[Congressional Record Volume 158, Number 151 (Thursday, November 29, 2012)]
[Senate]
[Pages S7219-S7220]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
By Mr. UDALL of Colorado (for himself, Mr. Crapo, Mr. Bennet, and
Mr. Barrasso):
S. 3650. A bill to amend the Internal Revenue Code of 1986 to
facilitate water leasing and water transfers to promote conservation
and efficiency; to the Committee on Finance.
Mr. UDALL of Colorado. 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.
There being no objection, the text of the bill was ordered to be
printed in the Record, as follows:
S. 3650
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Ditch and Irrigation Company
Tax Reform Act''.
SEC. 2. FACILITATE WATER LEASING AND WATER TRANSFERS TO
PROMOTE CONSERVATION AND EFFICIENCY.
(a) In General.--Paragraph (12) of section 501(c) of the
Internal Revenue Code of 1986 is amended by adding at the end
the following new subparagraph:
``(I) Treatment of mutual ditch or irrigation companies.--
``(i) In general.--In the case of a mutual ditch or
irrigation company or like organization, subparagraph (A)
shall be applied without taking into account any income
received or accrued--
``(I) from the sale, lease, or exchange of fee or other
interests in real property, including interests in water,
[[Page S7220]]
``(II) from the sale or exchange of stock in a mutual ditch
or irrigation company or like organization or contract rights
for the delivery or use of water, or
``(III) from the investment of proceeds from sales, leases,
or exchanges under subclauses (I) and (II),
except that any income received under subclause (I), (II), or
(III) which is distributed or expended for expenses other
than operations and maintenance of the mutual ditch or
irrigation company or like organization shall be treated as
non-member income in the year in which it is distributed or
expended. For purposes of the preceding sentence, expenses
other than operations and maintenance include expenses for
the construction of conveyances designed to deliver water
outside of the mutual ditch or irrigation company or like
organization system.
``(ii) Treatment of organizational governance.--In the case
of a mutual ditch or irrigation company or like organization,
where State law provides that such a company or organization
may be organized in a manner that permits voting on a basis
which is pro-rata to share ownership on corporate governance
matters, subparagraph (A) shall be applied without taking
into account whether its member shareholders have one vote on
corporate governance matters per share held in the
corporation. Nothing in this clause shall be construed to
create any inference about the requirements of this
subsection for companies or organizations not included in
this clause.''.
(b) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.
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