Shaheen, Murkowski Reintroduce Bipartisan Fix to Stop Tax that Threatens Investments in Crucial Water Infrastructure

June 10, 2021

(Washington, DC) – U.S. Senators Jeanne Shaheen (D-NH) and Lisa Murkowski (R-AK) reintroduced their bipartisan bill to fix a measure in the 2017 tax bill that led to taxes on critical water infrastructure investments in New Hampshire, Alaska and across the nation. The bill would amend the treatment of Contributions in aid of Construction (CIAC) under Section 118 of the Internal Revenue Code to reduce the burden on taxpayers and encourage water and wastewater utilities to invest in water infrastructure projects and community development. Senator Maggie Hassan (D-NH) also cosponsored the bill.

Before the Trump administration passed the Tax Cuts and Jobs Act of 2017 (TCJA), water and wastewater utilities were exempted from the CIAC tax. But the TCJA reinstated this tax, forcing these costs to be covered by either state and local governments or ratepayers and property taxpayers. These changes have already resulted in at least $1.15 million in new federal taxes for water infrastructure projects in Southern New Hampshire, reducing the likelihood of investments in water infrastructure and community development.  

“Investing in water infrastructure means investing in public health, job creation and economic development. These critical investments must be made without sticking local communities with an unexpected bill,” said Shaheen. “That’s why I’m proud to lead this bipartisan, common-sense effort with Senator Murkowski to simultaneously invest in infrastructure jobs and ensure families have access to clean drinking water. I’ll keep working in the Senate to protect taxpayers and meaningfully invest in New Hampshire’s infrastructure.”  

“Water and sewer utilities in Alaska have stressed the importance of tax exemption for contributions in aid of construction for the expansion, improvement, or replacement of the facilities Alaskans rely on. Historically, these contributions have been tax exempt, but when we passed the Tax Cuts and Jobs Act in 2017, a provision disqualified the tax exemption. Absent a fix, water utilities have no choice but to pass the bill on to rate payers,” said Murkowski.  “This correction to the law will help bring relief to Alaskans who are struggling to pay the high costs of basic water and sewer services.”

“Drinking water contamination issues are a growing concern for many residential well owners. This tax creates a barrier for water utilities from helping to provide connections to clean water. We are pleased at the prospect of removing this disincentive so that public money can be directed to improving our citizen’s health rather than going back to Washington,” said Bob Scott, Commissioner of the New Hampshire Department of Environmental Services. 

“An unfortunate result of the Tax Cuts and Jobs Act of 2017 (TCJA) as it relates to Costs in Aid of Construction (CIAC) is that privately owned water utilities are now subject to taxes related to infrastructure being provided as CIAC. This is a burden to the Southern NH Regional Water Project and is continuing to cause additional burden to develop infrastructure. It is encouraging that Senator Shaheen and Senator Murkowski have continued their effort to reintroduce a bill to reinstate the exemption for the tax,” said Charlie Lanza, General Manager of the Hampstead Area Water Company. 

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. 

Full text of the legislation can be found here.  

The Shaheen-Murkowski legislation is endorsed by a number of state and national construction and environmental organizations, including the Granite State Rural Water Association, International Council of Shopping Centers, National Association of Home Builders, Merrimack Citizens for Clean Water, National Association of Regulatory Utility Commissioners, National Association of Water Companies, Rural Community Assistance Partnership, Testing for Pease, Pennichuck Corporation and Hampstead Water Company. 

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