AWE Seeks Signers to Letters of Support for S. 1464 and H.R. 448

November 17, 2017 Update: A letter signed by 97 organizations has been sent to members of Congress.

Energy efficiency rebates from energy utilities are exempt from federal tax, but not rebates from water utilities, whether they be rebates for drinking water efficiency, wastewater, or storm water programs. Since the rebates are not exempt from federal tax, water utilities must provide 1099s at the end of the year to customers that have received $600 or more in water rebates during the calendar year. This tax liability serves as a disincentive to water efficiency retrofit programs to encourage sustainable water use. 

Why weren’t water conservation or green infrastructure rebates made tax exempt like energy efficiency rebates were?

Until the recent national growth of campaigns to reduce water use and storm runoff, the amounts of water conservation rebates were relatively small and below the levels ($600) required to be reported to the IRS by water utilities. But with the rapid growth of water-saving programs (particularly rebates on landscape change-out) thousands of Americans have been facing an unexpected tax bill once these rebates are reported to the IRS. And the administrative costs for utilities to process thousands of 1099 forms are further disincentives for water conservation rebate programs.

What is the fix? A simple amendment to the tax code giving water rebates the same status as energy rebates. And there are now two bills in Congress that propose to do just that.

S. 1464  and H.R. 448  are bills that will make water conservation rebates exempt from federal tax. But these two bills will have a tough time getting passed, given that Congress is considering tax reform and will likely be removing tax exemptions, not adding them. The good news is that the Joint Committee on Taxation has concluded that the impact on the federal budget from this water conservation exemption would be negligible through 2026.