Lawyer Calls For Cuts In Tax Exemptions Exemptions Total Nearly As Much As Sales Tax Raises

Idaho could afford to drop its sales tax to 4 percent and still fund its huge backlog in school construction - if it just cut half the exemptions from its sales tax.

Former Idaho Supreme Court Justice Robert Huntley floated that idea Wednesday, drawing a loud round of applause from an audience of lawmakers, lobbyists and local officials at the Associated Taxpayers of Idaho conference.

But the political realities may be against the plan.

“What he’s talking about is increasing the taxes that Idaho citizens pay,” House Speaker Mike Simpson said. “You can put all the glitter on it you want, but I just don’t see that happening.”

Huntley represents school districts in a huge lawsuit against the state alleging that Idaho hasn’t met its constitutional mandate to provide adequately for public education. The suit is now scheduled to go to trial in November of 1997.

“We are very hopeful that the present Legislature will address the problem, solve the problem - with the result that the lawsuit will be dismissed,” Huntley told the group.

The lawsuit, which initially focused on overall education funding, was dismissed by a district judge in 1994 after legislators voted to pump more money into public school operations. But the Supreme Court overturned that decision, in part because a legislative study in 1993 showed Idaho needed $700 million in construction to repair deteriorating school buildings and keep up with growth in enrollment and technology.

The state has done nothing since the report came out. The construction backlog is now estimated to be as much as $1 billion.

“Unfortunately over the last 20 years, our generation, you and I, have allowed our school facilities to deteriorate and our facilities to not meet the needs of our population,” Huntley said.

“If we, the present generation, lack the will to get the job done, we will in large measure have failed our children and our grandchildren.”

Idaho has 65 specific exemptions from the sales tax, totaling $576 million. That’s nearly as much as the sales tax raises, $598 million.

The exemption for professional services alone is worth $108 million a year.

Huntley argued that when the Idaho sales tax was designed in the mid-1960s, the state had a production-based economy. Now Idaho’s economy is service-based, but the sales tax system never was modified to reflect the change.

Huntley was a lawmaker in the ‘60s who helped create the sales tax.

Idaho’s sales tax exemptions each have their own political base of support.

Former Rep. Steve Antone, R-Rupert, who chaired the House Revenue & Taxation Committee for the past 22 years, said, “The trouble is there’s too many people whose toes you step on when you go to taking away exemptions.”

Antone recalled one year when he convened a subcommittee to look at exemptions. The group came back with a pack of recommendations for eliminating various ones.

“We were inundated with people who were opposed to the recommendations of the subcommittee. Essentially, none of ‘em got through.”

Legislators have been particularly vigilant against attacks on the production exemption, which exempts from sales tax purchases of equipment or supplies that are used in production.

“That affects business, it affects farmers - everything that produces,” Antone said.

The idea was to tax only the finished product, he said, rather than taxing each component and then taxing the product again when it’s done.

But Huntley never mentioned the production exemption, focusing instead on services that aren’t subject to the sales tax.

Huntley, a lawyer, recalled kidding Simpson, a dentist, about the idea. “He’d mention a tax on the services of lawyers - I’d say that’s all right as long as we do it on dentists, too.”

Huntley suggested two alternatives: Keep sales tax at 5 percent and reduce exemptions by a fifth, or drop sales tax to 4 percent and reduce exemptions by half.

Either one would generate more than $100 million a year more than the current system. That could be used to help back bonds to build schools. The program could also cover bonds for prisons or highways, Huntley said.

Idaho now leaves school construction entirely to local property taxpayers, who can approve construction bonds only by a two-thirds vote. That makes Idaho the toughest state in the nation in which to build a school. Every other state that has a two-thirds requirement provides some kind of state assistance.

Simpson last year offered three bills calling for the state to set up a matching fund to pay for a portion of school construction, but the Legislature couldn’t find the millions it would take to fund them.

, DataTimes MEMO: This sidebar appeared with the story: WHO’S EXEMPT? Among the current exemptions: Motor fuels, $45 million a year; used mobile homes, $4.3 million; funeral caskets, $512,000; construction work, $48 million; health and medical services, $100 million; lottery tickets and parimutuel betting, $5.9 million; sales through vending machines, $1.2 million.