Last Thursday, Senators Mike Crapo (R-Idaho), Michael Bennet (D-Colorado) and Cory Gardner (R-Colorado) introduced the Water and Agriculture Tax Reform (WATER) Act, legislation that would allow mutual ditch and water companies more freedom to raise money for operations and maintenance while retaining their nonprofit status. The bill would eliminate outdated tax provisions that have historically hindered investment in water infrastructure for farmers and ranchers.
Specifically, the law would remove restrictions on the ability of mutual ditch and irrigation companies (non-profit companies comprised mostly of farmers who have formed cooperative corporations to maintain and develop water storage and delivery systems for farmland) to raise capital to invest in infrastructure critical to farming. Current law requires that these companies receive 85 percent of their income from shareholder investment in order to maintain their non-profit status. So under existing law, a mutual ditch and irrigation company needing to make a large capital investment in infrastructure, for example, is stymied in generating revenue to pay for that project. The WATER Act would free these companies up to receive other sources of income, (i.e., from the sale or lease of property, including water rights, from stock in another mutual ditch or irrigation company, or from investing in proceeds of those sales or leases) for operations and maintenance and still maintain non-profit status, as long as that income is used exclusively for the company’s operations and maintenance.
“In the face of persistent drought conditions, water is an even more precious resource for Colorado’s farmers and ranchers,” Bennet said in introducing the bill. “Producers face challenges when it comes to distributing water across their land to keep it productive for agricultural uses. This bill updates the tax code to help Colorado’s ditch and irrigation businesses keep this infrastructure in good working condition.”
“Mutual ditch, irrigation, and water companies play a critical role in agriculture, and in Western agriculture in particular,” Gardner said. “They allow farmers, ranchers, and others to form collaborative corporate entities to install and maintain vital irrigation infrastructure. Unfortunately, our outdated tax laws risk holding back the agriculture industry’s ability to innovate and make needed improvements. Many in the agriculture industry, for example, are looking to make improvements to water efficiency. But currently, if a mutual irrigation company spends too much money on efficiency improvements, it risks losing its tax-exempt status. These are outdated portions of our tax code, and they’re overdue for modernization.”
CWC will monitor this legislation and keep you apprised of its progress in Congress as well as its expected impact on our members.