House budget deal restores exemptions on ag products

As part of a budget deal with the Senate, the Colorado House approved a measure on a voice vote Friday to restore a sales tax exemption on agricultural products.

The deal calls for restoring the exemption along with a slew of other moves, including increasing the size of the state’s reserve account and allowing businesses to retain two-thirds of a 3.3 percent vendor fee to offset the cost of collecting the state’s sales tax.

In exchange for all that, next year’s $18 billion budget will cut K–12 education by $250 million instead of the $332 million proposed by Gov. John Hickenlooper.

The exemption was suspended for two years as part of a budget-balancing measure for the current year’s budget. But rural lawmakers argued it was unfair because it forced agricultural operations to pay a sales tax on items they use to produce their products. The tax was imposed on everything from pesticides to bull semen.

Such business expenses are called “inputs,” and no other industry is required to pay sales taxes on them, said Rep. Jerry Sonnenberg, R-Sterling.

Restoring the exemption, however, doesn’t come without a cost to rural parts of the state.

To cover the $3.7 million it will take the state to fund the exemption, the Legislature plans to transfer money out of severance taxes it earns from energy production. That money normally goes to offset infrastructure impacts that local communities suffer from that production.

Rep. Mark Ferrandino, D-Denver, said the 2011–12 fiscal year, which begins July 1, is the last year the sales tax exemption was to be suspended.

The bill is expected to pass easily when the House formally votes on it, which could come as soon as Monday, but it has opponents. Two Democratic lawmakers said while the state’s farmers and ranchers need help, so do the state’s children.

Reps. Dickey Lee Hullinghorst, D-Niwot, and Matt Jones, D-Louisville, said they wouldn’t object to restoring the exemption if K–12 education wasn’t also facing such a huge budget cut.

“The agricultural industry, even with the suspension of the sales tax, has had some fairly big breaks in the state of Colorado,” Hullinghorst said. “I think maybe we can spend our money for better priorities.”



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