Bill Restores Tax-Exempt Status for Water & Sewer

Credit: National Association of Home Builders

Source: National Association of Home Builders

Sens. Jeanne Shaheen (D-NH), Lisa Murkowski (R-AK), and Maggie Hassan (D-NH) introduced legislation to address an unintended consequence of the Tax Cuts and Jobs Act of 2017 that increased costs for some builders and developers.

For builders and developers working in areas served by a for-profit, corporate water utility, a small tax change in the 2017 tax reform bill resulted in higher sewer and water costs. As part of the new tax law, a longstanding exemption to the tax treatment of contributions in aid of construction (CIAC) was removed to the detriment of housing affordability.

Now, in areas served by a corporate, for-profit water utility, when a builder installs new water or sewer infrastructure to support additional housing — at no cost to the existing residents — that infrastructure is taxed by the federal government.

In some states, affected utilities are required by the public utility commission to pass this additional tax liability back to the developer in form of a gross-up fee, in certain cases reaching as high as 40 percent of the cost of the infrastructure. Other state regulators have allowed the utility to add the tax increase into the rates charged to all ratepayers. Although the tax change only affects for-profit, corporate utilities — not municipal or other non-profit water utilities — when the developer is expected to cover the gross-up fee, this can add thousands of dollars to the cost of building a home.

  1. 2942 would restore the exemption for water and sewer CIACs so that they are no longer included in the utility’s gross income.

Read more at National Association of Home Builders.

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