Your pastor’s reserved church parking space is now subject to a federal tax, and Congress is trying to get rid of it.
Repeal is moving ahead on Capitol Hill, and though it faces still-formidable hurdles, lawmakers are taking important steps to get rid of what’s called the church parking tax.
The tax-writing House Ways and Means Committee approved repeal in June. Key senators are sympathetic to repeal. There’s strong support for repeal from both Republicans and Democrats.
The 21 percent tax has been law for a year and a half after quietly slipping into the 2017 tax cut bill as a way to help pay for the tax cut.
Religious institutions and nonprofits usually pay no income tax since they have no taxable income. The outcry over the church parking tax from the religious and nonprofit community, as well as from both Republicans and Democrats, has been relentless.
Not only is it costing churches and nonprofits money that might ordinarily go to charitable or religious causes, there’s a lot of concern that the tax could set a troubling precedent.
“I worry there are other things they could tax,” said the Rev. Joseph Darby, senior pastor at the Nichols Chapel AME Church in Charleston.
House Majority Whip Jim Clyburn, a South Carolina Democrat, has led the effort to repeal the tax.
“Many nonprofits rely exclusively on charitable donations,” he wrote in an op-ed in the Charleston Post and Courier in February. “Any available dollar should be spent in service of their missions, not taken by the Internal Revenue Service because of Congress’ shortsightedness.”
Church officials were stunned when the tax wound up in the tax cut bill.
“This was a surprise to everyone,” recalled Galen Carey, vice president of government relations at the National Association of Evangelicals, which represents 40 denominations and 45,000 congregations.
Some of the larger denominations included in South Carolina are the Assemblies of God, Presbyterian Church in America, Church of God, Church of the Nazarene, Foursquare, Wesleyan, Christian & Missionary Alliance, and International Pentecostal Holiness Church.
“Just as our country’s history is steeped in volunteerism and philanthropy to aid the less fortunate, so too is our tax code, giving tax-exempt status to organizations working to improve our communities,” Clyburn said. “In enacting their tax bill, Republicans turned their backs on this important principle.”
The church tax came about because it not only raised money, but seemed to fit one of the tax cut’s objectives: to reduce reliance on smaller tax breaks while simplifying how businesses and individuals are taxed. The tax is supposed to raise $1.8 billion over 10 years.
One rationale for the tax was that Republicans in 2017 moved to curb the tax break that businesses got for providing fringe benefits to employees, such as parking. So it seemed fair to do the same for nonprofits.
There was little support for the nonprofit idea from the beginning. It got included, recalled Senate Finance Committee Chairman Chuck Grassley, R-Iowa, as tax writers were “scraping together a million here and a billion there.”
But there is some understanding about why the tax was imposed. Repeal would mean “an inequity between nonprofits and for-profit business,” said Kyle Pomerleau, chief economist at the nonpartisan Tax Foundation.
The Treasury Department has tried to deal with the concerns. In December 2018, the department issued detailed guidance on how churches could determine tax liability.
“Treasury is sensitive to the concerns of the tax exempt community, and hopes this guidance can significantly limit the impact on nonprofit groups,” Treasury Secretary Steven Mnuchin said.
Many church officials found the guidance confusing. And they remained concerned about an uncertain future, noting Treasury guidance can always change as long as the tax was still law.
“A lot of churches have volunteers taking contributions and counting them. They don’t have CPAs,” Carey of the evangelicals association said.
The National Council of Nonprofits surveyed members in June and found plenty of anecdotal evidence the tax is “a big fat mess,” as David Thompson, the group’s vice president of public policy, put it recently.
The Mississippi Alliance of Nonprofits and Philanthropy, for instance, reported that it cost $400 in accountant fees to determine a tax liability of only $17.
The promising news for Clyburn and his supporters is that repeal is now part of a legislative package approved by the House Ways and Means Committee in June. Republicans have signaled support for reepeal, and the package could come up for a vote on the House floor this fall.
Key senators are also sympathetic. Asked if he favored repeal, Grassley quickly told McClatchy, “Yeah.”
But because the repeal is part of a bigger tax bill, it is tied to resolving other issues with the legislation and there’s little agreement on what else should be in the package.
“I’m willing to work with Republicans to address the major errors and regrets contained in their tax law, including the tax they imposed on nonprofit parking benefits, if they are willing to work on border issues,” said Sen. Ron Wyden of Oregon, the top Finance Committee Democrat.
And Sen. Pat Roberts, a Kansas Republican and senior Finance Committee member, said progress would depend on “what else is going on.”
The nonprofit council’s Thompson sums it up this way: “We’re being held hostage by partisan issues on both sides.”