RURAL Act will protect cooperative tax status

Electric cooperatives have long maintained good stewardship of their members’ financial interests by maintaining not-for-profit, tax-exempt status under IRS regulations. To ensure its 501(c)(12) tax-exempt status is not forfeited, an electric cooperative cannot raise more than 15 percent of its income from non-member sources (such as interest earned on bank accounts). Until recently, government funds were excluded from the definition of “non-member income,” allowing cooperatives to access funds for recovery efforts and pursue grant opportunities to better serve their members.

The 2017 Tax Cuts and Jobs Act changed this dynamic by inserting government funds into the definition of “non-member income.” This has put electric cooperatives in Indiana and across the country in a tough determination as to how best serve their members. Some co-ops in disaster-affected areas are forced to choose between seeking necessary government funds to restore service and foregoing their tax-exempt status, bringing unforeseen expenses to the cooperative and financial uncertainty to its membership.

In Indiana, some cooperatives have to strongly consider the potential tax implications of seeking broadband grant opportunities to deliver an important service to their members and communities, creating a disincentive to greenlighting broadband deployment projects. That’s why IEC and NRECA have worked closely with Indiana’s Congressional delegation and both chambers of Congress to pass the RURAL Act, which will remove the threat of cooperatives losing their tax-exempt statuses. The House (H.R. 2147) and Senate (S. 1032) versions of the bill simply add language back into the tax code excluding government funds from the definition of non-member income.

As of Oct. 29, Reps. Jackie Walorski (IN-02), Jim Banks (IN-03), Jim Baird (IN-04), Susan Brooks (IN-05), Greg Pence (IN-06), Larry Bucshon (IN-08) and Trey Hollingsworth (IN-09) joined 248 members of the House of Representatives from across the country to co-sponsor the House legislation. IEC thanks these seven representatives for their leadership and continues to work with the rest of Indiana’s Congressional delegation to gain their support on this important bill.