Stimulus Funds’ Tax Status May Delay Broadband Builds

Broadband stimulus funds have started trickling into the industry. But if the government doesn’t clarify whether the grants are considered taxable income, onlookers fear recipients won’t use the money any time soon – defeating the purpose of the 2009 American Recovery and Reinvestment Act.

That dilemma prompted the National Association of Regulatory Utilities Commissioners (NARUC) on Monday to press Treasury Secretary Tim Geithner for an answer – especially since Geithner didn’t give explicit guidance when responding to an earlier NARUC letter that posed the same tax question about the smart-grid grants distributed by the Energy Department.

The scary part is that few, if any, smart-grid recipients have acted on their projects because they’re afraid the grants will be taxed, a NARUC spokesman told xchange and its sister publications, PHONE+, VON and Billing World. The Energy and Treasury departments are said to be close to an agreement on the matter but the timeline and details are unknown.

Now the uncertainty has grown as the broadband sector gets some of the $7.2 billion Congress set aside for high-speed Internet deployments. NARUC said in its March 8 letter that taxing stimulus proceeds would be counterproductive to the Recovery Act and “clearly inconsistent with Congressional goals.”

“An additional tax burden decreases the capital available for the projects … and increases the cost of investments,” NARUC added.

Trouble is, the Treasury addressed the quandary late Monday, to little avail. Treasury officials told the National Telecommunications & Information Administration, one of the agencies administering the broadband stimulus money, that some of the grants will qualify as tax-exempt and some won’t, Broadcasting & Cable reported. It appears that if grants are used just for capital expenditures, they’re not taxable. If the money goes toward operating expenses, it’s taxable.

Still, whether that’s set in stone remains in doubt.

Two smart-grid recipients in the telecom industry didn’t return requests for comment about their deployment plans, given the vagueness surrounding the tax issue.

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