Kootenai Electric Cooperative (KEC) and electric cooperatives across the country are facing a predicament due to recent tax law revisions. The changes could jeopardize the not-for-profit tax status of cooperatives that receive federal or state government funding of any kind, including disaster relief aid received from the Federal Emergency Management Agency (FEMA), energy efficiency grants, economic development grants and more.
In order to maintain tax-exempt status, an electric cooperative must receive at least 85 percent of all revenue from its members. However, an unintended consequence of a 2017 change to federal tax law modified the calculation for some forms of federal funding afforded to not-for-profit cooperatives. With that change, government-sourced funding must now be considered non-member revenue and could threaten a cooperative’s tax-exempt status. This could have a detrimental impact on cooperatives and their members by arbitrarily imposing a tax burden on them that would unnecessarily increase rates.
For KEC, this usually isn’t a problem. But it can be. For example, following the wind and snow storms of 2015, KEC received funding from FEMA to help pay for repairs to our electric infrastructure caused by those storms. KEC also applied for a FEMA grant to help prevent future outages from similar storms by converting 50 miles of impacted overhead lines to underground. That grant was approved and since this funding is being paid as work is completed, it shouldn’t compromise KEC’s not-for-profit status. Had those storms been more severe, or the grant funding been provided in one lump sum, it would have. That would have also impacted rates.
This is the situation many electric cooperatives across the nation must now face. The acceptance of such grants available through FEMA could unintentionally compromise the tax-exempt status that is foundational to our operations as a member-owned, not-for-profit electric cooperative. The National Rural Electric Cooperative Association is encouraging Congress to fix the tax code to allow cooperatives to continue benefiting from such grants without jeopardizing their tax status as we long have. Legislation called the RURAL Act has been introduced in both the House and the Senate, attracting large groups of bipartisan cosponsors. However, getting it enacted into law will be a heavy lift, given the political sensitivity of tax issues on Capitol Hill.
Your help is needed in this effort. Informing your elected senators and representatives of your support for the RURAL act is one way you can help cooperatives keep your rates low. You can learn more about the RURAL Act and express your support for it by visiting www.action.coop. Should you elect to support the Act, the website will automatically create a letter to your elected congressional delegates, which you can edit as desired. Such support weighs heavily on their minds as they consider legislation that affects those they represent. Hearing directly from you is important.