We have contracted with company to collect water/sewer payments and send the money to us after expenses are taken out. How do we record gross amount collected as income?

When someone else is handling your money, treat it like a bank account - one that you enter manually. Create a QB bank account for the service.

Record the gross payments in and out this account as they occur - just like any other bank account. 

When you receive the net proceeds it will appear as a deposit in your regular bank - and code it against the service account.