Here's the bottom line from Sen. Brent Hill's report on the impact of tax changes in the stimulus bill on Idaho's state tax revenues: If the state conforms with most of the provisions, it would lose $14.1 million in state income tax revenue in fiscal year 2010, but it would actually gain $820,000 in 2011. That's partly because of the multi-year impact of last year's change in bonus depreciation, which initially cost the state $38 million, but all will be made back up over the coming years, and partly because, at least at this point, many of the stimulus' tax breaks are for just one year - though they could get extended.
Hill identified eight tax provisions in the stimulus bill with potential impact on Idaho, and recommended that the state conform its tax code to comply with seven of them. The one exception: A change in carry-back of net operating losses for small businesses. Idaho hasn't conformed with such changes in the past, and it's common for there to be different time frames, he said. As for the rest, Hill strongly recommended conforming, and making that decision now. Absent that, taxpayers wouldn't know in advance how their 2009 financial transactions would be taxed, making financial planning impossible, he said. Plus, he said many of the provisions in the stimulus bill are meant to be incentives to get the economy moving - and if Idaho doesn't go along with them, they won't have that effect.
Click below to see a list of the eight changes.
1 - Temporary suspension of taxation of unemployment benefits, making the first $2,400 of unemployment benefits per recipient tax-free. Fiscal impact to Idaho in 2010: $4.7 million
2 - Sales tax deduction for vehicle purchases. Taxpayers, up to certain income levels, could deduct their state sales tax on up to $49,500 of the purchase price of new cars, light trucks, RVs or motorcycles purchased from Feb. 17, 2009 through Dec. 31, 2009. Fiscal impact to Idaho in 2010: $1.68 million
3 - Continuation of bonus depreciation changes, which eventually are offset by non-use of Idaho investment tax credit. Fiscal impact: $5 million in fy 2010, $120,000 in 2011, and then an increase in state revenue of $7.7 million from 2012 to 2016. Overall, the net for Idaho is plus $2.58 million over the coming years.
4 - 5-year carryback of net operating losses for small businesses, rather than two years. Hill didn't recommend conforming.
5 - Delayed recognition of certain cancellation of debt income. Impact on Idaho: State tax revenues would decrease over the next four years by $1.6 million, then increase by the same amount over the following five years. "It's a timing issue," Hill said.
6 - An increase in the exclusion for capital gains from sale of certain small business stock held for more than five years. Wouldn't affect Idaho state revenues until fy 2015; then, it'd cost Idaho less than $100,000 a year.
7 - Temporary reduction of S corporation built-in gains holding period from 10 years to 7 years. Cost ot Idaho: $200,000 in 2010 and $200,000 in 2011.
8 - Allowing non-itemizers to deduct the cost of their property taxes. This change actually was made last year in separate legislation; the Senate has amended a pending Idaho bill to not conform to it for 2008. However, the stimulus bill extends it into 2009. Hill recommends conforming in 2009. Cost to Idaho in fiscal year 2010: $2 million.