In an attempt to clear up confusion over sales-tax exemptions for farmers and ranchers, the Colorado Department of Revenue has begun to define what qualifies as an "agricultural item," and who qualifies as a "producer."

These definitions are meant to clarify a law passed by the 2000 Colorado Legislature that exempted agricultural producers from paying state sales tax on agricultural equipment and parts.

The law took effect on July 1, 2000, but since then the Colorado Farm Bureau and farm-equipment retailers have asked the department to list which specific products are now exempt.

"It has just basically been a nightmare," said Karen Salaz, spokeswoman for the Colorado Farm Bureau. Salaz said that although exempting items from the tax helped producers, it also caused a great deal of confusion for retailers.

"The original bill had no specific equipment lists," explained Salaz. "The new clarifications say, ‘This means batteries. It doesn’t mean paint, but it means battery cables.’ "

Under the new law, farm equipment — including non-registered farm vehicles, towed equipment, trailers, attachments to vehicles, irrigation equipment, aircraft used in crop dusting, and repair and maintenance parts for these items — are exempt from the 3-percent state sales tax.

This includes feed trucks, manure-spreaders and front-end loaders primarily used on farms and ranches that are not required to be registered with the Colorado Motor Vehicle Division. The vehicles must be limited to incidental highway use only.

Specifically, hay-balers, hay-stacking equipment, combines, tillage and harvesting equipment, baling wire, binders twine, surface wrap and pallets are also exempt.

In addition, repair parts and maintenance products that are integral to agricultural operations are also exempt from sales tax. This includes items such as oil, antifreeze, grease, tires, filters, lubricants and belts.

Items such as paint, radios, battery-chargers, pressure washers, gloves, and tools are not exempt because they are not considered primary to the operation. Barns, corrals, feed lots, etc., are not tax-exempt.

No fixed equipment is exempt, regardless of how easy it is to move or how often it is moved, other than irrigation equipment.

The new law, co-sponsored by state Rep. Mark Larson and state Sen. Jim Dyer, was an expansion of the 1999 bill that exempted farm equipment that cost $1,000 or more from state sales tax.

The Colorado legislative council estimated that repealing the sales tax on these items would result in a loss of $3,617,000 from the state’s coffers in FY 2000/2001, and $3,736,000 in FY 2001/2002.

Local governments would still be able to tax the items, but would be authorized to exempt covered items used in agricultural operations by the adoption of a sales-tax ordinance or resolution.

For instance, the Colorado state sales tax is 3 percent, but in Montezuma County, agricultural equipment is still subject to a .45 percent county sales tax, and if the implement dealer is within the boundaries of the city his or her customers will pay an additional 3.5-percent sales tax unless the tax is repealed.

Area equipment retailers have expressed some confusion over whether the law applies to used equipment as well, but Department of Revenue officials said the law applies to both used and new equipment.

Jean Belden, co-owner of Four Corners Farm Sales of Cortez, said the laws were so confusing that rather than acting as "judge and jury" to decide what qualifies as farm equipment, she gives her customers a claim form to file with the Department of Revenue for a refund.

Other area farm-equipment retailers have found the new exemption relatively easy to work with.

"It’s helpful for the farmers, and especially this year, to get that little bit off, but I don’t think it’s going to help us sales-wise," said Vicki Harrison, bookkeeper at MFE West, Inc., a John Deere Tractors & Equipment implement in Cortez.

Cecil Martin, owner of the New Holland Dove Creek farm implement store, said that both agricultural retailers and producers need the exemption.

"It helps the state of Colorado because it puts us on a level playing field with states around us," he said.

Martin noted that Utah has been tax-exempt for several years, and it was used to be a common practice for Colorado farmers to buy expensive agriculture equipment out of state to avoid paying sales tax.

To qualify for the exemption, agricultural producers are required to fill out and sign an official affidavit for Colorado Sales Tax Exemption for Farm Equipment.

Both the New Holland and John Deere dealerships have the affidavits available at their cash registers.

By law, if dealers have reasonable doubt that the product is not exempt, they are required to collect the tax. Farmers and ranchers may then file a claim for refund from the Department of Revenue.

The Taxpayer Services Division of the Colorado Department of Revenue has issued an official "For Your Information" statement to help understand which items do and do not qualify for the exemption.