For mutual water companies, taxation can be a confusing topic. As attorneys who have an experienced water law and public agency practice area, we have three must do’s regarding mutual water company taxation.

APPLY FOR AND HAVE FEDERAL TAX-EXEMPT STATUS

Under federal law, mutual water companies can obtain tax-exempt status. This can be beneficial because this is a way for a company to avoid federal income tax and as a result, save money. Plain and simple, if you are a mutual water company, be sure that you have applied for federal tax-exempt status.

VERIFY YOUR COMPANY DOES NOT QUALIFY UNDER THE CALIFORNIA HOMEOWNERS ASSOCIATION EXEMPTION

Most mutual water companies will not be able to obtain California tax-exempt status. This is important for companies to know as many believe that because they have federal tax-exempt status they do not need to file California tax returns. 

What companies need to do is verify they do not qualify under the California homeowners association exemption. This is important as a very limited number of mutual water companies that do not have metered service connections may be able to qualify under the California homeowners association exemption.

ENSURE YOU ARE MAKING THE ALLOWABLE OFFSET

Although there is no California tax-exemption, existing statutes allow a mutual water company to offset revenue received from shareholders against total income. This offset can reduce taxable income and save the company money.

CONCLUSION

Navigating taxation can be a confusing and significant challenge. Consulting with an attorney who has significant experience in this area is crucial to being compliant with state and federal laws and saving your company money. 

The issue of mutual water company taxation can also come into play in connection with a mutual water company’s corporate status as either a general corporation or a non-profit mutual benefit corporation.

MUTUAL WATER COMPANY?

Call us regarding your tax concerns or questions.