Rep. Tom Suozzi: House bill would bar taxation of Suffolk septic upgrades

A massive House infrastructure bill passed Wednesday would bar taxation of grants to residents of Suffolk County and other municipalities who upgrade their septic systems, Rep. Thomas Suozzi said.

Suozzi (D-Glen Cove) said his proposal would “reverse a wrongheaded IRS ruling” requiring federal taxation of water improvement grants after residents had entered the county program.

The proposal was part of the $1.5 trillion House infrastructure bill to fund road and mass transit work as well as water projects, internet service for schools and housing for the working poor.

Senate Majority Leader Mitch McConnell (R-Ky.) said the Democratic-led package won’t pass in the Republican-controlled Senate. McConnell called the package pointless and a gift to the "radical left" that House Democrats should have known wouldn't pass the Senate. President Donald Trump's aides said the White House supports some unspecified infrastructure projects in the bill, but that overall it is wasteful spending.

In a statement, Suozzi said: “Senator McConnell simply refuses to accept that America must finally make a significant investment in combatting climate change and protecting our environment. In any event, he must simply begin negotiations on infrastructure and so many other issues that have gone to the Senate to die.”

Suozzi is also trying to push the measure as a stand-alone bill.

The Internal Revenue Service had ruled that Suffolk residents would have to pay federal tax on grants of $10,000 to $20,000 to upgrade septic tanks and replace cesspools under a county program to protect water quality.

Some homeowners joined the program voluntarily before realizing the grants would be treated as income under the Jan. 15 IRS ruling.

The IRS said the grants would count as taxable income even if homeowners never receive a check. In most cases, the county pays grant money directly to contractors who install the high-tech septic systems, officials said.

Suozzi's bill would allow residents to exclude from taxable income any subsidy from state or local governments for “any waste management measure" to their homes. The measures are defined as any installation or modification, including septic tanks and cesspools.

The House bill also would allow Suffolk County taxpayers to amend past tax returns to avoid paying tax on the grants.

“We are one step closer in our fight to stop the IRS from taxing Suffolk homeowners who want to do their part to protect the environment,” Suffolk County Executive Steve Bellone said.

Officials estimate there are at least 360,000 cesspools and aging septic systems in Suffolk. Since the county grant program began, Suffolk has disbursed 293 grants worth a total of $3 million, officials said.

By Michael Gormley

michael.gormley@newsday.com@GormleyAlbany

Michael Gormley has worked for Newsday since 2013, covering state government, politics and issues. He has covered Albany since 2001.