120 T.C. No. 12
UNITED STATES TAX COURT
CITY OF SANTA ROSA, CALIFORNIA, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7310-00B. Filed May 13, 2003.
P petitions this Court pursuant to sec. 7478,
I.R.C., seeking a declaration that interest on certain
bonds will be exempt from taxation under sec. 103(a),
I.R.C. P proposes to issue bonds of $140 million to
finance the construction of a pipeline. The pipeline
will dispose of wastewater generated in P’s subregional
sewage and water reclamation system. P has entered
into an agreement obligating P to deliver, and a
utility company to accept, an average of 11 million
gallons of wastewater per day. The utility company
will use the wastewater to activate geysers and produce
steam for the generation of electricity. P will
receive no payments from the utility company for the
wastewater. P will enter into agreements with
irrigators along the pipeline obligating P to supply
wastewater for consideration not to exceed 5 percent of
the debt service on the bonds. At least 95 percent of
the debt service on the bonds will be paid by sewer
demand fees imposed on users of P’s sewage system. The
sewage ratepayers use the pipeline as members of the
general public. The pipeline is an integral part of
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