Bipartisan Senate Bill Restores Tax-Exempt Status for Developers’ Sewer and Water Contributions Sens. Jeanne Shaheen (D-NH), Lisa Murkowski (RAK), and Maggie Hassan (D-NH) introduced legislation to address an unintended consequence of the Tax Cuts and Jobs Act of 2017 that increased costs for some builders and developers. For builders and developers working in areas served by a for-profit, corporate water utility, a small tax change in the 2017 tax reform bill resulted in higher sewer and water costs. As part of the new tax law, a longstanding exemption to the tax treatment of contributions in aid of construction (CIAC) was removed to the detriment of housing affordability. Now, in areas served by a corporate, for-profit water utility, when a builder installs new water or sewer infrastructure to support additional housing — at no cost to the existing residents — that infrastructure is taxed by the federal government. In some states, affected utilities are required by the public utility commission to pass this additional tax liability back to the developer in form of a gross-up fee, in certain cases reaching as high as 40% of the cost of the infrastructure. Other state regulators have allowed the utility to add the tax increase into the rates charged to all ratepayers. Although the tax change only affects for-profit, corporate utilities — not municipal or other non-profit water utilities — when the developer is expected to cover the grossup fee, this can add thousands of dollars to the cost of building a home. S. 2942 would restore the exemption for water and sewer CIACs so that they are no longer included in the utility’s gross income. NAHB applauds Shaheen, Murkowski and Hassan for introducing legislation to restore within Section 118 of the tax code the exemption for water and sewer. At a time when the country faces a housing affordability crisis and rising costs associated with aging infrastructure, removing the water and sewer tax exemption made no sense. It is time to fix that mistake, and NAHB urges Congress to pass S. 2942. In Ryan v. City of Chicago, 2019 IL App (1st) 181777, a home builder mistakenly constructed a home within the two-foot setback adopted in the City of Chicago. Even though the new homeowners applied for and obtained a 2.5 inch setback variance from the Chicago Zoning Board of Appeals for the setback encroachment, the adjoining property owner filed a lawsuit against the City seeking an order to require the home to be moved out of the setback. The matter ended up in the appellate court. The appellate court first ruled that statute commonly referred to as the Adjoining Landowner Act relied on by the Plaintiff expressly did not authorize a lawsuit against a municipality relating to enforcement of zoning regulations; and then ruled that the City had authority and discretion in regard to how it would enforce its ordinances; so declined to require the home to be moved. While common sense did win out, in the end, the litigation costs, and the fact that the homeowners and builder would not enjoy the same immunity from the Adjoining Landowner Act as the City was found to have, under-score the need to make sure ordinance requirements are being followed by the construction team. Angry neighbors are no small matter. Page 15
16 Publizr Home