Member power pays off as US electric co-ops win fight for tax exemption

Congress has passed the Rural Act, which ends two years of uncertainty for the sector

Last month, the US Congress passed the Rural Act, protecting the tax exempt status of more than 900 electric co-ops across the country.

Recent law changes had meant electric co-ops would lose their tax-exemption status if they accepted government grants for disaster relief, broadband service and other programmes that benefit members.

The Rural Act, signed into law as part of a sweeping tax and spending package, was designed to remove this risk – which had threatened the survival of many of the not-for-profit co-ops.

It was the top priority for sector body The National Rural Electric Cooperative Association (NRECA), which organised campaigning efforts from tens of thousands of co-op leaders, employees and members across the country.

“This package preserves the fundamental nature of the electric co-operative business model and will save electric co-ops tens of millions of dollars each year,” said NRECA CEO Jim Matheson. “Moreover, it protects co-op members from unfair increases in their electric rates and provides certainty to co-ops that leverage federal and state grants for economic development, storm recovery and rural broadband deployment.”

The bill fixes a problem created in 2017 when Congress passed the Tax Cuts and Jobs Act, which redefined government grants to co-ops as income rather than capital. That change made it difficult for many co-ops to abide by the 15% limit on non-member income to keep their tax-exempt status. The RURAL Act once again exempts grants from being counted as income and is retroactive to the 2018 tax year.

NRECA lobbyist Paul Gutierrez said: “This was an amazing NRECA team and membership effort, including co-op members at the end of the line,” he said. “We had great legislative champions in the House and Senate, and they worked tirelessly to get this included in the final tax package.”