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Rep. Kuster introduces bill to close new tax liability for water infrastructure companies

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Washington, DC, July 1, 2020 | By Ryan Lessard

U.S. Rep. Annie Kuster last month introduced a bill that would reverse a tax on private water companies that kicked in after the Tax Cuts and Jobs Act of 2017 was signed into law, resulting in over a million dollars in unexpected federal taxes on infrastructure projects in the state.

Kuster’s bill, which was co-sponsored by Republican Congressman Greg Walden of Oregon, would provide relief to companies like Pennichuck Corporation and Hampstead Area Water Company (HAWC) which are now liable for hundreds of thousands in new taxes that will be passed to the ratepayers.

U.S. Sen. Jeanne Shaheen introduced an identical bill in the Senate in December, and the plan has the support of Republican state officials as well.

The tax is causing higher housing costs and exacerbating the housing shortage as developers cancel developments, according to Kuster’s office.

HAWC is facing a tax bill of $1.15 million in taxes for infrastructure being built for the $27 million Southern New Hampshire Regional Water Project, which is a drinking water pipeline project under construction that will connect Manchester Water Works to several southern New Hampshire communities.

The impetus for the project was to provide clean drinking water to communities whose groundwater was impacted by PFAS contamination. It is also promised to provide a more reliable source of water for growing communities like Salem, which deals with perennial shortages.

Water infrastructure companies were exempt from the contribution in aid of construction (CIAC) tax since 1996, which is 30% of the value of the donated infrastructure. The idea is that if a private developer or government entity finances the construction of water infrastructure and transfers ownership to the water company, homeowners don’t get saddled with additional rate increases from the taxes.

In a statement, Kuster said that exemption’s removal in the 2017 law was an unintended “error” that needs to be corrected because it drives up housing costs.

“This tax has already had a negative impact in my district, where building out new water infrastructure projects is critical to mitigating exposure to PFAS and other harmful chemicals that can infiltrate private well system,” Kuster said.

State Sen. Chuck Morse of Salem first raised the alarm about the CIAC tax last spring, saying it will have a chilling effect on water infrastructure projects moving forward. Gov. Chris Sununu subsequently wrote an open letter to Congress calling on them to reinstate the exemption.

“The state is putting its money into projects and it’s getting taxed on it,” Morse told the Union Leader Wednesday.

So far, he said the water project has turned on water in Salem, and construction in the HAWC system is pretty much done.

“Within a week, we’re going to turn on the Atkinson side of this,” Morse said.

In a statement, Rep. Walden called the tax “senseless,” saying it resulted in $1.7 million in additional housing costs for a major housing development of 200 new homes in Oregon.