Source: United States Senator for Alaska Lisa Murkowski
Under Current Tax Law, Local Infrastructure Projects are Unfairly Taxed, Creating a Disincentive to Important Investments
U.S. Senators Jeanne Shaheen (D-NH) and Lisa Murkowski (R-AK) unveiled new, bipartisan legislation that would fix an unfair measure in the Tax Cuts and Jobs Act of 2017 (TCJA), which has led to exorbitant taxes on critical water infrastructure investments in New Hampshire, Alaska, and across the nation. Senator Hassan (D-NH) is also a cosponsor of the bill.
The TCJA made adjustments to the Contribution In Aid of Construction (CIAC) tax. Previously, water and wastewater utilities were exempted from this tax; however, the TCJA reinstated the CIAC tax on these entities, which will either have to be covered by state and local governments or passed along to the ratepayers and property taxpayers. These changes have already resulted in $1.15 million in new federal taxes for water infrastructure projects in Southern New Hampshire and will serve in the future as a strong disincentive against investments in water infrastructure and community development.
“Water infrastructure is vital to economic development and fundamental to delivering clean drinking water. Communities across New Hampshire have been planning projects for years that are now threatened by this new tax,” said Senator Shaheen. “Congress should be encouraging infrastructure development which is why we need to fix this tax bill that was rushed through Congress. I appreciate Senator Murkowski’s support on this bipartisan, common-sense effort and I urge more members to join us so our communities can make urgently needed investments in clean and safe drinking water.”
“I am pleased to join Senator Shaheen in introducing a bill to restore tax-exempt status of contributions in aid of construction received by water utilities. Many water and sewer utilities in Alaska rely on contributions of homebuilders and others interested in expansion of service to offset the cost of service build-out. In the absence of this, the cost gets passed on to customers in the form of higher bills. I have said from the start that the Tax Cuts and Jobs Act had room for improvement, and this legislation is a positive step towards fine-tuning the tax reform bill to bring relief to those who already struggle to face the high costs of basic water and sewer service in a state like Alaska,” said Senator Murkowski.
“Tax Reform has helped to ease the tax burden for Americans, but in the case of water infrastructure a tweak to the bill is required to be sure that the people of Alaska do not see an increase in their water bills. We are grateful to Senator Murkowski for taking the lead on this important bill to support water services that are not only clean and reliable, but affordable as well,” said Oran Paul, President of Fairbanks Sewer and Water.
The U.S. tax code has long provided favorable tax treatment for what are known as Contributions in Aid of Construction (CIAC), as well as for certain grants made by governmental or civic entities, to help companies and communities make investments in projects that benefit the public. Since 1996, the U.S. tax code has included a specific provision that excludes these contributions made to water and sewer utilities from their taxable income. Unfortunately, the TCJA eliminated this tax exemption. The TCJA also made an additional change that eliminated the tax-free treatment of capital contributions if made by governmental entities or civic groups. These changes could impact the Drinking Water and Groundwater Trust Fund in New Hampshire, as well as municipal governments that make investments in water or other infrastructure. Specifically, Shaheen and Murkowski’s bill would reverse these two harmful changes to the U.S. tax code and revert these specific provisions to pre-TCJA status.
Following the bill introduction, Senator Murkowski submitted a statement for the Congressional Record to provide greater detail on her support of S. 2942.
Bill text of the legislation can be found here.