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r. <br /> Private utility rates are generally higher than municipal rates for several reasons. I)profit <br /> vs.non-profit,2)low interest financing vs.conventional rates.3)taxes vs.tax exempt,and 4) <br /> large size vs.small. <br /> The most outstanding of these factors is taxes. The private utility may find it necessary to <br /> collect$1.50 just to realize$1.00 in revenue because of taxes. <br /> 12. WHAT WAS THE MOST SIGNIFICANT IMPACT OF THE TAX REFORM ACT OF <br /> 1986 ON PRIVATELY OWNED COMPANIES? <br /> The act made contributins in aid of construction taxable income to the utility. Previously a <br /> developer could construct a$100.000 system and give it to a utility company.Now the utility <br /> company may have to pay as much as 570.000 in taxes for taking the system.Most of the utility <br /> companies cannot afford to pay the tax and if they could and rate treatment were allowed it would <br /> likely double the customer's rates.The Commission has therefore ordered that the tax liability <br /> be passed on to the developer,theoretically to be recovered through the sales price of the lots. <br /> Developers have been willing to sell their systems to utility companies for$100 to$200 per <br /> lot and even give the systems away but they are not very willing to pay a utility company$700 <br /> per lot to take the system. <br /> Developers will likely look for tux exempt utilities to give their systems to or developers and <br /> private utilities may find a way to avoid the taxes. <br /> The tux law is subject to interpretation and the next few years with IRS will be interesting. <br /> The North Carolina Utilities Commission and most other Commissions of which I am aware <br /> support the repeal of this provision of the Tax Reform Act. <br /> • <br /> • <br /> • <br /> I ' <br />