Grant Funds are Still Taxable

In October 2022, I wrote a blog about a bipartisan attempt to exempt broadband grant funding from being taxable income. Unfortunately, Congress has still not moved this legislation forward. Any company pursuing any federal and most state grants needs to be aware of the tax implications. In the past, the Internal Revenue Service (IRS) had the authority to excuse grants from being taxable, and the agency excused the taxes on grants made from the National Telecommunications and Information Administration's (NTIA) 2009 Broadband Technology Opportunities Program (BTOP) and Broadband Infrastructure Program (BIP) grants. But the IRS lost that authority in the 2018 Tax Cuts and Jobs Act. It now takes specific action from Congress to forgive tax on grant income. Fully taxing the infrastructure grant money and then also taxing the payrolls of the folks who build the grant-funded project feels like double taxation to me. We don’t tax corporations on gross sales. Corporations only pay taxes on profits, but most of the tax from sales to corporations comes from the taxes on the salaries paid to employees. An argument can be made that grant revenue used for infrastructure isn’t taxable – but it involves an understanding of accounting to understand this. But saying that broadband providers will eventually get the money back ignores the practical impact of making infrastructure grants taxable. Grant money is given to providers as they build the network. If it takes three years to build a grant-funded fiber route, then the corporation gets the grant award spread over those three years. In each of those years, the grant money is considered to be income. This extra taxation makes it a lot harder to justify taking a broadband grant. Providers consider grant projects because they add customers and increase economy of scale. But nobody wants to take on a grant project that is a cash loser.