Background. As part of the Tax Cuts and Jobs Act of 2017, the cost of providing certain transportation fringe benefits, including employer-provided parking, to employees of tax-exempt organizations became subject to federal income tax as unrelated business taxable income (“UBTI”). This controversial federal tax, commonly referred to as the “parking tax”, become effective on January 1, 2018. The “parking tax” was unprecedented and widely criticized for treating expenses associated with the provision of employee fringe benefits as UBTI to tax-exempt organizations.
Connecticut. Similar to federal tax law, Connecticut taxes the UBTI of tax-exempt organizations under Connecticut’s “Unrelated Business Income of Nonprofit Corporations Act.” Connecticut’s “unrelated business income” is based upon federal UBTI with certain modifications. As a result, during 2018 and 2019 Connecticut tax-exempt organizations have been subject to a federal and Connecticut parking tax.
Repeal. On December 20, 2019, the federal Taxpayer Certainty and Disaster Tax Relief Act of 2019 (the “Act“) was signed into law. The Act directly and retroactively repealed the federal parking tax. Since Connecticut unrelated business income is based on federal UBTI, it would appear that the retroactive repeal of the federal parking tax by Congress should also result in the retroactive repeal of the parking tax for Connecticut tax-exempt organizations, although this is not yet entirely clear.
Great News. Connecticut tax-exempt organizations no longer have to pay this tax on a federal or Connecticut basis. In addition, Connecticut tax-exempt organizations that have paid the parking tax for 2018 and/or 2019 at the federal level, should seek federal tax refunds, as soon as possible, but no later than the applicable statute of limitations. Such organizations should also seek to obtain Connecticut tax refunds, but as mentioned above, it is unclear what position the Connecticut Department of Revenue Services will take with respect to the retroactivity of the repeal.