The municipality of Springfield decided several years ago to build an industrial park to create commerce and bring jobs back to its city that had been lost due to agricultural advancements, consolidation of family farms and other factors over many years. To build the industrial park, Springfield acquired 300 acres of farmland adjacent to the city and annexed the land into the city limits. The City extended water and sewage lines as well as natural gas and electric utility lines to make the property available and adaptable to many industries that may want to locate in Springfield. Today the industrial park is deemed to have a value, including land and infrastructure, of approximately $5,000,000.

Your client is the CFO of New Lithium Corporation (NLC). NLC has been negotiating with the City of Springfield to put an EV battery manufacturing facility in the Springfield Industrial Park. The CFO informs you that Springfield is willing to contribute 100 acres of the Industrial Parks land and existing related infrastructure to NLC. Additionally, Springfield has agreed to build roads and provide further utility lines as specified by NLC as well as assist NLC in disposing of its hazardous waste and materials. In return, NLC has agreed to construct its two million square foot manufacturing facility on the donated industrial park land and create at least 1,000 high paying jobs at the facility.

The CFO inquires as to whether any of the property and/or wastewater disposal services provided to NLC will be taxable to NLC. The CFO also asks what the initial tax basis will be in the land and existing infrastructure contributed to NLC by the City of Springfield.

Please draft a memo to the file regarding your advice to the CFO that includes your research, conclusion, and analysis of the above question. No letter back to the client is needed as you will handle the communication with a short phone call. Your phone call discussion should be noted and dated within your memo to the file as documentation for your oral tax advice.