Grant recipients for upgraded septic systems hit by tax

Flowers grow next to a nitrogen-reducing sewer system on property on Midway Road. (Photo credit: Courtesy photo)

It was good news for Islander Michael Hodor to learn that Suffolk County would help fund an upgrade to its old sewer system, and more good news when Shelter Island made more grants available. The county paid $ 19,883 and Shelter Island approved $ 4,193 in grants for the system.

Bad news followed, however, when Mr. Hodor received 1099 forms from the county and city stating that he would increase his tax bill by $ 8,000 as the grants are counted as income.

He actually never saw the scholarship paid directly to his contractor Meg Larsen from Shelter Island Sand, Gravel and Contracting.

While papers signed by grant recipients could have tax ramifications, this was something he wasn’t expecting.

He wasn’t alone.

The district and the city have been granting grants for the improvement of sewage systems through the installation of nitrogen-reducing innovative alternative (I / A) systems for several years. But the grants turned into a political football between County Executive Steve Bellone (D) and County Comptroller John Kennedy (R) over taxation of the grants. They were rivals for the county executive seat in 2019.

That year, the tax forms were sent to both the person who applied for the grant and the company that handled the installation. But Ms. Larsen said contractors battled what they viewed as double taxation with the same money and won their case, with the county issuing new 1099s that were filed, showing no income for residents.

Ms. Larsen and her father Peder Larsen installed many I / A systems without any problems.

Assistant District Manager Peter Scully, known among district officials as the Water Czar, tried to fight taxes two years ago. But Mr. Kennedy sought and received an opinion from the Internal Revenue Service that maintaining the grant money was an income and had to be declared.

Mr Scully argued that taxing the grants would discourage residents of the county from having the systems that are officially recognized as being vital to keeping drinking and surrounding water in the Peconic Estuary from being adversely affected by high levels of nitrates to protect.

Mr. Scully accused Mr. Kennedy of playing politics

The same argument was made by Congressman Lee Zeldin (R-Shirley) when he joined Congressman Tom Suozzi (D-Glen Cove) to reverse the IRS ruling last year. The efforts were not well received by the colleagues. The two members of the House of Representatives were joined by the then minority leader, now majority leader Senator Charles Schumer, but no action was taken. Mr. Zeldin is trying again this year to reverse the IRS decision.

The situation remains difficult, according to Amber Brach-Williams, deputy regulator for Shelter Island Town and longtime accountant. “You have to declare the income because the IRS is playing against the 1099s,” Ms. Brach-Willliams told her clients.

The county grant program was originally intended to encourage people to have the new systems installed without any tax consequences, Ms. Larsen said. It was the focus of Mr. Bellone’s clean water initiative.

The city’s advisory board on water quality projects (WQI) was no happier with the IRS’s decision than those at the county level who objected to the tax. However, with the ruling imposed, city officials had no choice but to treat the grants equally.

What can a scholarship holder do?

The first answer is to pay the tax by May 17th, which the federal and state governments have set as the tax day this year, replacing the usual April 15th. If you don’t have the funds, you can generally get interest payments, but that’s better than falling into arrears altogether.

Mr Bellone is working to create a nationwide water district that could provide grants with no tax implications, she said. The effort started last year and is very much alive.

The Suffolk County Department of Health has created an “Underwater Basin Sewer Plan” that removes reliance on legacy sewer systems that produce water that is not always potable and pollutes the bottom and surface waters that all elected East End officials are trying to protect.

It’s a long-term plan that is expected to make a difference in many of the worst areas within about 10 years, while full implementation would likely take 50 years, the district chief said.

“For the first time, there is a long-term plan to reduce nitrogen pollution and put Suffolk County on a path to cleaner, healthier water resources,” said Dr. James Tomarken, Commissioner for the Suffolk County Department of Health. “The continued reliance on primitive sanitation systems is a growing threat to both our environment and our economy.” The New York State Department of Environmental Conservation provided funding to develop the plan.

The estimated cost would be $ 2.7 billion over 50 years, replacing 253,000 cesspools and wastewater treatment plants with I / A systems and connecting other properties to sewers.

How would it be funded?

Rather than giving grants to individuals, the plan borrows a page from efforts that have been made in other areas. In Maryland, a Bay Restoration Fee was introduced to fund such an effort. Spokane, Washington, introduced a water usage fee to fund the upgrades.

Assistant District Manager Scully called the plan an economic opportunity that would create high-paying jobs.

“With both our environment and our economy supported by the bays that surround us and the underground aquifers that provide our drinking water, no other topic in history has brought together such a diverse group of stakeholders,” said Bellone. “The fight against decades of nitrogen pollution from outdated cesspools and sewage treatment plants has created a common goal among scientists, business leaders, environmentalists, the construction industry and organized workers.”

Ms. Larsen said she believes the county plan is likely to be implemented and that it could reverse the tax bite the fellows are now experiencing.

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