Sens. Salazar & Allard Working to Help Colorado’s Agricultural Water Using Community

WASHINGTON, D.C. – Water is Colorado’s most precious resource because it allows our communities to thrive and our farmers to grow the crops our Nation needs. The physical infrastructure necessary to divert, carry and distribute our water to areas of need is nearly as important as the water itself. That is why United States Senators Ken Salazar and Wayne Allard sponsored Senate Bill 499, which is expected to be included in a natural resources tax package to be reported out of the Senate Finance Committee today. The provision will clarify that exchanges involving shares of stock in mutual ditch companies should be tax-free.

Mutual ditch companies are unique corporations, organized as non-profit organizations solely for the convenience of their members in managing a joint water distribution system. The shareholders are often farmers and ranchers who have an exclusive right to use the ditch company’s water in direct proportion to the number of shares they own.

As a result, the Colorado Supreme Court has ruled that ditch company shares represent a tangible property interest. The Internal Revenue Service (IRS), however, issued a General Counsel Memorandum in 1986, prior to the Colorado Supreme Court ruling, which concluded that Colorado mutual ditch company stock is not covered by Section 1031 of the Internal Revenue Code, which otherwise permits tax-free exchanges of like-kind property. Senator Salazar and Allard’s legislation will clarify that exchanges involving ditch company shares – like exchanges involving other kinds of real property – should be tax-free.

This technical change will provide predictability for Colorado’s mutual ditch companies as they enter into transactions to raise needed capital and for other purposes such as physical infrastructure maintenance.

“This is a fair and common-sense bill that will allow Colorado’s mutual ditch company shareholders, most often farmers and ranchers, to continue to afford to maintain our state’s physical water distribution infrastructure,” said Senator Salazar. “I look forward to continuing to work with Senator Allard to see our bill passed by Congress and signed into law for the good of our state.”

“This change would provide legal certainty for our important agriculture industry and stakeholders in Colorado,” said Senator Allard. “A legislative clarification would uphold the position of state law and end the unique disadvantage faced by residents of our state.”

Once the natural resources tax package is marked up, it will go to the Senate floor for final passage.

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