Ditch and Irrigation Company Tax Reform Act

Mr. President, today I am introducing bipartisan legislation that will improve the viability of agriculture and rural communities in western States like Colorado. This legislation will make it easier for mutual ditch and irrigation companies, which are an integral part of agriculture in arid regions where you often have to transport irrigation water over long distances, to remain profitable.

I thank my colleagues Senators Crapo, Bennet and Barrasso for joining me in this effort.

Mutual ditch and irrigation companies are primarily associations of farmers who band together to construct and operate water delivery and storage systems for use on semi-arid farmland. For 150 years, mutual ditch and irrigation companies have installed and maintained this kind of infrastructure to convey water to irrigated lands in the West.

These companies can qualify for tax-exempt status if at least 85 percent of their income comes from their member assessments. The 85- percent rule is meant to ensure that the members of tax-exempt cooperatives are not able to enrich themselves by making investments unrelated to their charitable purpose.

Over time, however, the cost to maintain and operate aging water infrastructure has made it impossible for many mutual ditch and irrigation companies to operate solely on member income. If member assessments were large enough to cover the true cost of operations, it would be cost prohibitive for most farmers to use the water to irrigate crops, leading to a loss of irrigated farmland.

To sustain irrigated farmland, ditch and irrigation companies supplement the cost of operations with non-member income from, for example, recreational leases, crossing fees, storage rights and the exchange of water rights. This is a good thing, but this supplemental income can jeopardize the company's tax-exempt status.

My legislation would exempt certain sources of income from the 85- percent member income test for mutual ditch and irrigation companies. However, to be excluded, the revenue from these sources must be used for the tax-exempt purposes of the company. My legislation specifically requires non-member income to be used for operations or maintenance of the mutual ditch or irrigation company in order to be exempted from the 85-percent test.

By excluding these revenue streams, we can support local agriculture and help ditch and irrigation companies stay in business, while at the same time providing for more efficient use of precious water resources. Further, by requiring that the proceeds be used exclusively for operations and maintenance of the ditch or irrigation company, we will ensure that this income is reinvested in water infrastructure, helping to create and preserve rural jobs and our agricultural heritage.

Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

Mr. President, today I am introducing bipartisan legislation that will improve the viability of agriculture and rural communities in western States like Colorado. This legislation will make it easier for mutual ditch and irrigation companies, which are an integral part of agriculture in arid regions where you often have to transport irrigation water over long distances, to remain profitable.

I thank my colleagues Senators Crapo, Bennet and Barrasso for joining me in this effort.

Mutual ditch and irrigation companies are primarily associations of farmers who band together to construct and operate water delivery and storage systems for use on semi-arid farmland. For 150 years, mutual ditch and irrigation companies have installed and maintained this kind of infrastructure to convey water to irrigated lands in the West.

These companies can qualify for tax-exempt status if at least 85 percent of their income comes from their member assessments. The 85- percent rule is meant to ensure that the members of tax-exempt cooperatives are not able to enrich themselves by making investments unrelated to their charitable purpose.

Over time, however, the cost to maintain and operate aging water infrastructure has made it impossible for many mutual ditch and irrigation companies to operate solely on member income. If member assessments were large enough to cover the true cost of operations, it would be cost prohibitive for most farmers to use the water to irrigate crops, leading to a loss of irrigated farmland.

To sustain irrigated farmland, ditch and irrigation companies supplement the cost of operations with non-member income from, for example, recreational leases, crossing fees, storage rights and the exchange of water rights. This is a good thing, but this supplemental income can jeopardize the company's tax-exempt status.

My legislation would exempt certain sources of income from the 85- percent member income test for mutual ditch and irrigation companies. However, to be excluded, the revenue from these sources must be used for the tax-exempt purposes of the company. My legislation specifically requires non-member income to be used for operations or maintenance of the mutual ditch or irrigation company in order to be exempted from the 85-percent test.

By excluding these revenue streams, we can support local agriculture and help ditch and irrigation companies stay in business, while at the same time providing for more efficient use of precious water resources. Further, by requiring that the proceeds be used exclusively for operations and maintenance of the ditch or irrigation company, we will ensure that this income is reinvested in water infrastructure, helping to create and preserve rural jobs and our agricultural heritage.

Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.