Most ski resort owners and operators have long realized that one of their greatest assets is employees, especially considering the amount of money and time invested in hiring and training these workers. And, as with any business asset, improvements—in this case additional training and education—can mean both a more efficiently run operation and an improved bottom line.
The value of additional education is also not lost on the federal government. Happily, the Internal Revenue Service (IRS) sees improvements made to staff the same way it sees improvements made to any other business asset and allows a corresponding tax deduction for the employer footing the bill for training or education.
When the Boss Pays
Our tax law states that payments of up to $5,250 a year made to employees for tuition, fees, books, supplies, etc., under an employer’s educational assistance plan are both tax deductible to the employer as ordinary and necessary business expenses and can be excluded from the employee’s gross income. An added benefit to the employee is that any amounts that are not excludable from their gross income can be deducted as “working condition fringe benefits.”
This educational assistance can count toward courses for art history as well as courses in snowmaking mechanics, and for courses taught over the Internet by universities as well as employer-led courses held at the resort. There are certain conditions, of course, and chief among them is establishing a company-wide educational plan. The plan should be outlined in writing and must be available to all regularly employed, full-time employees, including seasonal full-time workers. The ski area must also provide “reasonable” notice about the availability and terms of the plan to all eligible employees.
In addition, the rules stipulate that the resort does not have to establish an actual fund to pay for the benefits and that those benefits cannot be conditional on staff members making contributions to the plan. Finally, no more than five percent of the total annual benefits that the company pays for educational assistance can go to the schooling of principal shareholders (those who own at least five percent of stock) or owners of the ski resort.
Any employer who maintains such an educational assistance program has to keep written records and file an information return (Form 5500, “Annual Return/Report of Employee Benefit Plan,” with Schedule F, “Fringe Benefit Plan Annual Information Return”) for the company plan.
Making It Work
Ski Smith Hills LLC, a hypothetical ski resort, established such a plan for all of its employees and decided to pay the educational benefits out of general assets. In order to receive these benefits, participants must submit a written request to the plan administrator before starting the course. On completion of the course, they have to provide original receipts for all items to be reimbursed and must have received a grade of C or better to receive future benefits.
The resort’s plan allows participants to be reimbursed for courses up to the tax rule’s $5,250 limit. It also specifically points out it will pay employees for taking courses offered by or taken for the benefit of the employer. And the ski area notes the plan’s existence in ads for workers, viewing it as an incentive for attracting and retaining employees.
Despite the latitude given owners and operators, there are restrictions on these plans. Educational assistance, according to our lawmakers, does not include payments for:
- tools or supplies that an employee gets to keep after completing the course
- meals, lodging or transportation
- training involving sports or hobbies
- graduate-level courses.
Classes at the Mountain
But since the ski industry is based on the winter sports of skiing and snowboarding, lessons in those activities could be deductible if a case is made for training a worker previously uninitiated in the sport. It can be argued that in order for any front-line staff member to do a better job serving guests, he or she should be versed in those pursuits.
Such lessons, and other courses or seminars offered by management, can be considered “fringe benefits.” These are benefits that provide things for employees that, if purchased on their own, would normally be considered personal or family expenses. A resort or ski-related business can usually deduct the cost of providing such benefits. The employee also profits because the value of the fringe benefits gained from an educational assistance plan generally don’t have to be reported as income.
A ski resort or ski-related business is, of course, also permitted an income tax deduction for the expenses of training both new and current employees through on-the-job training, in-house classes or even courses offered by equipment suppliers and professional associations. And, in this case, the employee benefiting from this training does not have to report its value as income.
Even in a situation where a resort’s formal plan might not live up to the letter of the law, its cost could be deductible. Under our tax rules, for example, most plans cannot be limited to employees in certain departments or salary levels. If a plan does, however, discriminate in that way, the value of the benefits must be reported as income by the employee. Fortunately, the full cost of that benefit remains deductible by the resort.
The Personal Alternative
Employees who foot the bills for their own education can take a tax deduction if the courses also benefit the employer. So any courses that maintain or improve skills needed for the job, are required by area management or are necessary to keep a salary level—even if they lead to a degree—are immediate business expenses and are deductible. But if the expenses are required to meet the minimum educational requirements for employment or qualify the employee for a new trade or business, they are considered personal and are not deductible. The minimum educational requirements are determined by considering employer requirements, laws and regulations and the standards of the profession.
In cases that do qualify for deductions, unreimbursed expenses for items like books, laboratory fees, dues paid to professional societies and charges for professional journals are deductible by an employee as long as they’re itemized. The cost of books of relatively permanent value used in connection with professional work is a capital expenditure and must be depreciated.
Let’s say a college degree is required to get a job in the human resources department. An applicant doesn’t have one, but gets a job as an assistant and is enrolled in college courses to ultimately satisfy the job requirement. Because the requirement is for a general college degree, those expenses are considered personal and cannot be deductible. But if the same person later enrolls in a program to earn certification as a professional in human resources, those expenses are deductible. The same is true if new education requirements are established after the taxpayer has met the existing requirements for qualification.
In another case,Steve Skiexec, who is the self-employed owner of a ski resort and attends law school at night, wasn’t allowed by the IRS to deduct his law school expenses. Even though Steve receives a law degree and uses his new skills to the resort’s benefit, his law school bills are nondeductible, personal expenses because his law degree qualifies him for a new trade or business.
Regardless of who foots the bill for education, the rewards of smarter, better-trained employees are something every owner and operator can reap. And, when approached the right way, both ski resorts and their employees can get a break in taxes.
Mark Battersby is a freelance writer, lecturer and corporate advisor specializing in business taxes and other financial matters.
