Suffolk County Executive Steve Bellone's administration asked County Comptroller John M. Kennedy Jr. to rescind tax forms sent to homeowners who received grants for high-tech septic systems until the Internal Revenue Service has weighed in.
Kennedy mailed tax forms, known as 1099s, earlier this year to about 60 homeowners who received county grants between $10,000 and $20,000 each, spurring anger among homeowners who believe they'll owe thousands of dollars more in federal taxes.
"It makes no sense to threaten homeowners with tax liability unless and until the IRS has indicated that issuing 1099s to homeowners is appropriate," according to the letter from Deputy County Executive Peter Scully. "For that reason, the purpose of this letter is to formally request that your office rescind the 1099s issued to homeowners pending receipt of the letter ruling you have indicated that you will seek from the IRS."
Kennedy's office did not respond to requests for comment. Kennedy had said Wednesday that he planned to ask the IRS for an opinion, known as a private letter ruling, about whether homeowners or contractors should get the tax form to count toward their income.
Bellone's administration had received an opinion from its law firm, Harris Beach, in March 2018 that said the tax forms should go to installers and designers who directly receive the grant payments. That's because homeowners don't have complete control over how the grant money is spent. Kennedy said he disagreed with the county executive's opinion, and called the law firm's arguments "tangential."
Scully, in the letter, said Kennedy's decision could impact $75 million in statewide grants issued for septic system replacements. Suffolk County received $10.1 million in state money last year. . So far, 69 of the advanced systems, which are still being tested, have been installed. Another 81 systems are pending installation, while 1,537 applications are pending.
"Given that the April 15, 2019, deadline for filing of 2018 income taxes is looming for Suffolk County taxpayers, who are already reeling from the impacts that changes to the federal tax code limiting deductions of property taxes are having on their personal finances, I would ask that your office take immediate steps to rescind the 1099s issued to homeowners, and to advise homeowners that such action is being taken," Scully wrote. "A careful and deliberate approach to the issue is important given the potential implications for the statewide $75 million New York State Septic System Replacement Program."
James McConville, of Shirley, had an advanced system installed in September 2018, after his old system failed.
"I did what seemed to be the conscientious choice, with the ten thousand dollars grant the out of pocket would be close to the same either way," he wrote in a letter to Kennedy that he shared with Newsday. "That changed when the grant became taxable."
McConville estimated the tax change cost him an additional $2,000 to $3,000 — and said the system is still not treating the water properly.