New Tax Law May Increase Developers’ Sewer and Water Costs

Filed in Capitol Hill, Land Development by on April 17, 2018 1 Comment

Even after a significant reduction in their corporate tax rate, some utility companies are interpreting a little-known tax change in a way that is forcing developers to pay substantially more for contributions in aid of construction (CIACs).

Under the old tax law, some CIACs — such as sewage infrastructure or cash payments made to utilities for extending water lines — were not included in the utility’s gross income. This valuable shelter was established for CIACs in legislation enacted in 1996.  The tax reform law enacted last year removed this exception, making these contributions taxable to the utility—if the utility is a privately-owned, for-profit entity.

In some states, affected utilities have begun to notify developers that the utility will pass this new tax liability to the builder. In Pennsylvania, for example, some developers have reported that their utility has begun requiring a 40% CIAC surcharge.  A utility in South Carolina, meanwhile, is seeking a 31.8% CIAC surcharge.

In other states, the utilities are turning to the relevant public utility commission for guidance on how to implement these tax changes. It is likely that the surcharges seen in Pennsylvania and South Carolina will arise in other states. NAHB urges developers who build in an area served by a private, for-profit water utility to closely monitor their state public utility commission.

The intent of this tax change was not to impose a new fee on development, but rather to put for-profit utilities on parity with any other business. Unfortunately, some utilities are abusing their market power to pass this charge to the developer—despite the fact that the utility received a net tax cut from the new tax law.

NAHB is actively working with affected states and engaged in conversations with Congress to remedy the situation. If left unchecked, this unintended consequence of the new tax law will only put more strain on the housing market and push more and more families further from the dream of homeownership.

For more information, contact J.P. Delmore at 800-368-5242 x8412 or David Logan at x8448.

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  1. So, in the states mentioned in the article, and others that will be impacted as well, the cost of building a house just increased. When the home-buying public is made aware of the taxes and government fees imposed on builders and developers, they would better understand why the cost of housing continues to move beyond the “affordable” point. As was recognized by builders as far back as the 70’s, it is “against the law” and practically impossible to deliver an affordable house.

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