A Must-Pass Bill

The septic improvement programs run by Suffolk County and the towns of East Hampton and Southampton were never supposed to lead to tax liabilities for the recipients of grants and reimbursements. Nonetheless, homeowners who were trying to do right by the environment were stuck with enormous tax bills.

Some may ask, why shouldn’t they pay taxes on free money? The answer is that this money is for a public good — reducing nitrogen loading in our waters — even though it is applied on private property. The homeowners gain nothing aside from the satisfaction of reducing pollution. The real beneficiary of the septic improvement programs is the public at large, because we all enjoy the local rivers, ponds, lakes and bays in one way or another.

A Flanders couple recently reported an unexpected $6,000 tab for taxes on an innovative/alternative septic system installed on their property last year. They were awarded $30,000 between the county and Southampton Town’s programs for something that they will never see and that will not add anywhere near $30,000 in value to their home. This week, a North Sea homeowner shared that she has a $10,000 tax bill on a $37,000 system she installed to protect Little Fresh Pond.

Participants in the town programs may apply to be reimbursed for money they had to lay out for costs like engineering work and electrical upgrades, but the bulk of the cost of installation is paid — with state, county or town funds — directly to the company doing the work; the money never touches the homeowner’s hands.

The federal tax bills on the county grants came after Suffolk County Comptroller John M. Kennedy Jr. decided he must send 1099 tax forms to both the installer who received the money and to the homeowner who received the grant — resulting in the grants being taxed twice. Facing criticism, he asked the IRS for an opinion. As one would expect, the IRS replied that, yes, it would very much like to tax the money twice. The ruling came despite the fact that similar water quality improvement programs in the Catskills and Maryland that predate Suffolk’s program never issue 1099s to homeowners.

Pressure on the IRS to reverse its ruling in light of additional information — information that Mr. Kennedy had not been forthcoming with — was unsuccessful. Now all that remains is a legislative option.

A federal bill to exempt homeowners from having to pay the income tax on the proceeds failed to get anywhere last year, as Republicans controlled the Senate and White House, but the measure has been introduced again with the Democrats in charge of both ends of the Capitol as well as the Oval Office — and that bodes well for it.

This matter is and always has been bipartisan: The entire Long Island delegation in the House — two Republicans and two Democrats — have signed on to the bill.

Unfortunately, the measure likely will not make it to the floor alone for a bipartisan vote. The sponsors plan to attach the measure to a larger infrastructure bill that the Democrats are pushing, and that the GOP is having none of. That means it still may pass, though with bipartisanship thrown out the window.

Regardless of how this measure passes, it must pass. It is vital for the future of these programs, and these programs are vital to the future of our marine environment and the lifestyle and industries that are dependent on it.