Tax repeal attempts stoke debate

BOISE - With the Idaho legislative session winding down, efforts to repeal the business personal property tax are heating up.

Two competing bills were introduced last week. One, supported by the Idaho Association of Counties, would eliminate the first $100,000 in personal property tax on business equipment. The second, backed by the Idaho Association of Commerce and Industry, would eliminate the entire $141 million tax over a period of seven years.

House Speaker Scott Bedke, R-Oakley, said lawmakers haven't reached a consensus on either proposal.

"Obviously there are strong feelings on both sides of the issue, but it doesn't have the feel of a conclusion yet," Bedke said during an Idaho Press Club luncheon Tuesday.

Whenever the Legislature has reduced state reliance on property taxes in the past, Bedke said, it typically replaced them with a new revenue source. The state income tax, for example, was adopted in 1931 as a property tax relief measure; the last statewide property tax levy was replaced by a sales tax in 1965.

"That's one of the elements missing now," Bedke said. "We aren't experiencing phenomenal revenue growth, and neither is there an accompanying broadening of the tax base. That's what you're seeing legislators struggle with This doesn't have the feel of there being a broad resolution to the problem."

Senate President Pro Tem Brent Hill, R-Rexburg, said he doesn't want to influence the outcome of the vote, but he sees a financial advantage to tackling the issue now.

"Why I'd like to see something done is that, if we're going to replace those (local tax) dollars, they need to be frozen at 2012 levels," he said. "If we wait three years to do the same thing, there's going to be a lot more personal property purchased, the value's going to go up, and the cost of replacement will go up significantly. I'd like to settle with a number so we know what we're dealing with. I'd like to see us do something, but I don't know if we will."

The House Revenue and Taxation Committee held a combined public hearing on both bills Tuesday. It plans to take additional comment this morning before voting on the legislation Thursday.

Either proposal would keep local jurisdictions whole, replacing the revenue lost from the tax's repeal with state tax dollars. The Idaho Association of Counties bill would cost about $19 million per year, in perpetuity. The annual cost of IACI's proposal rises to $120 million by the end of the seven-year phase-out and every year thereafter.

Of the 37 people who testified at the hearing, most favored the county bill. A handful opposed both measures; five supported the industry proposal - including Idaho Department of Commerce Director Jeff Sayer.

"We are in full support of eliminating this tax," he said. "We need to drive operating costs for our businesses down to the lowest point we can. Eliminating this tax helps us get there."

Chamber groups from Boise and Pocatello also favored eliminating the tax, saying it's an unnecessary administrative burden and a drag on the economy.

"Small business owners want to see full elimination of the personal property tax because they see a brighter state and local economic future," said Matt Hunter, executive director of the Greater Pocatello Chamber of Commerce.

However, Burley City Administrator Mark Mitton said the county proposal strikes a better balance, exempting almost 90 percent of all Idaho businesses from paying any personal property tax without exposing local jurisdictions to future shortfalls.

"One of the dangers (of IACI's bill) is the future ability of local government to provide services," he said. "It's way too expensive for the state, it doesn't provide for any future growth in that replacement revenue, and it would eliminate the ability to do tax increment financing on large projects."

Moreover, the bill "would make cities, counties and school districts too dependent on state revenue," Mitton said.

Molly Stein, superintendent of the Silver School District in Caribou County, said elimination of the personal property tax "has been a wolf knocking on the door of education funding the last five years. School districts, as well as city and county leaders, have been evaluating the issue and looking for a viable alternative while seeking compromise."

The Idaho Association of Counties bill is that compromise, she said.

Besides eliminating the first $100,000 in personal property for every business in every county where they have offices, it also exempts all small purchases valued up to $1,500 from paying any tax.

If either bill makes it out of committee Thursday, it would go to the full House for debate.

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Spence may be contacted at bspence@lmtribune.com or (208) 791-9168.