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Three panelists at the Associated Taxpayers of Idaho conference today are addressing the state’s new partial personal property tax exemption for business property, which exempts up to $100,000 in value per taxpayer, per county. “A lot of people thought, $100,000 per taxpayer per county, how simple could that be?” said Steve Fiscus, property tax division manager for the Idaho State Tax Commission. But, he said, “It’s not as simple as it could be.”
However, it’s pretty simple for 90 percent of Idaho businesses that previously had to pay personal property taxes – they no longer have to pay at all, because their value was below the $100,000 mark. “About 90 percent of the accounts in the state of Idaho were eliminated, which is pretty close to the estimate we had when we initially did the research on this project,” Fiscus said. That means those businesses no longer have to file annual reports and pay taxes on their desks, chairs and other equipment.
Where it gets complicated: The Tax Commission has adopted new rules drawing the line between real and personal property, and those who landed on the real side – meaning they won’t qualify for the break – are plenty upset. They include operators of cell phone towers, railroad tracks, pipelines, underground storage tanks and more.
Rick Smith, an attorney with Hawley Troxell who represents Northwest Pipeline, Century Link, and AT&T, said, “I think it would be necessary as a matter of tax policy, in order to make this personal property exemption truly reasonable, to expand it to all property.”
When the panelists were asked if they’d change the new exemption or its rules – if they were “king for a day” – Fiscus said, “If I was king for a day, I’d say give it a rest for at least a year, so that we can get caught up and maybe do a little better job administering it.”
The Tax Commission has voted unanimously in favor of its two proposed rules to define real and personal property for purposes of property tax, despite objections from railroads, utilities and similar interests. Commissioner Ken Roberts said, “There’s a lot of water under the bridge over the last several years in this. I used to wear a different hat (as a legislator), and was involved in those discussions as well. What’s interesting is until the $100,000 exemption took place, it really didn’t matter – and now all of a sudden it matters what’s real and what’s personal.”
Legislation passed this year exempts from taxation the first $100,000 worth of personal property for each taxpayer, in each county.
Roberts said the question of where the line lies between the two should have been answered by the Legislature, but it wasn’t. “Void of that direction … somebody has to make a decision about what and where that line is,” he said. “I’m sad to say that this decision has kind of found its way to the Tax Commission. … If we get it wrong, the Legislature, who are the policy setters in the state of Idaho when it comes to tax policy, can change it.”
Commissioner Rich Jackson noted that the definition affects an overall tax system, and who pays more and who pays less. “I think sometimes we have to back up and say, what should this structure do, and what should be assessed to the different players?” he said. “But realize, as we play with those pieces, we start moving who pays what.”
Commissioner David Langhorst, who like Roberts is a former state legislator, said, “I think they made good arguments, the taxpayers today.” But he said the rule takes a conservative approach. “And if the Legislature really did intend for this to be more liberally applied or a broader exemption created, then they can affirm that.”
No bill has even been introduced yet to repeal Idaho’s $141 million-a-year personal property tax on business equipment, the AP reports, but one potential beneficiary aims to kick-start debate by putting its tax savings where its mouth is. CenturyLink Inc., one of the state’s top 10 personal property taxpayers, would invest up to $2 million in tax savings in Idaho’s broadband infrastructure above the company’s existing plans if repeal succeeds, Ed Lodge, the Monroe, La.-based company’s lobbyist in Boise, told the Associated Press.
The biggest potential beneficiaries of the repeal of the tax would start with Idaho Power Co., Idaho’s biggest utility, at No. 1 with roughly $10 million to $15 million annually, according to state estimates. Union Pacific Railroad is No. 2 at $5.4 million, while agricultural giant Simplot Industries and semiconductor maker Micron Technology Inc. pay some $3.3 million each. The bill for PacifiCorp’s Rocky Mountain unit equals about $3.1 million annually, followed by Century Link at $2.9 million; three gas-related companies, including Intermountain Gas Co. in Boise, pay about $1 million each. You can read AP reporter John Miller's full report here at spokesman.com. Miller reports that Otter's initial draft proposal has received little support in the Legislature due to concerns from local governments and schools, but the administration is working on a revamped plan said to include $130 million in state replacement money over seven years.
Meanwhile, Twin Falls Times-News reporter Melissa Davlin connects the dots and reports that those companies that stand to benefit most from a personal property tax repeal have contributed thousands of dollars to the political action committee of the organization pushing hardest for repeal legislation, IACI. Those include Micron, Potlatch, Idahoan Foods LLC, Hecla Mining, Idaho Forest Group, Basic American Foods, Clearwater Paper, and Simplot. Click below for her full report.
With the business lobby IACI pushing hard for elimination of the personal property tax on business property and many lawmakers talking about it as the 2013 legislative session approaches, the Idaho State Tax Commission has released its first-ever comprehensive analysis of the tax in Idaho. The 51-page analysis concludes that total personal property tax collected in Idaho in 2012 was $140.9 million; that’s then broken down into great detail, by type of taxing district, operating property and more. “The percentages and categories identified as personal property in this analysis should not be construed as any type of policy statement,” wrote Alan Dornfest, property tax policy supervisor for the Tax Commission.
