Bipartisan Legislation Would Make It Easier and More Affordable for Homeowners to Participate in Water Conservation Efforts
WASHINGTON – Senator Ruben Gallego (D-AZ) backed the bipartisan Water Conservation Rebate Tax Parity Act to give homeowners a tax cut for water conservation and runoff management improvements.
The bill encourages homeowners to invest in water-saving and flood-prevention improvements by ensuring they are not penalized with unexpected tax burdens when they receive a rebate from their water utility.
“Arizona families should be rewarded – not punished – for working to conserve water,” said Senator Gallego. “I’m proud to support this bill to protect our water supply and keep money in the pockets of hardworking Arizonans.”
Public utilities and state and local governments across the country are increasingly offering rebates and incentives to homeowners who invest in water conservation and stormwater management improvements to reduce water use, limit stormwater runoff, and ease the strain on public infrastructure.
Encouraging residents to conserve water—whether by installing graywater capture systems, purchasing high-efficiency appliances, or upgrading plumbing fixtures—yields significant benefits for public health, the environment, and local economies. These rebates provide a net positive impact for both the public and utilities, yet they are still classified as taxable income under current federal law. This tax treatment discourages participation in water conservation investments.
The Water Conservation Rebate Tax Parity Act clarifies that these incentives—growing in both number and size—should not be considered taxable income, but rather a means of offsetting upfront consumer costs for the public good.
Specifically, the bill would:
- Amend the tax code to exempt from taxation any rebates or subsidies for water conservation, efficiency, stormwater management, or wastewater management improvements;
- Extend the tax exemption to rebates or subsidies provided directly or indirectly by public utilities, state and local governments, and stormwater management providers; and
- Apply the exemption retroactively to amounts received on or after December 31, 2021, ensuring that recent rebates are also covered.
The bill was originally introduced by Senators Alex Padilla (D-CA), John Hickenlooper (D-CO), and John Curtis (R-UT).
The full text of the legislation can be found HERE.
6/23/25