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January 29, 2024
With Congress expected to pass a legislative tax package in the coming weeks, industry groups are seeing an opening to include another bill that would save them from paying taxes on federal broadband grants.
In letters to both the Senate Finance and House Ways and Means Committees last week, several industry groups urged lawmakers to include the Broadband Grant Tax Treatment Act (BGTTA) in any broader tax package they pass. That bill – first introduced in 2022, then reintroduced in 2023 – if passed, would ensure federal broadband grants are exempt from taxation.
Conversely, if the bill is not passed, broadband industry groups have previously warned that providers will be forced to return "as much as 21 percent" of their grant funding from the $42 billion Broadband Equity Access and Deployment (BEAD) program to the federal government, thereby connecting fewer locations.
In its own letter last week, NTCA–The Rural Broadband Association applauded Congress' intent to include an extension of the 100% bonus depreciation in the proposed Tax Relief for American Families and Workers Act of 2024, saying it would "help many small rural broadband providers justify and recover the costs of network investment in the most sparsely populated areas of the United States." However, the group also said the Broadband Grant Tax Treatment Act should be seen as a "critical component" of that legislation as well.
"Congress has recently committed tens of billions of dollars to broadband deployment, but taxing broadband grants dramatically reduces their impact," wrote Shirley Bloomfield, CEO of NTCA, in a letter to Senate Finance leadership. "It is important that the fullest extent possible of each government broadband grant goes toward network deployment, rather than returning those dollars to the U.S. Treasury."
A separate letter, signed by NTCA, as well as the Wireless Internet Service Providers Association (WISPA), the Telecommunications Industry Association (TIA) and others, echoed that sentiment, saying: "...without this change in the tax code, a significant portion of funding intended for deploying broadband to unserved and underserved communities will revert to the government in the form of taxes. Adoption of the Broadband Grant Tax Treatment Act will ensure that funding Congress intended to close the digital divide will be used for that purpose."
Other groups that have gone on the record supporting the BGTTA include USTelecom, which previously signed onto a letter to Congress saying that broadband providers "stand ready to fulfill the full promise of the historic broadband investments Congress made in the IIJA and ARPA, but can only reach those lofty goals with the entirety of the broadband grants awarded."
As that letter explained, the reason the change to tax code is needed is because the 2017 Tax Cuts and Jobs Act (TCJA) declared "that all federal grants, including broadband grants, are taxable as income." As per the text of the BGTTA, the bill would amend the tax code to state: "Gross income shall not include any qualified broadband grant made for purposes of broadband deployment."
According to Congress.gov, the last action taken on the Broadband Grant Tax Treatment Act was in February 2023, when the bill was introduced and referred to the Senate Finance and House Ways and Means Committees. No action has been taken since. Meanwhile, the 2024 tax package cleared the House Ways and Means Committee this month and now heads to the full House for a vote.
BEAD's billions add up
Ensuring grants are exempt from taxation is just one way broadband providers are seeking to lower the cost of entry to the multi-billion-dollar BEAD program.
Late last year, groups representing small and mid-size providers successfully lobbied the NTIA to issue a conditional waiver to its requirement that BEAD award recipients maintain an irrevocable letter of credit for 25% of the grant. That requirement was expected to make it especially difficult for smaller ISPs and community broadband projects to participate in the program. As a result, the NTIA in late November posed alternatives, including a letter from a qualified credit union, or a performance bond for 100% of the award.
Additionally, last week, WISPA sent a letter to the NTIA in which it raised concern with state BEAD proposals asking providers to submit audited financial statements going back multiple years. The NTIA's rules for BEAD require audited statements "from the prior fiscal year" only.
"Some states are seeking to require as many as five years of audited financial statements just to participate in the application process – a gating criteria that will foreclose participation by many smaller broadband providers," wrote WISPA's CEO David Zumwalt in a letter to NTIA Assistant Secretary Alan Davidson. "Audited financial statements can cost between $25,000-$50,000 per year, and many smaller broadband providers would rather use that amount to deploy broadband service instead of obtaining audited financial statements as 'table stakes.'"
The group further urged the NTIA to review state proposals and require them "to come into compliance with BEAD guidance." The NTIA is currently in the process of reviewing and approving state BEAD proposals, with just one state so far, Louisiana, given the green light. Other approvals are expected in the coming months.
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