Stormwater Retention Credit Trading Systems: Local Tax Issues
Washington, D.C.'s Stormwater Retention Credit (“SRC”) trading system potentially jeopardized the real property tax exemption of DC area nonprofits that sell SRCs. As detailed below, the District resolved this challenge with a legislative solution that may serve as a model for other jurisdictions. For an overview of the DC DOEE's stormwater regulations click here.
Tax-exempt entities are generally exempt from ad valorem real property taxes in the District. However, property used to generate income from activities unrelated to the owner’s exempt purposes is generally not exempt. Some tax-exempt entities in the District own property that is appropriate for locating stormwater management practices. They sought to take advantage of this potential, either by building the stormwater management practices on their property and selling the resulting SRCs or, alternatively, by leasing the property to a lessor who would build the stormwater management practices, sell the resulting SRCs, and pay rent or royalties to the tax-exempt entity. The concern was that the receipt of this income could jeopardize the tax-exempt entity’s real property tax exemption with respect to the property.
To alleviate this concern, the District enacted a statutory amendment, effective October, 2018, that expressly provided that the use of tax-exempt property to generate SRCs would not jeopardize the real property exemption with respect to that property. Click here to download a copy of the District's updated ordinance.
You can download a copy of the D.C. Office of Tax and Revenue's testimony in support of the provision by clicking the link below.
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