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How Taxed is Colorado’s Agricultural Industry? KUNC Investigates

For much of our Government and You series, we’ve discussed the potential impact of budget cuts as state lawmakers worked to fill a projected half-billion dollar shortfall. Now that the legislative session is over, and a budget bill signed, we examine what happens when a tax is repealed. HB 1005 will be signed into law next week. It would eliminate a 2.9 percent sales tax on agricultural pesticides and other products.


To understand how this tax impacted the industry, we turn to fourth-generation wheat farmer Cary Wickstrom. Even with last week’s soaking rains, he estimates that crop yields will be lower than the past two years.

His job is made even more difficult with higher prices for fuel and feed he buys for the cattle operation he also runs. And then there’s the 2.9 percent sales tax passed by the state legislature in 2010 on pesticides and herbicides that hits his wheat fields.

“It runs into the thousands of dollars on this operation,” he says.

The tax was a part of the legislature’s so-called “dirty dozen,” a collection of bills that removed sales tax exemptions and credits for several industries, including agriculture. Lawmakers viewed it as a way of generating more money for the state to balance its books

Republican Representative Jerry Sonnenberg argued the tax was too detrimental on the industry. That’s why he sponsored legislation this year to remove it.

“IBM doesn’t pay sales tax when it gets a box of motherboards, a box of hard drives,” he says. “So agriculture is on a level playing field.”

At least one group, the Colorado Fiscal Policy Institute, testified in favor of keeping the tax, saying that the cost of restoring the exemption was too high.

So how exactly does a sales tax like this impact an industry?

Steve Davies, with Colorado State University’s Department of Agricultural and Resource Economics, estimates the most measurable effect happened in state’s $3.3 billion dollar cattle industry.

“Its exports decline because we’re less competitive and we are then in the position where we lose about $12 to $13 million dollars in export sales,” he says.

That’s because in competitive national and international markets, if Colorado has one type of sales tax and another state does not, it’s at a disadvantage.

“So pennies a bushel or pennies a hundred weight can make a difference in how competitive you are,” says Davies.

He estimates that the wheat industry, which exports 90 percent outside of Colorado, lost $2.5 million dollars. In the long run, he issues one caveat, though, saying the numbers don't take into account the cost of environmental damage that might be attributed to some agricultural chemicals.

And they don’t reflect another competitive disadvantage the tax created near Colorado’s borders.

Dan Slinger manages Stratton Equity Coop on the eastern plains, which sells pesticides and other products. He estimates a 15 percent loss in pesticide sales over the past year because his clients crossed the border, shopping in states that didn’t have the tax.

“It was quite an opportunity for the state line marketers in Kansas and Nebraska to come in and contact our customer base,” he says. “We certainly [saw] a direct effect of loss in sales.”

Add all these losses up, and they’re more than the estimated $3.7 million dollars the state was expecting the agriculture sales tax would collect on annual basis.

Despite the long term gains, the impact will be limited this season for farmers like Cary Wickstrom.

“We’ve bought the bulk of those products before July 1, but it obviously will help us taking care of the wheat stubble after wheat harvest,” he says.

Most farmers and ranchers will have already paid for their pesticides and agricultural compounds by early July, when the repeal goes into effect. But they say it will be helpful when planning for next season.

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