[Congressional Record Volume 146, Number 34 (Thursday, March 23, 2000)]
[Senate]
[Page S1681]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRASSLEY (for himself and Mr. Reid):
  S. 2290. A bill to amend the Internal Revenue Code of 1986 to clarify 
the definition of contribution in aid of construction; to the Committee 
on Finance.


  LEGISLATION TO CLARIFY THE TAX TREATMENT OF CONTRIBUTIONS IN AID OF 
                              CONSTRUCTION

  Mr. GRASSLEY. Mr. President, today I am introducing legislation on 
behalf of myself and the senior Senator from Nevada, Mr. Reid, to 
clarify that water and sewage service laterals are included in the 
definition of contributions in aid of construction (CIAC). The bill 
clarifies current law by specifically stating that ``customer service 
fees'' are CIAC. It maintains current treatment of service charges for 
stopping and starting service (not CIAC). Because this is a 
clarification of current law, the effective date for the bill is as if 
included in the original legislation, which is section 1613(a) of the 
Small Business Job Protection Act of 1996.
  The need for this legislation is brought about because the Department 
of Treasury has issued proposed regulations to provide guidance on the 
definition of CIAC. Despite the fact that Congress specifically removed 
language concerning ``customer services fees'' in its amendment in 
1996, the Department added the language back into the proposed 
regulation specifying that such fees are not CIAC. They then defined 
the term very broadly to include service laterals, which traditionally 
and under the most common state law treatment would be considered CIAC.
  The Senator from Nevada and I, along with many of our colleagues here 
in this chamber, worked hard over the course of a number of years to 
restore the pre-1986 Act tax treatment for water and sewage CIAC. In 
1996, we succeeded in passing our legislation. It was identical to pre-
1986 law with three exceptions. Two of the changes were made in 
response to a Treasury Department request. The third removed the 
language dealing with ``service connection fees'' primarily because of 
potential confusion resulting from the ambiguity of the term. The 
sponsors of the legislation were concerned that the IRS would use this 
ambiguity to exclude a portion of what the state regulators consider 
CIAC.
  As part of our efforts, we developed a revenue raiser in cooperation 
with the industry to make up any revenue loss due to our legislation, 
including the three changes. This revenue raiser extended the life, and 
changed the method, for depreciating water utility property from 20 
year accelerated to 25-year straight-line depreciation. As a 
consequence of this sacrifice by the industry, our CIAC change made a 
net $274 million contribution toward deficit reduction.
  It is my belief that the final revenue estimate done by the Joint 
Committee on Taxation on the restoration of CIAC included all property 
treated as CIAC by the industry regulators including specifically 
service laterals. In an October 11, 1995 letter to me, the Joint 
Committee on Taxation provided revenue estimates for the CIAC 
legislation. A footnote in this letter states, ``These estimates have 
been revisited to reflect more recent data.'' The industry had only 
recently supplied the committee with comprehensive data, which 
reflected total CIAC in the industry including service laterals.
  I urge my fellow Senators to join with us in supporting this 
clarification of current law.
                                 ______