Idaho doesn’t charge its state income tax on military retirement pay for those age 65 or older, but it does tax pension benefits for military retirees who are younger than 65. Rep. Kathy Sims, R-Coeur d’Alene, says 13 other states exempt that retirement pay from state income tax and she wants Idaho to join their ranks.

Sims said she got the idea for the bill when she was sitting on a beach in Bayview, visiting with a friend who had just retired from the Marine Corps. “She said, ‘I’m off to Missouri,’” Sims said. When Sims wondered why the woman would leave, when Idaho is so beautiful, “She said, ‘They’re going to tax my military retirement.’” Sims worked with the Idaho Division of Veterans Services on her bill, HB 420; the division embraced the idea and is backing it, along with numerous veterans groups.

Tamara Mackenthun, the division’s deputy administrator and an Air Force retiree after 21 years of service, said, “This is a big deal for retirees, a very big deal.” She added, “Rep. Sims brought it to us, and our reaction was, ‘Yes, ma’am!’”

The bill came up for a hearing in the House Revenue & Taxation Committee this morning; after much debate, it passed on an 11-4 vote and now heads to the full House. The committee was presented with figures showing there are currently 6,585 military retirees in Idaho under age 65. Exempting their pensions from tax would cost the state about $3.5 million. Average military retirement pay is $24,000 a year; Mackenthun said younger military retirees typically are at their peak earning years and work in second careers, paying taxes on that income. But states that also tax their pension benefits push them into higher tax brackets, prompting some to choose states that either don’t tax that benefit, or one of the eight states with no state income tax.

“This is a huge deal, when they make a determination what state they’re going to retire at,” said Bill Heyob, manager of the Idaho Office for Veterans Advocacy at the Division of Veterans Services. Sims and Mackenthun said young military retirees are just the kind of productive citizens Idaho should be trying to attract. “They deserve a welcome back,” Sims said.

Rep. Mat Erpelding, D-Boise, questioned why the exemption should go to military retirees and not to retired police officers or firefighters. Rep. Neil Anderson, R-Blackfoot, said, “Last year we had a Girl Scout cookie bill. It was a difficult decision. They wanted a sales tax break, and of course in this case we’re talking about income tax, so it’s a little bit different. My concern about things like this does not lie with the value of the organization, because Girl Scouts were and are a great organization, and certainly the military is essential to maintain our country as it is and there’s a debt there that will never be totally repaid.”

“But,” he said, “on the other hand, to stratify our populace and now categorize people by their vocations and treat them differently for a tax purpose is problematic in my view. … If that’s the case, where does this stop?” He said, “If we take $3.5 million off the back of one group of people, we need to put it on the back of another, and I’m not sure that’s fair.” He also noted that Idaho has the eighth-highest percentage of veterans among its residents of any state, so current policies don’t seem to be keeping vets away.

Rep. Janet Trujillo, R-Idaho Falls, said, “This is probably the hardest vote that I have had to make since I’ve been in this committee.” She said she’s a “military brat” whose father served in the Air Force, and whose son served in Iraq. But, she said, “Idaho is actually pretty fair when it comes to our military families. … We cannot give exemptions to everyone that comes forward.”

Rep. Cindy Agidius, her voice breaking with emotion, said, “This is an easy vote for me. I am also from a military family. All three of my sons have served in the military, as well as my father and my husband. There’s a big difference between serving in the military and being in the Girl Scouts or being a fireman. I have a son who is a fireman,” and she said she’s grateful he wasn’t deployed for military service. “If we can exempt their retirement income, I am all for it,” Agidius said.

To become law, HB 420 still would need to pass the full House and Senate and receive the governor’s signature.

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