Nonprofit organizations and their constituents may soon be able to breathe a collective sigh of relief. On June 20th, the Ways and Means Committee of the United States House of Representatives passed a tax extenders package that includes a provision to repeal the Unrelated Business Income Tax (UBIT) on qualified transportation fringe (QTF) benefits paid by nonprofit organizations on behalf of employees. This includes qualified parking and transit passes, under § 132(f) of the Internal Revenue Code. Nonprofit stakeholders have been advocating for some time to have the long-awaited UBIT tax repeal approved to eliminate what many perceive to be an unnecessary burden for an industry already struggling with budget cuts and insufficient funding.
The UBIT tax, which is assessed on the cost of QTF benefits borne by nonprofits at a rate of 21 percent, has been the source of much consternation among nonprofit constituents since it was passed by Congress in December 2017 and enacted into law with an effective date of January 1, 2018. Although the intention of the tax was to put nonprofits on a more level playing field with for-profit entities, the result of the UBIT tax has been much confusion and frustration for nonprofit organizations who believe that the unprecedented tax unfairly saddles nonprofits with a significant tax burden yet limited guidance as to how to properly calculate and report applicable taxes. The UBIT tax has had an adverse impact on the operations and financial performance of many nonprofit organizations, who frequently have limited resources in terms of both financial and human capital.
The package to repeal the tax next requires a full vote by the House of Representatives before coming before the Senate for approval. If the tax is ultimately repealed, nonprofits can expect to be able to apply for a refund of any UBIT tax previously paid. Stay tuned for more information on this hot topic in the nonprofit industry as more developments unfold. Our nonprofit division is always here to answer your questions. Contact us today.