Sens. Portman, Smith introduce bill to protect tax-exempt status of co-ops

Published on April 08, 2019 by Dave Kovaleski

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Sens. Rob Portman (R-OH) and Tina Smith (D-MN) introduced legislation last week that would allow nonprofit co-ops to maintain their tax-exempt status when accepting federal grants.

The Tax Cuts and Jobs Act that Congress passed in 2017 inadvertently put nonprofit co-ops in the position of having to decide whether to risk their tax-exempt status to accept grants, including those from the Federal Emergency Management Agency.

The 2017 law included a provision that counts federal, state and local grants to co-ops as non-member income rather than capital, which is how grants had previously been defined, Paul Gutierrez, a National Rural Electric Cooperative (NRECA) lobbyist, said.

The statute threatens the nonprofit business model of co-ops, which must receive at least 85 percent of all income from consumer-members to keep their tax-exempt status. However, defining grants as non-member income makes it more difficult for co-ops to meet that requirement.

The new legislation – the Revitalizing Underdeveloped Rural Areas and Lands (RURAL) Act – would change the tax code to exempt federal, state and local grants from being defined as income for electric co-ops.

“In today’s technology-dependent world, we must do more to bring high speed internet and stronger grid infrastructure to the rural areas of our country,” Portman said. “Tax-exempt rural co-ops provide these important services to parts of the country where access to reliable electricity and high-speed internet is the most limited, and they rely heavily on grants to perform these services. Without this legislation, many co-ops may miss out on grant income or disaster assistance, hurting our efforts to promote economic development and job creation in these rural areas.”

Reps. Terri Sewell (D-AL) and Adrian Smith (R-NE), who both serve on the House Ways and Means Committee, are expected to introduce a companion bill in the House next week.

“[When] I heard from several Minnesota cooperatives at risk of losing their tax-exempt status, I wanted to reverse that,” Smith said. “I’m encouraged that this bill has bipartisan support as well in the House, and I’ll be pushing for this legislation to become law so we can make sure rural broadband keeps expanding.” Gutierrez added that this is an urgent issue for NRECA members that will lose their tax-exempt status this year if Congress does not act.