Provided by the Pennsylvania Automotive Association
Employers that provide parking to their employees may be adversely affected this tax season. A provision of the Tax Cuts and Jobs Act of 2017 (TCJA) disallows parking expenses incurred by employers that provide parking to their employees.
On the nonprofit side, organizations are required to increase their Unrelated Business Taxable Income (UBTI) for any expenses disallowed under this provision.
Every employer providing parking to their employees must consider this new expense disallowance.
Employee parking includes “parking provided to an employee on or near the business premises of the employer or on or near a location from which the employee commutes to work.” Employers will have to calculate an adjustment if either or both of the following conditions are met:
The employer has parking spots specifically reserved for employee use; and/or
The employer has a parking lot where the primary use is for employee parking.
If the employer has parking spots specifically reserved for employee use, there will be expenses disallowed regardless of the primary use of the lot. Examples of ways spots may be reserved for employee use include specific signs (i.e. Employee Use Only), a separate facility, or a portion of a facility segregated by a barrier or limited in terms of access.
Employers have until March 31, 2019 to un-reserve those spots, and it will apply retroactively to January 1, 2018.
Primary Use Test
Employers will need to apply the primary use test to determine if they are subject to this provision. If the primary use of the parking spots available is to provide parking to the general public, then the parking expenses associated with the parking facility are not subject to any disallowance. For the purpose of these rules, primary use means greater than 50 percent of the actual or estimated usage of the parking spots in the parking facility during normal business hours on a typical business day.
Within the primary use test, there are different layers of nuance related to which spots are considered available for the general public versus which spots are considered employee parking. For example, partners, 2-percent shareholders of S Corporations, sole proprietors, and independent contractors are not considered employees nor general public for purposes of the primary use calculation. Additionally, if spots are typically empty on an average business day and they are available to the public, they will count as general public parking.
If your place of business is not protected by the safe harbor, you will have to perform a complex calculation to determine the amount of qualified parking expenses disallowed. Total parking expenses include, but are not limited to, repairs, maintenance, utility costs, insurance, property taxes, interest, snow and ice removal costs, leaf removal, trash removal, cleaning and landscaping, parking lot attendant or security costs, and rent or lease payments associated with the parking facility. Because of the complexity of the calculation and the widespread application there has been an outcry to repeal this provision; however, until further guidance is issued, employers will have to face the complexity of its application.
It would be prudent to consult with your tax advisor to ensure that employee parking expenses incurred by employers are treated properly.