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Support builds in US Congress to protect electric co-ops' tax-exempt status

Momentum is building in the U.S. Congress to address an "unintended consequence" of the 2017 GOP tax law that threatens the tax-exempt status of many U.S. electric cooperatives.

Over half of U.S. House of Representatives members and nearly a third of U.S. senators co-sponsored a bipartisan bill to address a provision of the Tax Cuts and Jobs Act of 2017 that considered government grants, including from the U.S. Department of Agriculture's Rural Utilities Service, to be outside revenue for purposes of determining what cooperatives or public power entities are tax-exempt.

The provision effectively eliminates cooperatives' tax-exempt status if more than 15% of their revenue in a tax year comes from nonmember income, including federal, state or local government grants.

To address what some view as an unintended consequence of the tax law change, U.S. Reps. Terri Sewell, D-Ala., and Adrian Smith, R-Neb., and U.S. Sens. Rob Portman, R-Ohio, and Tina Smith, D-Minn., introduced the Revitalizing Underdeveloped Rural Areas and Lands Act, or RURAL Act, in April. The bill would amend the Internal Revenue Code to ensure that cooperative organizations do not lose their tax-exempt status when they apply for government grants, contributions and assistance.

The National Rural Electric Cooperative Association, or NRECA, said Oct. 14 that the legislation now has 230 co-sponsors in the House and 29 in the Senate and has strong support from both parties.

"As stewards of America's rural communities, electric co-ops work hard to secure grants to recover from fires, floods, hurricanes and winter storms, or jump-start local economic development projects like building out a broadband network," NRECA CEO Jim Matheson said. "But those efforts are in jeopardy unless Congress fixes this mistake."

NRECA said the "unintended consequence" of the 2017 tax bill impacts all grants for cooperatives, including those designated for disaster recovery, broadband deployment or economic development.

"Because of the mistake in the 2017 tax law, many cooperatives in Minnesota and across the country are in danger of being forced to choose between keeping their tax exemptions and accepting an important grant to clean up a disaster, or to expand much-needed broadband services in a rural community," Smith said. "That uncertainty is making it difficult for them to effectively plan for the future — and it's unnecessary."

Tax-writing panels stay quiet

Spokespeople with the House Committee on Ways and Means and Senate Committee on Finance did not respond to requests for comment on their plans for the RURAL Act. But NRECA and other supporters hope that the RURAL Act's strong bipartisan support will ensure its advancement as either a stand-alone bill or part of a broader package such as omnibus spending legislation, a tax extenders bill, or legislation to make technical corrections and revisions to the 2017 tax package.

"Our view is, move the bill," said Louis Finkel, NRECA's senior vice president of government relations. "We don't care how they do it ... we don't care where they do it."

Finkel said lawmakers have repeatedly assured the group that the 2017 tax bill did not intend to threaten cooperatives' tax-exempt status. But he acknowledged that "it's always hard to tell" the House and Senate tax-writing committees' priorities.

The Ways and Means Committee and Senate Finance Committee have expressed a desire to introduce new tax extenders legislation before the end of 2019, but the House is juggling an impeachment inquiry into President Donald Trump that could slow progress on legislation. Congress must also pass another spending bill before Nov. 21 to avoid a government shutdown, among other near-term priorities.