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House Finance Committee approves bill repealing tax on ag compounds PDF Print E-mail
Written by Marianne Goodland, Legislative reporter   
A bill repealing the 2010 tax on agricultural compounds and pesticides took another step forward in the House last week, pitting Republicans who said the 2010 tax was costing the state jobs and tax revenue against Democrats who said repealing the tax would result in larger cuts to K-12 education. But the fight is getting harder as the legislation approaches the Senate, where it will face its toughest battles.

House Bill 11-1005 is sponsored by Rep. Jerry Sonnenberg, R-Sterling. It was approved on a party-line vote by the House Finance Committee, with the seven Republicans supporting and the six Democrats opposed. The bill’s next stop is the House Appropriations Committee, and if passed, on to the House floor for debate.

The bill went through a tougher and longer fight in the finance committee than when it got its first appearance in the House Agriculture, Livestock and Natural Resources Committee in January. The finance committee spent more than 2.5 hours debating HB 1005 on March 2.

However, it wasn’t nearly as long as the original fight over HB 10-1195, the bill that repealed the tax exemption. In 2010, HB 10-1195 was part of a package of bills repealing tax exemptions and credits that went through the finance committee in a marathon hearing that lasted more than 12 hours.

HB 10-1195 is the law passed last year to temporarily lift a tax exemption for the sale of agricultural compounds, pesticides and bull semen. The original tax exemption was put in place in 1999, part of a series of tax exemptions and reductions in state sales and use taxes and income taxes that reflected Colorado’s flush cash situation.

That year, for example, the state had more than $900 million in refunds available through the Taxpayer’s Bill of Rights (TABOR).

HB 10-1195 was originally estimated to bring in about $900,000 in 2010-11 and $4.6 million in 2011-12, although the estimate for 11-12 has been revised downward to $3.7 million.

“IBM does not pay sales tax on its motherboards” when it builds a computer, Sonnenberg told the finance committee, but since last year agriculture has had to pay for things to go into its products, he said, and no other industry in the state has to pay a tax on its inputs.

Agribusinesses were hurt because of the 2010 tax, Sonnenberg said, noting one co-op with which he is familiar lost $10 million last summer. About one-third of that was in sales of chemicals. The other two-thirds was lost when the application sales also went out-of-state, he said.

Democrats went on the attack on HB 1005 early and often. Rep. Daniel Kagan, D-Englewood, pointed out the final product of agriculture, food, is not subject to tax at the retail level, a point that Sonnenberg acknowledged but called it an “apples and oranges” argument.

Rep. Dickey Lee Hullinghorst, D-Boulder, said that according to the bill’s fiscal analysis, there had actually been a doubling in sales tax revenue in 2010-11.

Sonnenberg disputed it. “Agriculture had a good year and farmers spent more,” he said, and it could have been on the products covered under HB 10-1195. However, he also pointed out the Department of Revenue does not categorize which sales taxes come in from which agricultural products, and that the department had also recognized the state would likely realize lower sales tax revenues from HB 10-1195 in 2011-12.

Rep. Jeanne Labuda, D-Denver, noted that overturning HB 10-1195 would result in a larger hole in the state budget, and asked Sonnenberg where he would find the $3.7 million in 2011-12 that the bill would cost—higher education? K-12 education? “Where would you like us to cut?” she asked.

Sonnenberg replied that state damaged agribusiness with HB 10-1195, and “if you take $6.5 million that agribusiness lost” just on applications, move that seven times through the state (the average turnover on a dollar spent in agriculture), that would more that make up the $3.7 million lost. Labuda didn’t buy it, and later Sonnenberg admitted the co-op he mentioned is still in business.

Rep. Dan Pabon, D-Denver, said his constituents refer to the tax exemption, and on bull semen in particular, as a special interest tax break. “I would tell your constituents that in order for ag to put the cheapest food on the table, they need to be on a level playing field with the states surrounding us,” Sonnenberg said.

During the agricultural committee hearing, only one person signed up to testify against HB 1005. It drew much more opposition, and support, on March 2.

Kathy White of the Colorado Fiscal Policy Institute said HB 1005 would cost jobs. She pointed out that HB 10-1195 is temporary and the tax exemption ends on June 30, 2013, and there’s no conclusive evidence that businesses have either left the state or people have gone to other states to buy their agricultural compounds. White noted that every state surrounding Colorado has higher sales taxes, although she acknowledged they do not tax the products covered under HB 10-1195. Republicans sat silent during the opposition testimony.

Testifying in favor, Michael Dodge of the Rocky Mountain Agribusiness Association told the committee, “thank you for your tax on ag business.” Dodge said he is a resident of Kansas and that state has benefitted from the sales tax. However, Colorado members of RMAA have seen a 20 percent drop in pesticide sales from the previous year, despite the fact that 2010 was a very good year for agriculture.

Members have been forced to lower their profit margins to offset the 2.9 percent sales tax, he said, and the impact carries into other businesses, such as fuel, welders, parts for equipment, etc. And some businesses have cut jobs or payroll and others may go out of business. In Burlington, for example, the five businesses in agribusiness could eliminate one or two jobs per business, he said. Dodge also pointed out that while food isn’t taxed in grocery stores, it is taxed in restaurants.

Democrats challenged Dodge’s facts, drawing from him that some of his testimony was based only on anecdotal evidence.

Hard evidence, however, came from Jerry Cooksey of the Colorado Association of Wheat Growers, who said his Roggen farm paid $2,500 more in state sales taxes, and this year he estimates the higher sales tax at $4,800.

“We can’t pass on these costs. Our hands are tied.” And last year, a hail storm one month before harvest cost him half his crop, after he’d already paid for the products taxed under HB 10-1195.

Kagan noted previous testimony that other farmers were going to other states for those products, and asked whether Cooksey considered it. “We purchased from local providers,” Cooksey said. “It’s important for us to see them thrive. If they thrive, we thrive.”

He also pointed out that buying out-of-state means he wouldn’t get the service from those out-of-state retailers.

Kagan pointed out that farmers who go to other states to purchase would be subject to use taxes when they bring the products back into Colorado, a fact that Sonnenberg said most farmers are likely unaware of.

In other action at the capitol this week:

A bill that would increase transparency in utility bidding, carried by Rep. Jon Becker, R-Fort Morgan, got the highest praise possible from the House last week—a 65-0 vote.

HB 1262 sailed through the House Agriculture, Livestock and Natural Resources Committee on a 13-0 vote on Feb. 23. The bill, which is co-sponsored by Rep. Claire Levy, D-Boulder, has 22 other original co-sponsors from both sides of the aisle, and in the Senate it will be carried by Sens. Greg Brophy, R-Wray; and Michael Johnston, D-Denver, with 13 additional bipartisan co-sponsors.

The bill asks the Public Utilities Commission to adopt rules that would require Xcel Energy and Black Hills Power to provide independent power producers (IPPs) with access to “modeling inputs and assumptions” when they bid for power generation.

Becker told the ag committee that the IPPs, such as those that produce solar, wind or natural gas power, don’t see the assumptions that form the basis for the bidding process. That puts the bidders at a competitive disadvantage, and can lead to inaccurate bids, sometimes in the millions of dollars. By allowing transparency into the process, Becker said it will assure that the state gets the cheapest power possible. Those who testified in favor of HB 1262 said more accurate bids that would come out of the bill will lead to better competition.

Becker said that IPPs bid on projects but when they lose the bid they don’t know why. “This allows them to have the information” but would not allow them to have proprietary information or information on other bids, he said.

IPPs belong in Eastern Colorado, he said this week. “It’s a huge driver for the economy, and we’d love to have these facilities.”