Reps. Huffman and Rohrabacher Introduce Bipartisan Legislation to Eliminate Taxes on Water Rebates, Promote Water Efficiency

February 25, 2016

WASHINGTON, D.C.— As tax season approaches, Congressman Jared Huffman (D-San Rafael) and Dana Rohrabacher (R-Costa Mesa) today introduced the Water Conservation Tax Parity Act, bipartisan legislation to ease the tax burden on homeowners and clarify that rebates provided by water utilities for water-efficient improvements to a home are not subject to federal taxes.

Water utilities across the country – and especially in drought-stricken areas like California – are increasingly offering rebates and incentives to people who make investments that reduce water use and ease the strain on public infrastructure.

The IRS and Department of Treasury have failed to offer clear guidance regarding whether these rebates are considered taxable income, meaning that responsible homeowners across the country who took advantage last year of local rebate programs to improve water conservation or water runoff management may face an unexpected tax bill this spring.

“In a state as drought-prone as California, the federal government should help homeowners who are making smart decisions about water efficiency, instead of taxing the rebates and incentives they receive,” said Rep. Huffman. “This legislation makes certain that homeowners have every resource available to install water-saving technologies, and aren’t taxed for reducing their water footprint.”

Of the legislation, Dana Rohrabacher (R-Costa Mesa) said “Taxpayers should not be penalized for doing the right thing.”

The Water Conservation Rebate Tax Parity Act clarifies that these 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 can provide significant water yield benefits, protect public health, the environment, and local economies. These rebates provide a net benefit to the public and utilities. 

In December of last year, Rep. Huffman sent a letter to Treasury Assistant Secretary Mazur and IRS Commissioner Koskinen urging IRS to clarify whether home water conservation and runoff management improvements are non-taxable. You can read the full letter here.