I

103D CONGRESS

2D SESSION H. R. 4548

To amend the Internal Revenue Code of 1986 to provide an exclusion from

gross income for water conservation subsidies provided to customers

by water utilities and to allow such utilities an expense deduction for

such subsidies.

IN THE HOUSE OF REPRESENTATIVES

JUNE 8, 1994

Mr. MCDERMOTT introduced the following bill; which was referred to the

Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to provide

an exclusion from gross income for water conservation

subsidies provided to customers by water utilities and

to allow such utilities an expense deduction for such

subsidies.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. EXCLUSION OF WATER CONSERVATION SUB4 SIDIES PROVIDED BY WATER UTILITIES.

5 (a) GENERAL RULE.—Part III of subchapter B of

6 chapter 1 of the Internal Revenue Code of 1986 (relating

7 to amounts specifically excluded from gross income) is
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1 amended by redesignating section 137 as section 138 and

2 by inserting after section 136 the following new section:

3 ‘‘SEC. 137. WATER CONSERVATION SUBSIDIES PROVIDED

4 BY WATER UTILITIES.

5 ‘‘(a) EXCLUSION.—Gross income shall not include

6 the value of any subsidy provided (directly or indirectly)

7 by a water utility to a customer for the purchase or instal8 lation of any water conservation measure.

9 ‘‘(b) DENIAL OF DOUBLE BENEFIT.—Notwithstand10 ing any other provision of this subtitle, no deduction or

11 credit shall be allowed for, or by reason of, any expendi12 ture to the extent of the amount excluded under sub13 section (a) for any subsidy which was provided with re14 spect to such expenditure. The adjusted basis of any prop15 erty shall be reduced by the amount excluded under sub16 section (a) which was provided with respect to such prop17 erty.

18 ‘‘(c) WATER CONSERVATION MEASURE.—For pur19 poses of this section—

20 ‘‘(1) IN GENERAL.—The term ‘water conserva21 tion measure’ means any installation or modification

22 primarily designed to reduce consumption of water

23 or to improve the management of water demand

24 with respect to any property. The purchase and in-
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1 stallation of specially defined water property shall be

2 treated as a water conservation measure.

3 ‘‘(2) SPECIALLY DEFINED WATER PROPERTY.—

4 For purposes of paragraph (1), the term ‘specially

5 defined water property’ means—

6 ‘‘(A) a toilet using 1.6 gallons or less per

7 flush for gravity designs and 2.5 gallons or less

8 per flush for flush valve style pressure-assisted

9 designs,

10 ‘‘(B) a urinal using 1.0 gallons or less per

11 flush,

12 ‘‘(C) a laundry machine using 11.0 gallons

13 or less per cubic foot of capacity per complete

14 washing cycle,

15 ‘‘(D) a dishwasher using 2.0 gallons or less

16 per cubic foot of capacity per complete washing

17 cycle,

18 ‘‘(E) a faucet equipped with an aerator or

19 flow control which restricts the flow to 2.5 gal20 lons or less per minute at 65 psi, and

21 ‘‘(F) a shower head which restricts the

22 flow to 2.5 gallons or less per minute at 65 psi.

23 ‘‘(3) CERTAIN OTHER PROPERTY TREATED AS

24 SPECIALLY DEFINED WATER PROPERTY.—For pur-
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1 poses of paragraph (1), the term ‘specially defined

2 water property’ includes—

3 ‘‘(A) equipment which automatically re4 duces the pressure (or controls the flow) of

5 water,

6 ‘‘(B) water recycling, recirculation, and

7 reuse equipment,

8 ‘‘(C) cooling equipment,

9 ‘‘(D) equipment using treatment processes

10 which optimize water cycling,

11 ‘‘(E) equipment and facilities which use

12 treated municipal effluent (instead of drinking

13 quality water) for non-potable applications,

14 thereby reducing the demand for drinking qual15 ity water,

16 ‘‘(F) evapotranspiration stations, software,

17 and controllers,

18 ‘‘(G) tank and reservoir covers and liners,

19 ‘‘(H) sub-metering, overflow and other

20 monitoring control systems which improve oper21 ating efficiencies and identify water loss or

22 equipment maintenance needs directly associ23 ated with inefficient water use,

24 ‘‘(I) equipment to identify and repair

25 water leaks, and
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1 ‘‘(J) any other property of a kind specified

2 by the Secretary by regulations,

3 the principal purpose of which is reducing water

4 consumption.

