Separate Reporting of Unrelated Business Income Streams, Urban Institute, January 2019. Available at https://independentsector.org/resource/research-on-ubit-provisions-in-2017-tax-cuts-and-jobs-act/.}