Tax reform impact debated

BOISE – Two leading voices in Idaho’s property tax debate are drawing seemingly opposite conclusions about the impact on businesses of this year’s increase in the homeowner’s exemption, but experts say both are using correct numbers.

Steve Ahrens, head of the Idaho Association of Commerce and Industry, contends that businesses were hit with a $47 million property tax increase because lawmakers upped the homeowner’s exemption to $75,000, an increase of $25,000.

Ken Robison, author of the homeowner’s exemption and a former Democratic legislator, calls that “IACI’s big lie.” Because homes continue to grow faster in value than business properties, Robison said, any “tax shift” triggered by the increase in the homeowner’s exemption has actually gone the other way – onto homes.

“I don’t think either of them are wrong on the numbers,” said Alan Dornfest, property tax policy supervisor for the state Tax Commission. “It’s perspective. It’s where you draw the line.”

It matters because the Legislature is poised to meet in a special session Friday to enact a tax reform plan that would cut property taxes but raise the sales tax.

Business property owners stand to gain the most, in part because homeowners already get a break from the homeowner’s exemption increase.

Ahrens wrote recently, “Before the session even starts, Idaho businesses already face a $47 million property tax increase this year. $47 million!” He maintains that unless the reform plan is enacted, “Idaho businesses will be slammed with one of the largest tax increases ever imposed by an Idaho Legislature on the business community.”

That’s based on the idea that when one group of property owners gets an exemption from taxes, everyone else must pay a little more to make up the difference. That’s generally how Idaho’s tax system works. But Robison points out that how much each group pays also depends on how its property value compares with other groups.

Residential property owners have been paying more and more of Idaho’s property taxes over the past decade and a half. According to Tax Commission records, owners of residential property paid 63 percent of Idaho’s property tax in 2005, compared with 47.1 percent in 1990.

“From 2003 to 2005, total residential taxes increased nine and one half times as much as total property taxes on nonresidential property, $143 million compared to $15 million,” Robison wrote in response to Ahrens’ statement. “From 2000 to 2005, residential property paid 84 percent of the total increase in Idaho property taxes. Nonresidential property paid only 16 percent.”

He added, “IACI bases its case for a higher sales tax on a property tax shift that is pure fiction.”

Tax Commission experts say Ahrens’ figures correctly show the difference in what businesses would pay this year with the increased homeowner’s exemption, compared with what they’d have paid if the exemption increase hadn’t been enacted.

They don’t, however, reflect the actual estimated increase from 2005 taxes, which would be about $33.5 million for nonresidential property.

The experts also say Robison’s figures correctly reflect the continued faster growth in residential property value compared with values of other types of property in Idaho – a trend that’s been accentuated as Idaho’s residential real estate market has taken off in recent years.

“There’s room to disagree on how the numbers are interpreted,” said Dan John, tax policy manager for the Tax Commission.

Here are the numbers, according to the latest Tax Commission estimates. They show the impact of this year’s increase in the homeowner’s exemption, along with other changes including value increases. All told, taxes on residential property in Idaho would grow by $72.1 million from 2005 levels, or 9 percent for 2006. Taxes on nonresidential property would grow by $33.5 million or 7 percent.

Both those figures would shrink if the tax reform plan is enacted. Then, residential property would see an 11.7 percent decrease in total property taxes, and business property would see a 14 percent decrease, according to the latest estimates.

During the regular legislative session that concluded in April, the increase in the homeowner’s exemption was debated at length.

This year’s change also included the value of land in the exemption, and indexed the exemption’s top amount for future years to a housing inflation index.

The exemption hadn’t been increased from its $50,000 maximum level since voters enacted it by initiative in 1982, and IACI had long opposed increases, saying they would shift taxes to businesses.

But a large majority of legislators signed on to the $25,000 increase this year, saying taxes essentially already had shifted to homes, and it was time to shift a part of them back.