Nonprofits Applaud Progress on Repealing Tax on Nonprofit Transportation Benefits

Nonprofits Applaud Progress on Repealing Tax on Nonprofit Transportation Benefits

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In response to the release of Ways and Means Committee Chairman Neal’s tax bill, Tim Delaney, President and CEO of the National Council of Nonprofits, made the following statement:

“After 18 months and tens of millions of dollars diverted from nonprofit missions in communities across the country, we are grateful to see that progress is being made on repealing this harmful tax on tax-exempt organizations. This illogical 21-percent income tax on the expenses of nonprofits, including houses of worship, for employee parking and transit passes is now officially on the chopping block. The network of the National Council of Nonprofits is thankful for the vocal recognition, in both the House and the Senate, of the urgent need to repeal this harmful tax before another payment is due and before it denies even more individuals and communities vital services that charitable organizations could otherwise provide. In a rare moment of bipartisanship, we have heard from both parties how nonsensical and damaging this tax is. We thank Chairman Neal for his leadership and urge members of the House Ways and Means Committee, and then the House and Senate, to take swift action in repealing this unjustifiable law.”

Background

New Internal Revenue Code Section 512(a)(7) imposes an unrelated business income tax on nonprofits for their expenses providing transportation benefits to their employees. Because of this provision, nonprofit employers, including houses of worship, now must pay a 21-percent tax on the amounts they spend providing transit passes to their employees. The tax also applies to the costs that charitable nonprofits, houses of worship, and other nonprofit organizations pay to provide parking for their employees. Further, these organizations must pay this new tax not only on the amount of direct expenditures they make, but also on the amount that their employees ask to have withheld from their own paychecks on a pre-tax basis, that is, voluntary salary reduction agreements made pursuant to federal law. Read more:

  • Submitted Testimony of the National Council of Nonprofits, for the hearing, “Ending the TCJA Tax on Houses of Worship, Charities, and Nonprofits,” before the House Ways and Means Subcommittee on Oversight, originally scheduled for June 19, 2019. (Hearing cancelled.)
  • Nonprofit Tax Day Is Upon Us, David L. Thompson, National Council of Nonprofits blog, May 6, 2019. (“The phrase ‘nonprofit tax day’ may sound like an oxymoron or punchline of a joke, but it’s real. Tax-exempt organizations must pay significant new taxes to the U.S. Treasury (and to some states) by May 15 if they operate on a calendar-year basis.”)
  • Letter to Chairmen Neal and Grassley, signed by more than 600 Organizations, April 9, 2019.

Strong Bipartisan Support in Congress for Repeal

Section 512(a)(7) is terrible tax policy, and there is no known support in the House or the Senate for retaining it. Late last year, the House voted to repeal Section 512(a)(7) as Section 505 of the year-end tax bill. Three current bills in the House would repeal the transportation tax on nonprofit organizations: HR 1223 sponsored by House Majority Whip Clyburn (D-SC), HR 513 sponsored by Representative Conaway (R-TX), and HR 1545 sponsored by Representatives Walker (R-NC) and Suozzi (D-NY). In the Senate. Senators Lankford (R-OK) and Coons (D-DE) introduced the LIFT for Charities Act (S.632) and Senators Cruz (R-TX) and Shaheen (D-NH) introduced the Preserve Charities and Houses of Worship Act (S.1282), each of which would repeal the tax on nonprofit transportation benefits.

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