Tax on Fees
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TAX ON FEES

QUESTION: When a condo association charges visitors to park in the common area, how is income treated? Is it subject to tax? Does the money go into reserves?

ANSWER: Your question is a little unusual; very few associations charge visitors to park in the common areas.

Non-Dues Income. First, as a reminder, nonprofit associations are required to file tax returns and, if necessary, pay taxes. Failing to do so can result in a suspension of your association's corporate status. Parking fees would be considered non-member or non-function income, depending on whether your association is filing tax returns pursuant to IRC Sec 277 or 528. In either case the fees would be subject to income tax. That said, a portion of parking maintenance expenses could be allocated to non-membership (non-function) expenses and used to reduce the taxable income.

Operating Budget
. As income, the fees are included in the association's annual pro forma budget. The extra income is used to offset expenses in the budget, whether operational or reserves, which reduces membership dues needed for the year.

Recommendation: There are variables that could affect how parking fees would be treated for tax purposes. For example, are the fees paid by homeowners as part of their assessment or as rent, or by visitors as fees? Make sure your board talks to your association's tax preparer on how best to handle this issue.

ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.

Adams Stirling PLC