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“The Tax Price Tag On Public-Private Partnerships” was recently authored by Dean Mead attorneys Dana Apfelbaum, Brad Gould and Michael Minton and published by Law360. The authors open the article with the following as part of an overview of public-private partnerships:
Public-private partnerships between federal, state and local governmental agencies and private landowners provide an indispensable public benefit and work by operating a project on private land that primarily benefits the public. Generally, these partnerships are funded by the government agency paying a private taxpayer to construct and operate some publicly beneficial project. Historically, payments to construct the capital improvements for such a project have been exempt from taxation to the extent that they are not payment for rent or other services, which is entirely appropriate in light of the public benefit provided.
Apfelbaum, Gould and Minton go on to explain tax aspects of public-private partnerships, including impacts from the 2017 federal Tax Cuts and Jobs Act. For instance, in another excerpt from the article, they indicate:
In addition, before the Tax Act, the Section 118(b) exception did not apply to regulated public utilities providing water or sewage disposal if the requirements of Section 118(c) were met. This is no longer the case. These significant changes to Section 118 put a new price tag on public-private partnerships and is a concern for both existing and new projects.
The attorneys go on to pose the question, “So what is the impact of not being able to exclude these nonshareholder contributions from income?” In reply, Apfelbaum, Gould and Minton provide illustrative scenarios.
- Scenario 1: Preproject Engineering Studies and Permits
- Scenario 2: Water Projects
- Scenario 3: Equipment Placed in Service After Jan. 1, 2023
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