Guest column/Stop a taxing problem and jumpstart rural broadband
Roughly two decades have passed since the phrase “digital divide” was coined to describe the separation between those who have access to the Internet and those who do not. It’s bad enough that millions of Americans in rural communities still live with the divide. It’s even worse that due to federal tax changes in 2017, rural electric cooperatives might be penalized for taking steps to bridge the gap.
Unless Congress acts to correct a problem it inadvertently created, many electric cooperatives, including some in Ohio, will be taxed for accepting grants to deploy rural broadband.
Most of the more than 900 electric co-ops nationwide are recognized as tax-exempt organizations by the IRS so long as they receive no more than 15 percent of their income from nonmembers.
Under the 2017 tax law changes, federal, state and local grants now count toward that 15 percent threshold. If that limit is exceeded, a co-op will lose its tax-exempt status for that year.
It makes no sense for the government to fund broadband deployment projects with the right hand, only to have the IRS claw back some of that funding with the left.
More than 100 electric co-ops are deploying broadband in their service territories. Connectivity serves two key purposes: Bridging the digital divide for co-op members and enhancing the network for utility business operations, including the ability to offer emerging energy management technology to homes and businesses.
The convergence of new technology and new partnerships has made rural broadband deployment more achievable than ever. That doesn’t mean we can ignore inherent challenges and high costs to successful rural broadband deployment.
As they seek to construct broadband networks that will improve the quality of life in their community, electric co-ops should not be forced to choose between their tax-exempt status and government grants to help their community.
But that’s the situation that one New York cooperative encountered. Otsego Electric Cooperative received a $10 million broadband grant from the state of New York.
It put the co-op well over the 15-percent limit for nonmember revenue in 2019. Otsego will lose its tax-exempt status unless the law is changed this year.
An amount equivalent to 21 percent of that $10 million broadband grant will have to be used to pay federal taxes.
Electric co-ops should be able to focus on their core missions of providing affordable and reliable power and enhancing the quality of life in their communities without fear of a federal tax bill.
Fortunately, Congress recognizes the need to fix their mistake.
The bipartisan RURAL Act, introduced by U.S. Reps. Terri Sewell, D-Ala., and Adrian Smith, R-Neb., and Sens. Rob Portman, R-Ohio, and Tina Smith, D-Minn., and co-sponsored by more than 200 legislators, will restore certainty and common sense. The bill ensures that co-ops do not jeopardize their tax-exempt status when they accept government grants.
Ohio’s electric cooperatives are working with state and local officials to try to find ways to finance needed infrastructure for rural communities across the Ohio.
Breaking the digital divide is a difficult problem. Let’s pass the RURAL Act and push aside an unnecessary roadblock.
(O’Loughlin is president and CEO of Ohio’s Electric Coopetives.)