House OKs tax shift

BOISE – Idaho would trade a higher sales tax rate for major property tax relief under legislation that passed the House on Wednesday and will be voted on by the Senate this morning.

Rep. Jim Clark, R-Hayden Lake, said the bill, which passed 44-26, will allow out-of-state visitors to help lower Idahoans’ property taxes. “Somebody’s going to help us pay for our own property tax bill. Not a bad deal, not a bad deal at all,” Clark told the House.

Clark is co-sponsoring House Bill 876 with two southern Idaho lawmakers. It would cut property taxes by shifting more than $250 million in school funding from property tax to sales tax, pay for the move by raising the sales tax to 6.25 percent, and also increase the homeowner’s exemption from $50,000 to $75,000.

After its passage in the House, the bill was rushed to the Senate, where the Senate Local Government and Taxation Committee approved it on a 5-4 vote after a tense hearing.

“There’s a little bit of something in there for everybody,” said Sen. Stan Williams, R-Pingree.

Opponents disagreed, saying the bill would result in an overall tax increase for lower-income taxpayers. “It seems like a hoax,” said Sen. David Langhorst, D-Boise. “The people we are trying to offer relief to are the ones who will see a tax increase, and I can’t vote for that.”

Though all other House Democrats opposed the bill, the two from the Panhandle joined every other representative in districts 1 through 5 in voting in favor.

Rep. George Sayler, D-Coeur d’Alene, a retired high school teacher, said the vote was one of the most difficult he’s ever had to make. “I didn’t debate because I was sitting there going back and forth in my own mind about how I was going to vote,” Sayler said.

“My goal has been to provide tax relief,” he said. “I didn’t want to do harm to the schools in the process, and I hope we haven’t done that today.”

Sayler said he asked his wife, a teacher, what other educators are saying about the proposal, and she said they all talk about how high their property taxes are – not about school funding. Sayler said his property taxes total about $4,000 annually.

Rep. Mary Lou Shepherd, D-Prichard, also voted for the bill.

Sayler said lawmakers will have to keep their promise to fully fund schools, once the local property tax is gone as a basic funding source for school operations. “That will be the job of this body to protect that,” Sayler said. “If I am here, I will do all I can.”

Rep. Frank Henderson, R-Post Falls, called the bill’s proposals “thoroughly acceptable reforms.” He said he holds town halls in his district every weekend, and every weekend people complain about property taxes. He said experience has shown him that people understand and accept sales tax more than other taxes, and people will support this increase.

Rep. Lenore Barrett, R-Challis, urged her colleagues to take advantage of the rare opportunity to give major property tax relief. “There’s enough mad people out there that it created an opportunity we’ve never been able to create for ourselves,” Barrett said.

Senate Majority Leader Bart Davis, R-Idaho Falls, urged senators to study the 29-page bill carefully overnight and come in this morning prepared to vote on it. By tying the school funding shift to the homeowner’s exemption increase, the bill knits the two largest property tax reforms of the session into one – which could help both pass, or could bring them down.

The homeowner’s exemption hasn’t been adjusted for inflation since voters enacted it by initiative in 1982. Powerful business interests, led by the Idaho Association of Commerce and Industry, oppose raising the exemption, but other business groups have backed the move.

If HB 876 doesn’t pass, HB 421, still pending in the House, would make identical changes to the homeowner’s exemption. Both bills raise the top amount to $75,000, tie the amount to inflation in housing prices in future years, and add in the value of land, instead of just residential improvements.

The House voted unanimously on Wednesday to pass HB 422, a measure to expand the “circuit breaker” tax break for the low-income elderly and disabled. That bill is another key property tax reform bill, which was endorsed both by an interim legislative committee that held hearings around the state, and by Gov. Dirk Kempthorne.

Representatives of Realtors and public schools opposed HB 876 in the Senate committee hearing, with school officials saying it raised questions about long-term stability in school funding, and Realtors opposing the homeowner’s exemption increase because it wouldn’t benefit rental or investment property.

Lawmakers already have passed two other property tax reforms recommended by the summer committee: HB 676a, to eliminate a tax loophole for some rural developers and land speculators, and HB 680 to allow some low-income seniors or disabled people to defer their property taxes until they die or sell their homes.