HB 441, a bill from the Idaho Association of Counties to make a series of technical changes to the law to ease the administration of the $100,000 per-taxpayer, per-county property tax exemption that lawmakers passed last year for business equipment, is headed to the Senate’s 14^th Order for amendments – where it’ll likely morph into a bill to address questions about where to draw the line between real and personal property for purposes of the exemption.

Senate Tax Chairman Jeff Siddoway, R-Terreton, told Seth Grigg of the IAC this morning, “We’ve worked throughout the session trying to get a personal property tax bill put together to … perhaps take another bite out of that personal property this year.” Now, he said, “We’ve got a rule that is going to affect legislation and legislation is required, and it deals with the three-and-a-half factor, the half-factor being fixtures. ... And I think the darn chairman of the Tax Committee has held up all the tax bills, and that’s one of ‘em that got held up too. … We have to use your bill, Seth, as a vessel to get that piece of legislation in there.” He said, “My recommendation to our committee is to send that to the 14^th Order so we can use that as a vessel to finish this up here.”

Siddoway said part of the problem is the rules defining the line between personal and real property, which matters more now that personal property – business equipment – has a big tax exemption. The state Tax Commission in November passed a controversial rule to draw the line, but business interests that lost out on the exemption in that process protested. Alan Dornfest, property tax chief for the state Tax Commission, said the commission’s rule was an attempt to deal with the “half-factor” confusion about when fixtures, such as machinery, are real or personal property, when it came to things like underground storage tanks. “It says when there’s a conflict between the three-factor test and third-and-half factor, the three-factor test will dominate,” Dornfest said.  The three factors are that removing the item would cause damage to the real property; that the item is integral to the use of the real property; and that it would be reasonable to consider the item a permanent addition to the real property. Part of that Tax Commission rule declared that a list of types of property, including cell phone towers, underground storage tanks and pipelines, are real, not personal, property, and therefore not eligible for the exemption.

The Senate Local Government & Taxation Committee voted unanimously today to reject that rule, Rule 205; the House Revenue & Taxation Committee already has taken similar action. Siddoway said, “The proposed amendments that we would have to 441 would directly affect this rule. And it would supersede the rule and it would put in statute what we’ve been dealing with in rule. So that would be legislative authority rather than rule.” He summed up the three factors as “annexation, adaptation and intention.”

Siddoway said the intent is to use HB 441 as a “vessel” to make those rule changes, but not to add any amendments to expand the $100,000 exemption beyond its current level next year, as he had earlier advocated.