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.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. EXCLUSION OF WATER CONSERVATION SUB-
SIDIES PROVIDED BY WATER UTILITIES.
(a) GENERAL RULE.—Part III of subchapter B of
chapter 1 of the Internal Revenue Code of 1986 (relating
to amounts specifically excluded from gross income) is
amended by redesignating section 137 as section 138 and
by inserting after section 136 the following new section:
‘‘SEC. 137. WATER CONSERVATION SUBSIDIES PROVIDED
BY WATER UTILITIES.
‘‘(a) EXCLUSION.—Gross income shall not include
the value of any subsidy provided (directly or indirectly)
by a water utility to a customer for the purchase or instal-
lation of any water conservation measure.
‘‘(b) DENIAL OF DOUBLE BENEFIT.—Notwithstand-
ing any other provision of this subtitle, no deduction or
credit shall be allowed for, or by reason of, any expendi-
ture to the extent of the amount excluded under sub-
section (a) for any subsidy which was provided with re-
spect to such expenditure. The adjusted basis of any prop-
erty shall be reduced by the amount excluded under sub-
section (a) which was provided with respect to such prop-
erty.
‘‘(c) WATER CONSERVATION MEASURE.—For pur-
poses of this section—
‘‘(1) IN GENERAL.—The term ‘water conserva-
tion measure’ means any installation or modification
primarily designed to reduce consumption of water
or to improve the management of water demand
with respect to any property. The purchase and in-
stallation of specially defined water property shall be
treated as a water conservation measure.
‘‘(2) SPECIALLY DEFINED WATER PROPERTY.—
For purposes of paragraph (1), the term ‘specially
defined water property’ means—
‘‘(A) a toilet using 1.6 gallons or less per
flush for gravity designs and 2.5 gallons or less
per flush for flush valve style pressure-assisted
designs,
‘‘(B) a urinal using 1.0 gallons or less per
flush,
‘‘(C) a laundry machine using 11.0 gallons
or less per cubic foot of capacity per complete
washing cycle,
‘‘(D) a dishwasher using 2.0 gallons or less
per cubic foot of capacity per complete washing
cycle,
‘‘(E) a faucet equipped with an aerator or
flow control which restricts the flow to 2.5 gal-
lons or less per minute at 65 psi, and
‘‘(F) a shower head which restricts the
flow to 2.5 gallons or less per minute at 65 psi.
‘‘(3) CERTAIN OTHER PROPERTY TREATED AS
SPECIALLY DEFINED WATER PROPERTY.—For pur-
‘‘(J) any other property of a kind specified
by the Secretary by regulations,
the principal purpose of which is reducing water
consumption.
‘‘(4) WATER EFFICIENCY OF PROPERTY MUST
EXCEED
LOCAL
CODE
REQUIREMENTS.—The term
‘specially defined water property’ does not include
any property if—
‘‘(A) such property is required under local
building standards or codes to meet water effi-
ciency standards, and
‘‘(B) the water efficiency rating of such
property does not exceed such standards.
‘‘(5) LEAK IDENTIFICATION AND REPAIR SERV-
ICES
INCLUDED.—The term ‘water conservation
measure’ includes services to identify and repair
water leaks.
‘‘(6) CERTAIN
LANDSCAPE
MEASURES
IN-
CLUDED.—The term ‘water conservation measure’
includes landscape measures that improve soil mois-
ture retention by reducing water lost to evaporation.
‘‘(d) WATER UTILITY.—For purposes of this section,
the term ‘water utility’ means any person engaged in the
furnishing or sale of water if the rates for such furnishing
or sale have been established or approved by a State or
political subdivision thereof, by any agency or instrumen-
tality of the United States, or by a public utility or public
service commission or other similar body of any State or
political subdivision thereof or of the District of Columbia.
For purposes of the preceding sentence, the term ‘person’
includes the Federal Government, a State or local govern-
ment or any political subdivision thereof, and any instru-
mentality of any of the foregoing.’’
(b) CLERICAL AMENDMENT.—The table of sections
for part III of subchapter B of chapter 1 of such Code
is amended by striking the item relating to section 137
and inserting:
‘‘Sec. 137. Water conservation subsidies provided by water utili-
ties.
‘‘Sec. 138. Cross reference to other Acts.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to amounts received after Decem-
ber 31, 1993.
SEC. 2. WATER CONSERVATION EXPENDITURES BY WATER
UTILITIES.
(a) IN GENERAL.—Part VI of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
itemized deductions for individuals and corporations) is
amended by inserting after section 197 the following new
section:
‘‘SEC. 198. WATER CONSERVATION EXPENDITURES BY
WATER UTILITIES.
‘‘(a) GENERAL RULE.—In the case of a water utility
(as defined in section 137(d)), there shall be allowed as
a deduction for the taxable year an amount equal to the
water conservation expenditures paid or incurred by the
taxpayer during such taxable year.
‘‘(b) WATER CONSERVATION EXPENDITURES.—For
purposes of this section, the term ‘water conservation ex-
penditures’ means expenditures for subsidies provided di-
rectly or indirectly to customers for the purchase, installa-
tion, or modification of any device or service primarily de-
signed to reduce consumption of water or to improve the
management of water demand. Such term shall not in-
clude any expenditure taken into account in determining
the basis of any tangible property which is owned by the
taxpayer and which is of a character subject to the allow-
ance for depreciation.’’
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (1) of section 263(a) of such
Code is amended by striking ‘‘; or’’ at the end of
subparagraph (F) and inserting a comma, by strik-
ing the period at the end of subparagraph (G) and
inserting ‘‘, or’’, and by adding at the end thereof
the following new subparagraph:
‘‘(H) expenditures for which a deduction is
allowed under section 198.’’
(2) The table of sections for part VI of sub-
chapter B of chapter 1 of such Code is amended by
adding at the end thereof the following new item:
‘‘Sec. 198. Water conservation expenditures by water utilities.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to expenditures paid or incurred
in taxable years beginning after December 31, 1993.
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