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[Pages S6900-S6901]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
S. 2942
Ms. MURKOWSKI. Mr. President, I rise today to say how pleased I am to
join with the Senator from New Hampshire in introducing S. 2942, a bill
to revise the tax treatment of certain contributions to the capital of
corporations.
S. 2942 corrects a provision in the 2017 Tax Cuts and Jobs Act that
disqualified government grants to corporations from treatment as tax-
free contributions to capital. The provision resulted in the imposition
of income tax on all such grants. At the same time, a companion
provision in the act imposed income tax on ``contributions in aid of
construction,'' CIAC, to regulated water utilities, reversing a
longstanding rule of prior law that shielded regulated water utilities
from tax on such payments. The term CIAC refers to payments--from
either governmental sources or other sources that are used by a utility
to expand its physical plant.
Our bill corrects the TCJA, first, by restoring the tax exemption for
CIAC received by water utilities. That change will ensure that
Alaskans, along with all water utility customers around the country,
who make payments to a water utility to help the utility expand its
service territory or otherwise improve its physical plant will not
thereby saddle the utility with a tax charge that could translate into
an increase in rates for water service or that, alternatively, could be
passed back to the payer of the CIAC.
There is no plausible basis for taxing CIAC received by water
utilities and thereby saddling the utility and its customers with the
tax charge. CIAC does not at all resemble normal taxable income
received by a business in exchange for goods or services. In fact, our
bill specifically precludes the utility from including CIAC in its rate
base and thereby earning a return on it.
The treatment of CIAC as taxable income might not matter if water
utilities could expense the cost of the capital improvements funded
through CIAC. The expensing deduction would offset the income. But
under the TCJA, regulated utilities do not qualify for expensing. Thus,
they incur the tax on the receipt of CIAC and pass the tax on to the
payer of the CIAC.
[[Page S6901]]
One unintended consequence of the taxability of CIAC, coupled with
the ineligibility of regulated utilities for expensing, is the creation
of an unjustifiable incentive for the development of water
infrastructure outside regulated utilities--i.e. outside the companies
that are best equipped to build and manage the infrastructure. The
incentive exists because non-utility corporations, unlike regulated
utilities, qualify for expensing and can thus eliminate the tax on the
receipt of CIAC. Our bill eliminates the incentive by restoring the tax
exemption for CIAC received by regulated water utilities.
The other correction our bill makes in the TCJA is to reverse the
rule in the act that treats all government grants to corporations as
taxable income. Under prior law, government grants that were not in the
nature of ordinary purchases of goods or services could qualify as tax-
free contributions of capital.
The TCJA failed to distinguish among different types of government
grants in writing the new rule. For example, there is no apparent
reason why government grants made to spur investment in rural broadband
infrastructure should be taxable. The effect of the tax is to reduce
the value and effectiveness of the grants. Nor should tax logically be
imposed on grants intended to spur investment that would protect the
environment or public health, including Investment in water
infrastructure.
There are, of course, types of government grants that could probably
be taxed without adverse consequences. One example would be grants made
to influence corporate decisions on the location of corporate
headquarters or facilities.
To create a simple starting point, our bill simply eliminates the
TCJA rule taxing government grants. As the Finance Committee and
leadership consider the issue, we anticipate that, this time around,
they will take the time to consider more carefully which types of
grants should be taxable and which should be tax-free. At a minimum,
the broadband and environmental grants described above should be tax-
free, but there are probably many similar types of grants that should
have the same treatment.
Mr. President, I look forward to working with the Senator from New
Hampshire and with the members of the Finance Committee to craft
sensible corrections to the TCJA to restore the tax exemption for CIAC
received by water utilities and restore the tax exemption for
government grants received by corporations where the grants are
demonstrably in the public interest.
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