It may sound counter-intuitive, but the same economic stimulus bill that's promising a billion dollars in federal funds to Idaho also could cost the state $14 million in state tax revenue. That's because, as Idaho Falls Post Register reporter Nick Draper reported today, tax breaks contained in the stimulus bill require Idaho's state income tax law to conform, or risk big hassles for businesses and other taxpayers when filing both state and federal income taxes. Senate Tax Chairman Brent Hill developed the $14 million estimate, and will make a presentation to legislative budget writers next week. Already today, the Senate amended HB 64, the bill to conform Idaho's tax code to various other federal changes including a new federal deduction that could cost the state $2 million, to strike the $2 million part (matching a new deduction for property taxes for non-itemizers). Click below to read Draper's full story from today's Post Register.
The stimulus giveth, but also taketh away
The federal stimulus could cost Idaho an estimated $14 million in state income tax revenue.
By NICK DRAPER
BOISE -- Even though the federal stimulus package could bring $1 billion into Idaho, it'll also take money away.
While the State Tax Commission still must verify his numbers, Sen. Brent Hill, a Rexburg Republican, estimates that Idaho income tax revenue could be about $14 million lower in fiscal year 2010 because of one-time tax breaks provided by the American Recovery and Reinvestment Act.
With lawmakers scrounging for every penny and revenues consistently falling short of projections, Idaho can ill afford to lose additional money.
To eliminate the reduction, Hill, a certified public accountant, has come up with a few ideas to offset the $14 million hit.
One includes raising the top income tax rate by one-tenth of a percentage point to 7.99 percent, a move that raises annual state income tax revenues by about $15 million.
A couple making $65,000 a year would pay $20.86 more a year in state income taxes after accounting for deductions and exemptions.
Hill said that averages out to $1.74 more a month.
"You and I could pay that," he said.
The potential increase shouldn't be looked at as raising taxes, Hill said, because the people paying more also would be benefiting from the tax breaks.
"The difference is a wash," he said.
Another idea would be to postpone the 2009 phase-in of the grocery tax credit, which under current law would increase $10 in the coming fiscal year, to $60 apiece for low-income residents and $40 for all others.
Yet those options may only have to be implemented for one year, Hill said, because the tax breaks identified in the stimulus package won't cost the state money in fiscal year 2011.
Lawmakers could drop the top income tax rate next year and even double the grocery tax credit to make up for a lost increase, Hill said.
And no provision in the stimulus package requires Idaho to adopt the tax breaks and lose $14 million in revenue, but Hill said lawmakers could cause some major headaches if they don't.
"If we don't, it's terrible," he said.
By not adopting the federal law, businesses will have a much more confusing task around tax time and won't be able to take advantage of the tax breaks.
"They're very business friendly," Hill said.
But whether or not lawmakers address the issue remains to be seen.
Hill, who was tasked by the legislative services office to examine the tax break, met with Senate leadership Tuesday and gave his report. He's also set to meet with Gov. C.L. "Butch" Otter sometime this week and will give a presentation to the Legislature's budget-writing committee Monday and the House Revenue and Taxation Committee on Tuesday.
Senate Majority Leader Bart Davis, R-Idaho Falls, said no decisions have been made, and that he's unsure what lawmakers will do.
"I don't know the way the Legislature will go on this, but $14 million in a year like this is a great deal of money to us," he said. "It'll be hard to do either."
The tax breaks
With the passage of the federal stimulus package, more than 40 tax breaks were approved for individuals and businesses. Only six provisions affect Idaho's income tax revenues for fiscal year 2010. (Two provisions do negatively affect state revenue for fiscal year 2011, but it's negligible.)
Here's a look at what they are and how much they'll cost the state:
1. $2 million for an addition to the standard deduction for property taxes.
2. $4.7 million for an unemployment benefit exclusion.
3. $1.68 million for those who buy new cars in 2009.
4. $5 million for business to recover the cost of capital expenditures.
5. $400,000 for certain businesses who delay canceling their debt income.
6. $200,000 for businesses that convert to an S corporation, which is exempt from federal income tax.