ISPs Large and Small Push for Tax Exempt Broadband Grants

After years of efforts, the telecom industry and a range of independent broadband experts are making progress in a quest to make broadband grants tax exempt, a move industry players large and small say is necessary if the federal government wants the historic round of new federal broadband funding to benefit as many un- and under-served Americans as possible. 

During previous broadband grant programs, such as the (Broadband Technology Opportunities Program) BTOP and (Broadband Initiatives Program) BIP grants in 2010, the Internal Revenue Service had the authority to unilaterally exempt some grants from taxation. 

The Tax Cuts and Jobs Act (TCJA) required that broadband grants be treated as taxable income. As a result, telecom industry watchers have been warning since March that upwards of 21 percent of new grant awards would need to be paid back to the United States government in the form of taxation, complicating project financing and scale. 

“Entities expecting to receive grant funds would need to budget for the tax bill, potentially requiring a reduction in the scope of their project,” Casey Lide of the law firm Keller & Heckman wrote in a post detailing the implications. “Entities might also consider structuring a project so that grant funds are received by tax-exempt entities.”

With more than $50 billion in Infrastructure Investment and Jobs Act (IIJA) and American Rescue Plan Act (ARPA) funding waiting in the wings, industry players large and small are working to reverse the changes imposed in 2017 before the tax man comes knocking. 

Enter the Broadband Grant Tax Treatment Act; legislation introduced last September by a bipartisan coalition of U.S. Senators including Mark Warner (D-VA) Jerry Moran (R-KS), Tim Kaine (D-VA), Roger Wicker (R-MS), Rev. Raphael Warnock (D-GA), and Shelley Moore Capito (R-WV). 

The bill would amend the IRS code to ensure that grants doled out by the IIJA and ARPA would be tax exempt. The exemption would also apply to broadband infrastructure grants received from a state, territory, tribal government or unit of local government via a section of the Social Security Act, as well as grants received through the Consolidated Appropriations Act of 2021.

Senator Warner said of the Act:

In order to fully reap the benefits of the Infrastructure Investment and Jobs Act and the American Rescue Plan, every dollar that was set aside to fund broadband expansion and deployment should be used for that purpose. Taxing these broadband investment awards would be counter-productive, and could ultimately diminish efforts to give more Americans access to high-speed Internet. 

Industry Players Large And Small Push For Legislative Relief

Earlier this month, a coalition of large and small telecom provider associations wrote a letter to House and Senate lawmakers urging adoption of the new law. USTelecom, TIA, CTIA, NTCA, CCA, and WIA all argued that the taxation, combined with inflation and supply chain issues, could limit the intended reach of an historic round of broadband funding. 

“As providers begin these strategic budgetary assessments it is clear the tax on broadband grants stands as a major limiting factor in the effectiveness and reach of each project and will result in fewer broadband connections,” the organizations wrote. 

NTCA Executive Vice President Michael Romano told ILSR that until changes made in the 2017 tax law, grant funds were not treated as taxable income. Instead, such funds were considered contributions to capital for accounting purposes.

Romano went on to further elaborate:

These new grant programs will have more limited impacts than intended to the extent that the funds advanced by them are taxable, because applicants will need to ‘bake in’ the need to pay those taxes as part of grant and project planning – resulting in fewer Americans reached through these programs in some areas, while making other areas likely altogether uneconomic to apply to serve after factoring in the tax implications.   

Granted, the Tax Cuts and Jobs Act (TCJA) wasn’t all bad news, especially for bigger telecom providers. AT&T, for example, managed to nab upward of $42 billion in tax breaks from the act, while simultaneously laying off upwards of 50,000 employees after a series of giant, bungled, and costly media acquisitions

Giant cable providers Comcast and Charter (Spectrum) have so far gobbled up the lion’s share of Broadband Equity, Access, and Deployment (BEAD) Program grants made possible by the IIJA. Still, coalitions of largely smaller, more rural-focused telecom providers such as the WTA argued the new tax burden could prove particularly burdensome for smaller companies.

“The federal government is making an enormous investment in rural broadband, but the effects of the tax code make it harder for the small, locally-based broadband providers we represent to maximize the amount of funding going to build out the network,” said Derrick B. Owens, Senior Vice President for Government and Industry Affairs for WTA. “We applaud the Senators for introducing this bipartisan legislation, which would streamline the tax code so that we’ll get as much broadband built as quickly as possible."

Clock is Ticking

Despite having been introduced last September, the Broadband Grant Tax Treatment Act has yet to see any movement in the House or Senate. While Rescue Plan funds are already flowing, IIJA funding hinges on the FCC’s new broadband maps, giving bill supporters some additional time to nudge the legislation forward before any tax burden is due.

As it currently stands, the FCC is accepting public challenges to the agency’s new broadband maps until January 13, 2023. The NTIA says it won’t begin allocating the $42.5 billion in BEAD program grants until June 30, 2023, giving those supporting the new tax-exemption bill months to get passed either in the lame duck session—or in next year’s reconstituted version of Congress. 

“We’re working as hard as we can to promote its passage whether on a standalone basis or as part of more comprehensive legislation at year-end,” Romano said of the bill. “This sort of legislative effort is admittedly never easy, but it’s important for as many consumers as possible to see increased and expanded broadband availability in coming years leveraging these programs.”

Header image of tax sign courtesy of 401kcalculator.org, Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0)