Suffolk County Officials Expect IRS Decision On Septic Rebate Taxing Within Three Months

Suffolk County officials told a standing-room-only crowd at Southampton Town Hall last week that they are optimistic an issue revolving around whether residents will have to pay taxes on grant money received to upgrade their septic systems will be resolved in the next three months.

County Comptroller John Kennedy has said he issued 1099 income tax forms to those who were awarded $10,000 grants from the county out of caution and to ensure the county is not slapped with fines from the IRS for failing to issue the forms.

“We’re scratching our heads on why the separately elected comptroller has taken this step,” Suffolk County Legislator Bridget Fleming told the nearly 50 people in attendance on Monday, April 15, at town hall. “We’re not certain what the motive is. It is not clear, and we’re hoping that we will resolve it.

“John Kennedy is the comptroller. It’s he who makes the decision whether to issue that document or not and he made that decision,” she added.

Residents gathered at Town Hall on April 15 to learn about the rebate programs offered by the county and the Town of Southampton to upgrade old failing septic systems with systems that reduce the amount of nitrogen that gets released into the groundwater and bays.

Also on hand were vendors and contractors to provide information about the systems they work with that have been approved by the Suffolk County Department of Health Services.

Ms. Fleming said there are 360,000 individual septic systems on residential properties throughout Suffolk County and many of them are failing.

“Even at their best, these septic systems do not pull the nitrogen out of the wastewater before it reaches the surface waters and potentially groundwater,” she said.

Failing septic systems have been documented as one of the causes of the downfall of the shellfishing industry on the East End and crippling the health of the bays.

In the 1930s, Ms. Fleming said, Greenport produced 2.5 million bushels of oysters per year, equating to $16 million in product at today’s market value. In the Great South Bay, she added, 6,000 jobs were available for clam harvesters.

But in 1985, the first brown tide appeared, and the market declined.

In an effort to save the bays, the county and East End towns are offering rebates to those who upgrade their septic systems.

“Who knew flushing a toilet would be such a problem?” Southampton Town Supervisor Jay Schneiderman said. “We are providing grants up to $20,000 per system. When you match that with the county program … you could probably pay for the entire system.”

Many people in the Town Board room on Monday were there to find out how to upgrade. Some asked questions about the process and others asked questions about potential constraints, such as the minimum required lot size to get an advanced septic system.

Justin Jobin, an environmental projects coordinator at Suffolk County, said he has seen septic systems installed on lots as small as 2,000 square feet—it all depends on the engineer.

Curiosity about the new systems filled the room, but so did hesitation.

At a time when the rebate program was gaining momentum, Mr. Kennedy’s move to send tax forms to homeowners for the grants they received has resulted in some interested residents backing away from the process, even withdrawing their applications out of concern for the potential tax impact.

Mr. Jobin said the rebate program was modeled after the state of Maryland’s, and it was designed specifically so the money does not get paid to the homeowner. Rather, the homeowner assigns the grant to the installers, who would then be responsible for paying the taxes on the money they receive and report it as income, according to Mr. Jobin.

“The county tax council issued an opinion confirming that the county should issue 1099s to the people who received the money, not the homeowners,” he said. “That’s happened, but the responsibility for generating those forms comes from the Department of Audit and Control.”

Mr. Kennedy, who is an elected official, took a different opinion and issued 1099 forms to the homeowners.

Mr. Jobin said Mr. Kennedy’s move had his department and other county officials scratching their heads, especially after the legal opinion was issued.

Mr. Kennedy has been asked to rescind the 1099 forms that he issued, both Mr. Jobin and Ms. Fleming confirmed, and he has since reached out to the IRS for a ruling.

“The bottom line is, hopefully, we’ll have an answer to this and be able to put this to bed within three months,” Mr. Jobin said. “What we’ve done going forward is we’ve confirmed that every installer in the program has confirmed to the county in writing that they are paying taxes and declaring the money they received to the IRS by paying taxes on that money.”

Ms. Fleming echoed Mr. Jobin and said they believe the IRS is crafting a decision.

She added that she is confident that the county will get through this, as the same program has been in place in Maryland for 10 years.

“We’re dealing with it,” Mr. Jobin said. “We’re aware of it and all we can do is get it resolved as quickly as possible.”