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Is nonprofit’s parking lot revenue subject to UBIT?

Your Legal Questions Answered

Is nonprofit’s parking lot revenue subject to UBIT?

Our nonprofit corporation has a parking lot. We signed a contract with a parking marketing agency, which manages collections of parking fees. We don't do anything else. The agency gives us the net of the parking fees after taking their marketing fee. Will the net fee be subject to Unrelated Business Income Tax or is this type of revenue exempted from income tax as a nonprofit organization?

You haven’t given me enough information to be sure, but it looks as though you are likely to have a problem here.

UBIT is imposed on income from a trade or business that is regularly carried on and is unrelated to the purpose for which your organization is exempt.  There are some general exclusions from UBIT for “passive” income but it is not clear whether any of them would apply in your case. 

Normally, the rental of real estate which is not mortgaged or otherwise debt financed is considered a “modification” of the UBIT rules and not subject to tax if the owner does not provide significant personal services.  But there is a long history of excluding parking lots from the definition of rental real estate because the right to park is normally only a license to park for a short period of time and is not a lease at all.  Parking lot revenues are normally subject to tax, unless they are eligible for exemption under some other rule.  They could be exempt if the parking is for the “convenience” of the nonprofit’s users, such as fees for the parking garage next to a museum which is open only to visitors and staff of the museum.  You haven’t suggested that this revenue is from spaces provided for the convenience of your constituency.  If you leased the entire lot to the agency and collected either a fixed rent per month or even a percentage rent based on total revenue (but not profit), you would probably have a better chance to avoid UBIT (assuming it is not debt financed property).

There is also an exception for royalty income, where a nonprofit licenses the use of its name, logo or other type of property in return for a royalty paid periodically as a fixed fee or based on the gross amount (not the net amount) the lessee generates from use of the property.  The IRS has regularly challenged the claim of royalty, however, when the nonprofit is actively engaged in promotion of the business.  There are a number of cases in which income from credit card companies has become taxable when the nonprofit is actively engaged in the promotion of the card, provides special processing of the names of eligible applicants, or does anything much more than sit back and collect the checks.  Your question suggests the marketing agency merely obtains tenants and collects the parking fees (which sound like monthly or other long term fees and not hourly turnover fees) and remits the net to you.  Although you say you don’t do anything else, who maintains the lot, provides security, and removes the snow or fallen tree limbs after the storms?  Who is actually managing the lot?  If you are, the royalty argument is not likely to prevail.

You should consult with an attorney who understands UBIT who can review your operation in depth to either assure you that you are okay or help you restructure the arrangement so that you can be okay.  It is not the end of the world to pay UBIT, but it is a worthwhile project to try to avoid it.

For more on the vicissitudes of UBIT, join us for a webinar on the topic - July 17.

Tuesday, July 9, 2024


As I understand it, seems like nonprofit could simply sign a lease of their parking lot to the parking management company for a fixed monthly fee, enjoy the monthly income, and not have any UBIT concerns. So the parking managers only give licenses to park to the public, but the nonprofit has a solid, typical lease of the land to the parking manager. Just make sure the lease terms provide that the nonprofit and its visitors either get free passes or get any paid parking rebated to them.

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