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Turf rebate conundrum: California residents unsure whether they'll be taxed

The turf outside this Pasadena home was transformed into a drought-friendly yard using the Metropolitan Water District's Cash for Grass program in October 2014. The $450 million water conservation program has now ran out of money. Maya Sugarman/KPCC

The Metropolitan Water District is unsure whether Southern Californians who received rebates to replace their lawns with drought tolerant landscapes would have to pay taxes on that money, the L.A. Times reports.

MWD set aside $340 million for the program, which ran dry in July, to help L.A. incentivize replacing 170 million square feet of lawn. 

"There’s always been language in the agreements when people sign up about a potential tax liability," MWD spokesman Bob Muir told KPCC. "So it was clearly stated in the application process."

According to the turf rebate terms, the Internal Revenue Service requires program participants who receive $600 or more to receive an IRS Form 1099 "unless exemptions apply."

While turf rebate exemptions apply under California tax code, it is unclear whether they apply under federal tax code. 

"Unfortunately we’re still waiting for clarity on this issue," said Muir. "The state franchise tax board has approached the IRS to see if we can get a clarification whether the exemption on rebates applies in California."

People in the process of getting a rebate now have to provide their tax identification numbers online, said Muir. MWD is also emailing customers who have already received the rebates and asking them to provide that information.

"So it’s a matter of just lining things up, being prepared so if there is a decision that would prompt us to act, we’re ready for it," said Muir. 

It's unclear when MWD will hear back from the California Franchise Tax Board and the IRS, leaving rebate recipients momentarily in the dark as to whether they owe money and if so, how much. 

"We’re really not in a position to be providing tax advice," said Muir. "If people do have questions we would ask them to talk to a tax expert."

This story has been updated.