From The Sidelines

So often lately, New York taxpayers seem to be pawns in a game of chess: They pay the price so that some larger political score can be settled or advantage gained. New York residents get a cap on SALT deductions, and have their Global Entry access threatened, for being too blue during a red administration. A U.S. Army Corps of Engineers dredge is pulled from work on Fire Island and sent to a beach startlingly close to the president’s Florida estate.

But it’s not just coming from the White House. Much closer, in Hauppauge, a maneuver that seems purely political in retrospect is taking a serious toll on taxpayers — worse, a group that volunteered to be among the first to take part in an innovative new effort to help the environment. But that first wave of homeowners who agreed to replace failing and outdated septics with new innovative systems designed to reduce nitrogen outflow are now learning that they will face tax bills, and penalties, for the grants they received.

Nobody anticipated this, in part because, as Assemblyman Fred W. Thiele Jr. pointed out this week, these septic programs are not new: Maryland is just one example of an existing program that never resulted in taxes for participants, and was even subject to an audit without the Internal Revenue Service raising the issue. There’s a simple reason: Participants do get something tangible — a septic system — but it’s hardly a thing of real value to them. When they flush the toilet, it still goes away, just like before. The beneficiary is the environment, and the larger community through cleaner water.

Whether there were tax implications for Suffolk County’s septics program, or similar offerings in Southampton and East Hampton towns, Mr. Thiele noted, was a question that was closely examined. “Nobody believed that any of this was taxable,” he said. “There’s a great public benefit and only an incidental benefit to a taxpayer.”

Suffolk County Comptroller John M. Kennedy Jr., however, disagreed. In the midst of a political campaign, seeking to unseat County Executive Steve Bellone, for whom the septics program was a key success story, Mr. Kennedy began sending out 1099 forms to homeowners who received the grants. Moreover, he asked the IRS for a ruling — and while it’s clear that the comptroller’s only loyalty should be to the numbers, this seemed to go beyond fiduciary responsibility, especially considering the timing, and the way he used it as a cudgel to attack Mr. Bellone in the political arena.

County officials and Mr. Thiele agree that the comptroller left a lot out in approaching the IRS, seeming to get certain facts wrong and to exclude details that might have brought a more favorable ruling. The county is seeking reconsideration, with these new details included. U.S. Representative Lee Zeldin, who shares a party with the comptroller, had little to offer, suggesting only that the programs must be updated to meet IRS criteria — while, of course, the county and towns (led by the other party) say they already do.

As the political football is kicked around, Mr. Thiele has asked the State Assembly to include language in its new budget bill to clarify that the programs’ grants are non-taxable for state income tax purposes, which might help satisfy the IRS as well, since both follow the same definition of “income.” In the meantime, it’s taxpayers on the sidelines who feel like that football, as they ask a nagging question: Why would anyone ask the IRS a question if the IRS hasn’t asked it first?