Don't punish taxpayers for smart, water efficient choices

May 14, 2016

The Hill
May 14, 2016

As Americans across the country scrambled to get their taxes filed before the midnight deadline last month, many homeowners found themselves with a new reason to feel frustrated.

Their complaint: they may have been hit with a higher tax bill just for working with their local water utility to reduce their water footprint over the last year.

In recent years, as states and localities have encouraged homeowners to conserve water and manage runoff, water utilities have increasingly offered rebates and incentives to people who install drought-tolerant landscaping or make other investments that reduce water use and ease the strain on public infrastructure.

Unfortunately, while these local water utilities and homeowners are working together to achieve water savings, the IRS and Department of Treasury haven’t lived up to their end of the bargain. While we await clear guidance from the IRS that these rebates are not taxable, many water utilities around the country are forced to send 1099 forms to responsible homeowners, indicating that they owe taxes on the rebates they received.

History tells us droughts and floods have plagued this planet even before human beings came along, and when faced with difficult water management challenges like the ongoing drought in California, cities and states need to do more to respond.

The IRS should not sit back and make this preparation more difficult.

House-by-house changes - replacing water-thirsty lawns, purchasing new water-efficient fixtures and appliances, or installing green storm water infrastructure – can actually make a huge difference. City and water managers are making a major bet that these changes will add up – and not just in California.

The city of Seattle alone has set a goal of managing 700 million gallons of runoff every year with green infrastructure, and San Antonio’s water utility provides significant indoor and outdoor rebates to make sure homeowners are conserving enough to meet its water supply challenges.

With states, cities, and local water agencies leading the way, the federal government should help homeowners who are making smart decisions about their water footprint, instead of taxing the rebates and incentives they receive.

This is not a red or blue dispute — or even a “green” issue. That’s why we have joined together to introduce legislation that ensures that homeowners have every resource available to install water-saving technologies, and aren’t taxed for reducing their water footprint. We’re also working together to push the IRS to take administrative action immediately.

The IRS needs to clarify that water rebates are not taxable income, but rather an effort to defray upfront consumer costs for the public benefit. Encouraging residents to reduce water usage by replacing water-thirsty lawns, installing “gray water” capture systems, or purchasing new water-efficient appliances all provide significant water yield benefits, protect public health, the environment, and local economies, and they provide a net benefit to the public and utilities. That’s not the same as taxable income, and the IRS needs to make that clear.

Until this issue is resolved, make no mistake:  We will continue to push for a vote on our legislation, write letters, make phone calls, and badger the IRS and Treasury in any way we know how.

And as our constituents rush to file their taxes before the deadline on tax day 2017, we hope they all have one less income to report, as well as a fat refund from this year’s debacle in their pockets.

By:  Congressman Jared Huffman