5 ‘‘(4) WATER EFFICIENCY OF PROPERTY MUST

6 EXCEED LOCAL CODE REQUIREMENTS.—The term

7 ‘specially defined water property’ does not include

8 any property if—

9 ‘‘(A) such property is required under local

10 building standards or codes to meet water effi11 ciency standards, and

12 ‘‘(B) the water efficiency rating of such

13 property does not exceed such standards.

14 ‘‘(5) LEAK IDENTIFICATION AND REPAIR SERV15 ICES INCLUDED.—The term ‘water conservation

16 measure’ includes services to identify and repair

17 water leaks.

18 ‘‘(6) CERTAIN LANDSCAPE MEASURES IN19 CLUDED.—The term ‘water conservation measure’

20 includes landscape measures that improve soil mois21 ture retention by reducing water lost to evaporation.

22 ‘‘(d) WATER UTILITY.—For purposes of this section,

23 the term ‘water utility’ means any person engaged in the

24 furnishing or sale of water if the rates for such furnishing

25 or sale have been established or approved by a State or
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1 political subdivision thereof, by any agency or instrumen2 tality of the United States, or by a public utility or public

3 service commission or other similar body of any State or

4 political subdivision thereof or of the District of Columbia.

5 For purposes of the preceding sentence, the term ‘person’

6 includes the Federal Government, a State or local govern7 ment or any political subdivision thereof, and any instru8 mentality of any of the foregoing.’’

9 (b) CLERICAL AMENDMENT.—The table of sections

10 for part III of subchapter B of chapter 1 of such Code

11 is amended by striking the item relating to section 137

12 and inserting:

‘‘Sec. 137. Water conservation subsidies provided by water utilities.

‘‘Sec. 138. Cross reference to other Acts.’’

13 (c) EFFECTIVE DATE.—The amendments made by

14 this section shall apply to amounts received after Decem15 ber 31, 1993.

16 SEC. 2. WATER CONSERVATION EXPENDITURES BY WATER

17 UTILITIES.

18 (a) IN GENERAL.—Part VI of subchapter B of chap19 ter 1 of the Internal Revenue Code of 1986 (relating to

20 itemized deductions for individuals and corporations) is

21 amended by inserting after section 197 the following new

22 section:
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1 ‘‘SEC. 198. WATER CONSERVATION EXPENDITURES BY

2 WATER UTILITIES.

3 ‘‘(a) GENERAL RULE.—In the case of a water utility

4 (as defined in section 137(d)), there shall be allowed as

5 a deduction for the taxable year an amount equal to the

6 water conservation expenditures paid or incurred by the

7 taxpayer during such taxable year.

8 ‘‘(b) WATER CONSERVATION EXPENDITURES.—For

9 purposes of this section, the term ‘water conservation ex10 penditures’ means expenditures for subsidies provided di11 rectly or indirectly to customers for the purchase, installa12 tion, or modification of any device or service primarily de13 signed to reduce consumption of water or to improve the

14 management of water demand. Such term shall not in15 clude any expenditure taken into account in determining

16 the basis of any tangible property which is owned by the

17 taxpayer and which is of a character subject to the allow18 ance for depreciation.’’

19 (b) CONFORMING AMENDMENTS.—

20 (1) Paragraph (1) of section 263(a) of such

21 Code is amended by striking ‘‘; or’’ at the end of

22 subparagraph (F) and inserting a comma, by strik23 ing the period at the end of subparagraph (G) and

24 inserting ‘‘, or’’, and by adding at the end thereof

25 the following new subparagraph:
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1 ‘‘(H) expenditures for which a deduction is

2 allowed under section 198.’’

3 (2) The table of sections for part VI of sub4 chapter B of chapter 1 of such Code is amended by

5 adding at the end thereof the following new item:

‘‘Sec. 198. Water conservation expenditures by water utilities.’’

6 (c) EFFECTIVE DATE.—The amendments made by

7 this section shall apply to expenditures paid or incurred

8 in taxable years beginning after December 31, 1993.

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