(a)
Gross income does not include any contribution to the capital of the taxpayer.
(b)
(1)
For purposes of this section, “contribution to the capital of the taxpayer” includes any amount of money or other property received from any person (whether or not a shareholder) by a regulated public utility that provides electric energy, gas (through a local distribution system or transportation by pipeline), water, or sewerage disposal services if all of the
following apply:
(A)
The amount is contribution in aid of construction.
(B)
Where the contribution is in property that is other than electric energy, gas steam, water, or sewerage disposal facilities, the amount meets the requirements of the expenditure rule of paragraph (2).
(C)
The amounts (or any property acquired or constructed with those amounts) are not included in the taxpayer’s rate base for ratemaking purposes.
(2)
An amount meets the requirements of this paragraph if all of the following apply:
(A)
An amount equal to that amount is expended for the acquisition or construction of tangible property described in Section 1231(b) of the Internal Revenue Code and both of the
following apply:
(i)
The expenditure was the purpose motivating the contribution.
(ii)
The property is used predominantly in the trade or business of furnishing electric energy, gas, steam, water, or sewerage disposal services.
(B)
The expenditure referred to in subparagraph (A) occurs before the end of the second taxable year after the taxable year in which that amount was received.
(C)
Accurate records are kept of the amount contributed and expenditures made on the basis of the project for which the contribution was made and on the basis of the year of contribution or expenditure.
(3)
For purposes of this section:
(A)
“Contribution in aid of construction” does not include amounts paid as customer connection fees (including amounts paid to connect the customer’s line to an electric line, a gas main, a steam line, or a main water or sewer line) and amounts paid as service charges for starting or stopping services.
(B)
“Contribution in aid of construction” includes amounts received by a regulated public utility from a contributor to recover the federal tax imposed upon contributions in aid of construction, provided that the method used to recover the tax is authorized by Public Utilities Commission Decision 87-09-026.
(C)
“Predominantly” means 80 percent or more.
(D)
“Regulated public utility” means a regulated public utility as defined by Section 7701(a)(33) of the Internal Revenue Code, except that it does not
include any utility which is not required to provide electric energy, gas, water, or sewerage disposal services to members of the general public (including, in the case of a gas transmission utility, the provision of gas services by sale for resale to the general public) in its service area.
(4)
Notwithstanding any other provision of this part, no deduction or credit shall be allowed for, or by reason of, the expenditure which constitutes a contribution in aid of construction to which this section applies. The adjusted basis of any property acquired with contributions in aid of construction to which this section applies shall be zero.
(c)
This section shall apply to contributions in aid of construction made on or after January 1, 1977, and before January 1, 1992.
