Importance of “RURAL Act”
Such was the case when, in 2017, Congress passed the “Tax Cuts and Jobs Act” and President Trump signed it into law. While the passage brought about tax and income benefits for large groups of people, it also brought about a dilemma for non-profit electric cooperatives.
The new law redefined government grants made to electric and telephone cooperatives as “non-member” income. Under federal tax law, no more than 15% of a cooperative’s income may come from sources other than its consumer-members. Now, cooperatives that exceed that amount could lose their tax-exempt status.
Since electric co-ops are not-for-profit utility entities, they are eligible for certain federal grants and disaster funds from the Federal Emergency Management Agency (FEMA) following authorized disaster declarations. These funds help cover repair costs from events like major ice storms, tornadoes, wildfires, etc. Additionally, both electric and telephone cooperatives are also eligible for certain federal grants to help with the expansion of broadband or high-speed internet service in rural areas.
Under the Tax Cuts and Jobs Act of 2017, those grant funds were inadvertently made to be counted as “non-member” income, thus threatening a receiving co-op’s tax-exempt status.
An effort is underway by the National Rural Electric Cooperative Association (NRECA) to help correct this unintended consequence. The “RURAL Act,” or “Revitalizing Underdeveloped Rural Areas and Lands Act of 2019,” includes language that would correct this co-op “non-member” income issue, thus preserving their tax-exempt status.
To help co-ops, the RURAL Act must be passed before the end of 2019. As of November 1st, more than 250 House Members—including all five from Oklahoma—have signed on as co-sponsors of the bill. We remain hopeful that the RURAL Act will be passed by year-end.