Reps. Huffman, Chu, Sens. Feinstein, Padilla Introduce Bicameral Legislation to Ease Tax Burden on Homeowners Making Water-Efficient Choices

July 22, 2021

Washington, D.C. – Today, Representative Jared Huffman (D-San Rafael), Chair of the Natural Resources Subcommittee on Water, Oceans, and Wildlife, Representative Judy Chu (D-Pasadena), member of the Ways and Means Committee, and Senators Dianne Feinstein (D-CA) and Alex Padilla (D-CA) introduced legislation to amend Federal tax law so that homeowners would not need to pay income tax when they receive rebates from water utilities for water conservation and water runoff management improvements that they have made. 

As of July, fifty counties in California are now under a state of emergency due to the 2021 drought. According to the National Drought Mitigation Center, the U.S. Department of Agriculture, and NOAA, 72% of the West faces severe drought, and 26% faces exceptional drought. Water utilities around the country–especially in drought-prone areas like California–are increasingly offering rebates and incentives to homeowners who make investments to reduce their water use, reduce stormwater runoff, and ease the strain on public infrastructure.

“Water scarcity has been a challenge for generations, but 2021 has brought unfathomable shortages threatening the lives of folks up and down California. At a time like this, Congress must act to ensure the federal government is not an obstacle to local and state efforts to conserve water and make our communities more resilient in the face of climate change,” said Rep. Huffman. “The Water Conservation Rebate Tax Parity Act is a smart solution to ensure our constituents are not taxed for improving their water footprint, and will make it easier for property owners to make the switch to water-saving technologies.” 

“We need to do all we can to combat severe drought in California and across the West. That’s why California issues rebates to homeowners who work to improve their homes’ water efficiency,” said Senator Feinstein. “Unfortunately, homeowners must pay income taxes on these rebates under current law. That needs to change so more Californians will invest in these critical water efficiency home improvements.”

“As California continues to experience severe drought, it’s important that we support homeowners who invest in technologies to reduce their water consumption, not penalize them with additional federal income taxes,” Senator Padilla said. “The Water Conservation Rebate Tax Parity Act is a simple step to reduce water usage and encourage homeowners to take the initiative to conserve our limited water supply.”

“With states like California in the grips of an historic drought, it is crucial that Americans get help to make water-smart investments to reduce their water use. As a Member of the Ways and Means Committee, I believe our federal tax code should encourage, not penalize, these investments. That is why I am proud to join Representative Huffman and Senators Feinstein and Padilla in introducing the Water Conservation Rebate Tax Parity Act. This bill will remove the federal tax burden on water conservation rebates and help more Americans to lower their water use, reduce stormwater runoff, and help states like California to preserve our water resources,” said Rep. Chu.

The Water Conservation Rebate Tax Parity Act clarifies that these rebates, which are growing in number and size across the nation, are not taxable income, but rather an effort to defray upfront consumer costs for a public benefit. Encouraging residents to reduce water usage by installing “gray water” capture systems or purchasing new water-efficient appliances and plumbing fixtures can provide significant water yield benefits, protecting public health, the environment, and local economies. These rebates provide a net benefit to the public and utilities.

This would ensure that the IRS treats water conservation rebates in the same manner as the Agency treats energy conservation rebates, including insulation, Energy Star-certified windows and doors, and energy efficient appliances, which are not taxable.

The Water Conservation Rebate Tax Parity Act is supported by the California State Association of Counties, Western Urban Water Coalition, Natural Resources Defense Council (NRDC), Bay Area Council, National Association of Clean Water Agencies (NACWA), Arizona Municipal Water Users Association, Bay Planning Coalition, Coalition to Promote Water Conservation, Rural County Representatives of California (RCRC), Alliance for Water Efficiency, Metropolitan Water District, Los Angeles Department of Water and Power, Olivehain Municipal Water District, Carlsbad Municipal Water District, Otay Water District, Rincon Water, Valley Center Municipal Water District, Vista Irrigation District, City of Poway, Elsinore Valley Municipal Water District, Yuima Municipal Water District, Three Valleys Municipal Water District, Calleguas Municipal Water District, Irvine Ranch Water District, and Santa Clara Valley Water District, Las Virgenes Municipal Water District, City of Anaheim Public Utilities Department City of Camarillo, Sacramento Suburban Water District. 

The legislation was introduced with 10 additional original cosponsors, including Representatives Jimmy Panetta (CA-20), Alan Lowenthal (CA-47), Adam Schiff (CA-28), Grace Napolitano (CA-32), Eric Swalwell (CA-15), Ann Kirkpatrick (AZ-02),  John Garamendi (CA-03), Julia Brownley (CA-26), Mike Levin (CA-49), and Salud Carbajal (CA-24).