[Congressional Record Volume 165, Number 196 (Monday, December 9, 2019)]
[Senate]
[Pages S6900-S6901]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                                S. 2942

  Ms. MURKOWSKI. Mr. President, I rise today to say how pleased I am to 
join with the Senator from New Hampshire in introducing S. 2942, a bill 
to revise the tax treatment of certain contributions to the capital of 
corporations.
  S. 2942 corrects a provision in the 2017 Tax Cuts and Jobs Act that 
disqualified government grants to corporations from treatment as tax-
free contributions to capital. The provision resulted in the imposition 
of income tax on all such grants. At the same time, a companion 
provision in the act imposed income tax on ``contributions in aid of 
construction,'' CIAC, to regulated water utilities, reversing a 
longstanding rule of prior law that shielded regulated water utilities 
from tax on such payments. The term CIAC refers to payments--from 
either governmental sources or other sources that are used by a utility 
to expand its physical plant.
  Our bill corrects the TCJA, first, by restoring the tax exemption for 
CIAC received by water utilities. That change will ensure that 
Alaskans, along with all water utility customers around the country, 
who make payments to a water utility to help the utility expand its 
service territory or otherwise improve its physical plant will not 
thereby saddle the utility with a tax charge that could translate into 
an increase in rates for water service or that, alternatively, could be 
passed back to the payer of the CIAC.
  There is no plausible basis for taxing CIAC received by water 
utilities and thereby saddling the utility and its customers with the 
tax charge. CIAC does not at all resemble normal taxable income 
received by a business in exchange for goods or services. In fact, our 
bill specifically precludes the utility from including CIAC in its rate 
base and thereby earning a return on it.
  The treatment of CIAC as taxable income might not matter if water 
utilities could expense the cost of the capital improvements funded 
through CIAC. The expensing deduction would offset the income. But 
under the TCJA, regulated utilities do not qualify for expensing. Thus, 
they incur the tax on the receipt of CIAC and pass the tax on to the 
payer of the CIAC.

[[Page S6901]]

  One unintended consequence of the taxability of CIAC, coupled with 
the ineligibility of regulated utilities for expensing, is the creation 
of an unjustifiable incentive for the development of water 
infrastructure outside regulated utilities--i.e. outside the companies 
that are best equipped to build and manage the infrastructure. The 
incentive exists because non-utility corporations, unlike regulated 
utilities, qualify for expensing and can thus eliminate the tax on the 
receipt of CIAC. Our bill eliminates the incentive by restoring the tax 
exemption for CIAC received by regulated water utilities.
  The other correction our bill makes in the TCJA is to reverse the 
rule in the act that treats all government grants to corporations as 
taxable income. Under prior law, government grants that were not in the 
nature of ordinary purchases of goods or services could qualify as tax-
free contributions of capital.
  The TCJA failed to distinguish among different types of government 
grants in writing the new rule. For example, there is no apparent 
reason why government grants made to spur investment in rural broadband 
infrastructure should be taxable. The effect of the tax is to reduce 
the value and effectiveness of the grants. Nor should tax logically be 
imposed on grants intended to spur investment that would protect the 
environment or public health, including Investment in water 
infrastructure.
  There are, of course, types of government grants that could probably 
be taxed without adverse consequences. One example would be grants made 
to influence corporate decisions on the location of corporate 
headquarters or facilities.
  To create a simple starting point, our bill simply eliminates the 
TCJA rule taxing government grants. As the Finance Committee and 
leadership consider the issue, we anticipate that, this time around, 
they will take the time to consider more carefully which types of 
grants should be taxable and which should be tax-free. At a minimum, 
the broadband and environmental grants described above should be tax-
free, but there are probably many similar types of grants that should 
have the same treatment.
  Mr. President, I look forward to working with the Senator from New 
Hampshire and with the members of the Finance Committee to craft 
sensible corrections to the TCJA to restore the tax exemption for CIAC 
received by water utilities and restore the tax exemption for 
government grants received by corporations where the grants are 
demonstrably in the public interest.

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