The Tax Cuts and Jobs Act, which became law late last year, allows electric cooperatives to keep their not-for-profit tax status. However, the law includes substantial changes to tax rates for individuals and businesses, multinational corporations and other types of taxpayers. NRECA's Russell Wasson, senior director for tax, finance and accounting policy, discusses the law's effects on electric co-ops:
Q. Does the new law affect my co-op's not-for-profit tax status?
A. The law keeps the current treatment of taxable and tax-exempt electric co-ops. You still will be able to focus on your core mission: providing affordable and reliable power at cost to your communities.
However, taxable co-ops and co-ops with subsidiaries may experience some changes from prior tax law.
Q. My co-op owns a taxable subsidiary. What will tax reform mean for me?
A. If you have a taxable subsidiary, and it's a corporation, the new law's corporate changes will generally apply. Additional changes might apply to a partnership arrangement. If your consolidated return includes a taxable subsidiary, ask your tax adviser: Can my co-op expense 100 percent of capital improvements and fully deduct subsidiaries' interest expenses?
Q. My G&T is taxable. Should I be concerned about the limitation on net operating losses?
A. The act limits your G&T's ability to offset taxable income with net operating losses arising after Jan. 1 of this year. Previously, tax law allowed co-ops to carry back or carry forward net operating losses to offset taxable income in prior or future years.
Taxable co-ops will still be allowed to exclude capital credits. This exclusion greatly limits the impact of any changes from tax reform.
Q. What does tax reform mean for renewable tax incentives?
A. Tax reform did not change prior tax law with respect to renewable tax incentives. Therefore, incentives that have expired or are scheduled to expire are still on that same timetable. However, the incentives may be part of a "tax extenders package" under consideration in Congress. The ultimate outcome of any particular renewable tax incentive is uncertain at this point.
Q. How about capital credits?
A. Capital credits and the treatment of your members with respect to capital credits are unchanged by tax reform.
Q. My co-op buys wholesale power and transmission services from for-profit providers. Will those costs change?
A. Some for-profit power or transmission providers might choose or be required to reduce their rates because the new law reduces the corporate income tax rate. Should this happen, some co-ops might see lower monthly bills and pass savings on to members.
Q. My co-op offers a 401(k) plan for employees. Does the new law affect that?
A. No. Electric co-op employees can continue to save for retirement with pre-tax dollars as under prior tax law.
Q. Should my co-op contact our tax adviser at this point?
A. Yes. Every electric cooperative should consult with their tax adviser on the specific impact of tax reform.