U.S. Sen. Tina Smith Presses Administration to Quickly Change Tax Rules Blocking Cooperatives From Expanding Rural Broadband

News from Senator Smith’s office…

Today, U.S. Senator Tina Smith (D-Minn.) urged the Trump Administration to ensure cooperatives don’t lose their tax-exempt status if they receive government grants to expand rural broadband in Minnesota and across the country.

Sen. Smith said that the Republican tax law passed last year threatens the tax-exempt status of rural telephone and electric cooperatives in Minnesota and across the country because of a provision meant to tax for-profit companies. In a letter Wednesday, Sen. Smith pushed Treasury Secretary Steven Mnuchin and IRS Commissioner Charles Rettig to use their administrative authority to fix the unintended consequences of the provision, which leaves many cooperatives hesitant to accept government broadband expansion grants because of the risk of losing their tax exemption, slowing the deployment of broadband to rural communities. Sen. Smith said she is exploring legislation to simplify and modernize the tax code’s rules for rural electric and telephone cooperatives to address several longstanding requirements that are outdated or burdensome.

“As I have traveled throughout Minnesota, I have heard from rural telephone and electric cooperatives with concerns about how recent changes to the tax code could unintentionally cause cooperatives to lose their tax-exempt status if they receive certain government grants, including FEMA emergency assistance or grants to expand rural broadband,” wrote Sen. Smith. “I am asking you to use your administrative authority, to the extent you are able, to address this issue.

“Cooperatives are important to expanding and providing telecommunications services in rural areas, and for nearly a century, the tax code has recognized these cooperatives as tax-exempt entities if, among other things, at least 85 percent of the cooperative’s income is from members. Unfortunately, last year’s tax law has created uncertainty about whether certain grants that cooperatives regularly receive must be taken into account when determining if a cooperative complies with the member income requirement. This uncertainty has caused cooperatives significant concern and frozen some of their grant applications, as a cooperative may be at risk of losing their tax-exempt status if they accept FEMA emergency assistance, broadband expansion grants, or other government grants, and it is determined that those grants must be treated as non-member income.”

Sen. Smith, a longtime advocate for expanding rural broadband, authored the Community Connect Grant Program Act, which was included as part of the bipartisan Farm Bill that was passed by the Senate earlier this year. The Community Connect program provides grants to support deployment of broadband in rural areas. She has also pressed the Federal Communications Commission to dedicate additional funding to rural broadband and telehealth programs. As Lieutenant Governor, Sen. Smith led efforts to invest in broadband, including supporting millions in funding for the Border-to-Border Broadband Grant program.

You can read a copy of Sen. Smith’s letter here or below:

October 31, 2018
The Honorable Steven T. Mnuchin
SecretaryU.S. Department of Treasury
1500 Pennsylvania Avenue NW
Washington, DC 20220

The Honorable Charles P. Rettig
Commissioner
Internal Revenue Service
1111 Constitution Avenue NW
Washington, DC 20224

Dear Secretary Mnuchin and Commissioner Rettig:

As I have traveled throughout Minnesota, I have heard from rural telephone and electric cooperatives with concerns about how recent changes to the tax code could unintentionally cause cooperatives to lose their tax-exempt status if they receive certain government grants, including FEMA emergency assistance or grants to expand rural broadband.  I am asking you to use your administrative authority, to the extent you are able, to address this issue.

Cooperatives are important to expanding and providing telecommunications services in rural areas, and for nearly a century, the tax code has recognized these cooperatives as tax-exempt entities if, among other things, at least 85 percent of the cooperative’s income is from members.  Unfortunately, last year’s tax law has created uncertainty about whether certain grants that cooperatives regularly receive must be taken into account when determining if a cooperative complies with the member income requirement.  This uncertainty has caused cooperatives significant concern and frozen some of their grant applications, as a cooperative may be at risk of losing their tax-exempt status if they accept FEMA emergency assistance, broadband expansion grants, or other government grants, and it is determined that those grants must be treated as non-member income.

I believe that, in the long run, Congress should take legislative action to modernize paragraph 501(c)(12) of the Internal Revenue Code to provide that grants received from government entities don’t imperil the tax-exempt status of a cooperative, and address other outdated or burdensome tax rules that are holding back rural broadband development.  I am currently crafting legislation on this matter, and I look forward to working with you on it. However, in the short term, given that the issue described above is creating immediate planning problems for many cooperatives and stalling broadband expansion, I urge you to use your administrative authority to mitigate this problem.

Thank you for your consideration of my request, and I look forward to working with you.  Please feel free to contact me with any questions.

Sincerely,

This entry was posted in Funding, MN, Policy by Ann Treacy. Bookmark the permalink.

About Ann Treacy

I have a Master’s Degree in Library and Information Science. I have been interested or involved in providing access to information through the Internet since 1994, when I worked for Minnesota’s first Internet service provider. I am pleased to be a part of the Blandin on Broadband Team. I also work with MN Coalition on Government Information, Minnesota Rural Partners, and the American Society for Information Science and Technology.

3 thoughts on “U.S. Sen. Tina Smith Presses Administration to Quickly Change Tax Rules Blocking Cooperatives From Expanding Rural Broadband

  1. Which also begs the question, why should any company be taxed on grant funds received? My small company, a rural family owned private corporation, has received 6 Minnesota Border to Boarder Broadband Grants in the last 6 years. Total grant receipts are were over $1 million, non taxable. A serious question for us to consider is would we be willing to pay the tax liability on those funds in the future?

  2. And very likely reduces the reach of the grant, in terms of customers who are benefited. That was one of the key arguments used with the legislature to obtain a sales tax exemption for the purchase of conduit and fiber. And I need to make a correction to my previous comment. We have received 6 grants over the last 3 years, not 6.

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