Municipal Water Works Income Tax Exempt
According to a letter received from David H. Blair, Commissioner of Internal Revenue, by Congressman Magee of New York state, the income of water works departments are not subject to taxation. The letter was in reply to a quest on by the congressman in connection with the appointment of a referee to take testimony in the case of Superintendent Durkin of the Syracuse, N. Y., water department, who claims exemption from the income tax. An assertion had been made by a Syracuse daily that if the decision in the Durkee case were made in favor of the income bureau, that the income from water works departments would also be liable to taxation, and the congressman asked for information on the subject.
The commissioner quoted from section 213 of the revenue act of 1924 as follows:
“(b) the term ‘gross income’ does not include the following items, which shall be exempt from taxation under this title;
“(7) Income derived from any public utility or the exercise of any essential government function and accruing to any state, territory, or the District of Columbia, or any political sub-division of a state or territory, or income accruing to the government of any possession of the United States, or any political subdivision thereof.”
In addition. Commissioner Blair stated that “Under the provision of the revenue acts above mentioned, the income derived by the City of Syracuse, a political sub-division of the State of New York, from the operation of its water plant is exempt from Federal income tax. The statement contained in the newspaper clipping to the effect that the bureau proposes to tax the income derived from the operation of municipally owned and operated water plants is erroneous.”