Tina Smith

United States Senator for Minnesota

U.S. Sen. Tina Smith Presses Administration to Quickly Change Tax Rules Blocking Cooperatives From Expanding Rural Broadband

You are here

Last Year’s Republican Tax Law Threatens Tax-Exempt Status of Minnesota Cooperatives Accepting Grants; Senator Plans Legislative Fix

WASHINGTON, D.C. [10/31/18]—Today, U.S. Senator Tina Smith (D-Minn.) urged the Trump Administration to ensure cooperatives don’t lose their tax-exempt status if they receive government grants to expand rural broadband in Minnesota and across the country.

Sen. Smith said that the Republican tax law passed last year threatens the tax-exempt status of rural telephone and electric cooperatives in Minnesota and across the country because of a provision meant to tax for-profit companies. In a letter Wednesday, Sen. Smith pushed Treasury Secretary Steven Mnuchin and IRS Commissioner Charles Rettig to use their administrative authority to fix the unintended consequences of the provision, which leaves many cooperatives hesitant to accept government broadband expansion grants because of the risk of losing their tax exemption, slowing the deployment of broadband to rural communities. Sen. Smith said she is exploring legislation to simplify and modernize the tax code’s rules for rural electric and telephone cooperatives to address several longstanding requirements that are outdated or burdensome.

As I have traveled throughout Minnesota, I have heard from rural telephone and electric cooperatives with concerns about how recent changes to the tax code could unintentionally cause cooperatives to lose their tax-exempt status if they receive certain government grants, including FEMA emergency assistance or grants to expand rural broadband,” wrote Sen. Smith. “I am asking you to use your administrative authority, to the extent you are able, to address this issue.

Cooperatives are important to expanding and providing telecommunications services in rural areas, and for nearly a century, the tax code has recognized these cooperatives as tax-exempt entities if, among other things, at least 85 percent of the cooperative’s income is from members. Unfortunately, last year’s tax law has created uncertainty about whether certain grants that cooperatives regularly receive must be taken into account when determining if a cooperative complies with the member income requirement. This uncertainty has caused cooperatives significant concern and frozen some of their grant applications, as a cooperative may be at risk of losing their tax-exempt status if they accept FEMA emergency assistance, broadband expansion grants, or other government grants, and it is determined that those grants must be treated as non-member income.”

Sen. Smith, a longtime advocate for expanding rural broadband, authored theCommunity Connect Grant Program Act, which was included as part of the bipartisan Farm Bill that was passed by the Senate earlier this year. The Community Connect program provides grants to support deployment of broadband in rural areas. She has also pressed the Federal Communications Commission to dedicate additional funding to rural broadband and telehealth programs. As Lieutenant Governor, Sen. Smith led efforts to invest in broadband, including supporting millions in funding for the Border-to-Border Broadband Grant program.  

You can read a copy of Sen. Smith’s letter here or below:

October 31, 2018

The Honorable Steven T. Mnuchin
SecretaryU.S. Department of Treasury
1500 Pennsylvania Avenue NW
Washington, DC 20220

The Honorable Charles P. Rettig
Commissioner
Internal Revenue Service
1111 Constitution Avenue NW
Washington, DC 20224

Dear Secretary Mnuchin and Commissioner Rettig:     

            As I have traveled throughout Minnesota, I have heard from rural telephone and electric cooperatives with concerns about how recent changes to the tax code could unintentionally cause cooperatives to lose their tax-exempt status if they receive certain government grants, including FEMA emergency assistance or grants to expand rural broadband.  I am asking you to use your administrative authority, to the extent you are able, to address this issue.

            Cooperatives are important to expanding and providing telecommunications services in rural areas, and for nearly a century, the tax code has recognized these cooperatives as tax-exempt entities if, among other things, at least 85 percent of the cooperative’s income is from members.  Unfortunately, last year’s tax law has created uncertainty about whether certain grants that cooperatives regularly receive must be taken into account when determining if a cooperative complies with the member income requirement.  This uncertainty has caused cooperatives significant concern and frozen some of their grant applications, as a cooperative may be at risk of losing their tax-exempt status if they accept FEMA emergency assistance, broadband expansion grants, or other government grants, and it is determined that those grants must be treated as non-member income.  

            I believe that, in the long run, Congress should take legislative action to modernize paragraph 501(c)(12) of the Internal Revenue Code to provide that grants received from government entities don’t imperil the tax-exempt status of a cooperative, and address other outdated or burdensome tax rules that are holding back rural broadband development.  I am currently crafting legislation on this matter, and I look forward to working with you on it. However, in the short term, given that the issue described above is creating immediate planning problems for many cooperatives and stalling broadband expansion, I urge you to use your administrative authority to mitigate this problem. 

            Thank you for your consideration of my request, and I look forward to working with you.  Please feel free to contact me with any questions. 

Sincerely, 

###

Issues: 

Washington, D.C. Office

309 Hart Senate Office Building
Washington, DC 20510
Phone: (202) 224-5641
 

State Offices

Moorhead Office
819 Center Avenue
Suite 2A
Moorhead, MN 56560
Phone: (218) 284-8721
 

Duluth Office
515 W 1st Street
Suite 104
Duluth, MN 55802
Phone: (218) 722-2390
 

State Offices

Saint Paul
60 Plato Blvd. East
Suite 220
Saint Paul, MN 55107
Phone: (651) 221-1016
 

Rochester
1202-1/2 7th Street NW
Suite 213
Rochester, MN  55901
Phone: (507) 288-2003