Tax fix needed to allow cooperatives to serve their communities

Tax fix needed to allow cooperatives to serve their communities

By TOM JAMES, Director of Dixie Electric Cooperative

Imagine working hard to secure funding for an important local project – one that could benefit an entire community – only to turn around and give a large chunk of that money back in taxes. 

That’s the situation many cooperatives in Alabama may face. And it could jeopardize the not-for-profit tax status of cooperatives that receive federal or state government funding of any kind, including disaster relief aid, energy efficiency grants, economic development support and rural broadband development grants. 

Two real-world examples of how the tax law would affect cooperatives:

  • Otsego Electric Cooperative received a $10 million broadband grant from the state of New York, which will put the co-op well over the 15% limit for non-member revenue in 2019. Otsego will lose its tax-exempt status if legislation is not passed this year, CEO Tim Johnson said in April. Twenty-one percent of the grant money will have to be used to pay taxes.
  • West Florida Electric Cooperative Association has received $24 million in expedited reimbursement from the Federal Emergency Management Agency (FEMA) this year for storm recovery work in the wake of Hurricane Michael in 2018. That’s about 40% of the co-op’s projected annual revenue. Gulf Coast Electric Cooperative to the south is in the same tax position, and three other Florida co-ops could surpass the 15% threshold by year’s end. It’s unfair to classify the FEMA reimbursement as revenue — it was for expenses that West Florida incurred to restore service to a large swath of its members after the category 5 hurricane pounded the Florida panhandle. 

Encouraging Congress to fix the tax code to exempt government grants from being defined as member revenue is one of the highest priorities of the National Rural Electric Cooperative Association, the service organization representing America’s electric co-ops.

Congress must act now to correct this unintended consequence and protect the tax status of electric co-ops. In doing so, Congress would preserve the full value of government grants that deliver societal benefits to our communities.

You can play an important role in encouraging Congress to act. Voice your support for the Rural Act by visiting action.coop/ruralact.