Instead, the analysis, developed with “a lot of cooperation and help from the counties,” Dornfest said, is being made available as a tool for policy makers as they consider related issues. You can see the full study here.
Rep. Grant Burgoyne, D-Boise, told the Associated Taxpayers of Idaho today that he supports eliminating the personal property tax, because it's difficult for businesses, but doesn't want to cut basic funding for local government services that now rely on that tax. “No matter what we do, we're talking about a tax shift,” Burgoyne said, “unless we're prepared not to have jails, unless we're prepared not to have paramedics, unless we're prepared not to have firemen show up. … We're really talking about a tax shift, but tax shifts aren't always bad. If tax shifts have positive economic conseqences rather than negative economic consequences, they can help us move the ball down the field.”
Therefore, he said, “I've drafted legislation which would eliminate the personal property tax, but would grant cities and counties the authority to raise taxes.” Under his bill, he said, they could decide what type of taxes - sales, income, or whatever. “They might want to pass taxes on liquor, they might want to pass local taxes on meals, other things that help them pay their bills,” Burgoyne said.
That'd be a huge departure for Idaho, in which the state Legislature long has held tightly to almost all taxing power, leaving local government agencies almost entirely reliant on capped local property taxes.
Gov. Butch Otter, in his luncheon address to the Associated Taxpayers of Idaho today, challenged county commissioners to bring him a list of state-mandated services they provide that they'd like to do away with. “I'd be remiss if I didn't open the floor to the question of what are we going to do about personal property taxes,” including proposals to eliminate them. “I've made no mystery of the fact that I've been a supporter of that,” Otter said, “but I also understand how 44 counties … the question is always what are you going to do with that share of our budget which we get in our counties from personal property tax, and I said frankly I don't know.” He said, “I want to engage in those discussions.”
He said the budget will be challenging in the upcoming legislative session, and the latest tax revenue figures are forcing a downward revision in projections. “I will tell you we do not have a placeholder for $130 million in that budget,” to offset elimination of the personal property tax. “We will have those discusssions, and I hope that we can come up with a plan. … I understand the plight of the counties, when it represents in some counties upwards of 35 percent of their budget.”
Otter said two years ago, he asked for a list of “those things which you think you can do without in your county that we mandated, and I'll be your champion to get rid of those services, to stop those services and to relieve you from that financial burden, because I understand that. But I have yet to see the list.”
Alex LaBeau, president of the Idaho Association of Commerce and Industry, is pitching his plan to eliminate the personal property tax, speaking to the Associated Taxpayers of Idaho. He decried calls to focus on small businesses, like the current law, passed in 2008, that would eliminate the tax on the first $100,000 of business property, removing it entirely for most Idaho businesses; that will take effect when state tax revenues rise by 5 percent above the previous year, which hasn't yet happened. LaBeau said, “It forces a relatively small group of larger taxpayers to pay the brunt of the personal property tax in the state of Idaho.” Said LaBeau, “The top 4 percent of employers in the state employ half your population - half. … The small vs. large argument does not hold water in this state.”
Dan Chadwick, executive director of the Idaho Association of Counties, says he's heard comments from state lawmakers in recent years that demonstrate “a clear lack of understanding of what county government does.”
He said, “The Legislature sets the rules, and counties and other local governments have to follow those rules. … What we do and how we do it are established by the Legislature.”
The comments he's heard, he said, include these: “We're going to stick it to the counties and see how they like it,” and, “The counties haven't suffered enough in this economic downturn.” Said Chadwick, “Pardon me, but what the hell is that supposed to mean? We have a job to do as counties, the Legislature sets the rules. Are we supposed to suffer some consequence because we don't have the tools necessary to deliver the service? I don't get that at all. … The mandates the Legislature imposes on counties without sufficient revenue to pay for the responsibility is problematic.”
Chadwick said when it comes to county government in Idaho, “Artificial restrictions are placed on raising revenue, and they have absolutely no relationship to delivering those services. That's one of the biggest problems we have at the county level, money vs. services, no relationship. … When we reach our budgetary caps, it doesn't matter. … We're still obligated to deliver the service.”
Chadwick took on the idea of eliminating Idaho's personal property tax without replacing the revenue for counties head-on. Doing so, he said, “undermines the ability of counties in providing their constitutional and statutory responsibilities,” and he argued it would provide little benefit to most businesses and the state's economy. Idaho already has passed legislation to exempt the first $100,000 of business property from the personal property tax. “Why not exempt the first $250,000 of business property?” he asked. “Now we're really talking, and we're really dealing with some serious tax relief for businesses.”
He said eliminating the tax would remove 10 percent of counties' tax base statewide, and 20 to 40 percent in rural counties. “If the Legislature is not willing to give us the funds or provide the ability to raise the funds, then I think it's time to start looking at whether the counties ought to deliver the service,” he said. “We're not going to be able to meet our statutory and constitutional responsibilities. … Our services are not discretionary at the county level,” he said.