An ambitious county program to replace aging and faulty septic systems with grant money took a hit this week when the Internal Revenue Service ruled the grant money is taxable.
The ruling quickly became a political football, with Suffolk Democrats, including Suffolk County Executive Steve Bellone, blaming Suffolk County Comptroller John Kennedy, a Republican, for seeking the IRS’s opinion on the matter to begin with.
Since the program’s inception in 2017, the county has disbursed 293 grants and expended $3 million. The county also received $10 million in state funding for the septic system program. In January, 111 homeowners signed up for grants, said Deputy County Executive Peter Scully. He accused Kennedy of “playing politics with water quality.”
“The comptroller’s decision to seek an IRS ruling may now expose county homeowners to new tax liability and undermine a critical water quality program,” Scully said in a statement.
Kennedy scoffed at the notion he was in any way responsible, noting the IRS ruling would have come down sooner or later, whether he petitioned for a
decision or not.
The comptroller acknowledged that the ruling “may not be popular,” but aid it “validates the approach we have taken all along” to issue the tax forms. He blamed the tax burden on how the program was set up, not on his request.
There are an estimated 360,000 outdated and environmentally-harmful septic tanks and systems currently in use in Suffolk. Nitrogen pollution has been identified as perhaps the leading pollutant of water bodies.
“The comptroller’s actions have been contrary to the intent of the Suffolk County Drinking Water Protection Program, the legal opinion by the county’s tax counsel, and longstanding practices used by similar programs in Maryland and other municipal jurisdictions,” Bellone said. “He chose to politicize water quality.”
The ruling comes after Kennedy requested guidance on whether the grants should count as income. Last year, he sent tax forms to homeowners who used the grant program, catching them off-guard and igniting a political fight with Bellone, whom he was running against for county executive.