Property tax fix a sketchy territory in Idaho

BOISE – Are property taxes in Idaho a local issue or a state matter?

That question is getting lots of debate in Idaho’s capital and around the state, especially since Gov. Dirk Kempthorne pointed to local government in his State of the State address – just as lawmakers are preparing to consider a sweeping slate of property tax reform proposals.

“Nobody likes property taxes,” the governor said. “But the state does not assess, collect or spend a single penny of property taxes.”

Property taxes in Idaho fund only local government and schools, not state government. The last state property tax was phased out after Idaho passed its sales tax in 1965.

But state laws govern every aspect of the property tax process, which is carried out by counties under orders from the state.

“It’s both,” state Tax Commissioner Tom Katsilometes said.

Rep. Scott Bedke, R-Oakley, said, “The actions of the state Legislature could certainly mold and shape local property tax decisions. We are not without influence.”

Lawmakers have exercised that influence over the years by capping the growth of most local government property tax budgets, allowing them to increase by no more than 3 percent a year. That cap makes exceptions for new construction and annexation.

State laws also establish exemptions from the tax, including the “50-50” homeowner’s exemption, which gives homeowners a break on 50 percent of the value of their home, up to a maximum of $50,000. That amount hasn’t been adjusted for inflation since voters enacted the exemption by initiative in 1982.

The state determines how each type of property should be assessed for taxes, with different systems for business, agricultural, timber and mining property than for homes. The state also pays back counties and local agencies for the “circuit breaker” exemption for elderly and disabled people who are poor.

Kempthorne said in his speech, “If citizens believe they are paying too much in property taxes, that debate belongs in the county courthouses and the city halls.”

But when it comes to property taxes for schools, the state – not local school boards – sets the basic tax rate for school operations. Local boards decide whether to ask voters to approve additional taxes, on top of the basic rate, for building projects or additional needs in their district.

“If every citizen in the county came to the next school board meeting demanding property tax relief, I don’t know what ability the school board has to give it to them,” Bedke said.

He comes from a county that hugs the Utah border at the southern end of the state.

Though the loudest outcry about rising property taxes has come from North Idaho, Bedke said property taxes aren’t much liked in his district either.

“The fact that you go in June and December and write a big check is never popular,” he said. “I think it’s accurate to characterize property tax as the most-hated tax also in my district.”

Property tax consistently has been rated as Idaho’s most-hated tax in the annual Boise State University Public Policy Survey, which has been conducted for 17 years. This year’s survey, released in December, showed that property tax was the top pick for most-hated, but tying for second place were the federal income tax and the statement, “All are equally unfair.”

Randy Nelson, executive director of the Associated Taxpayers of Idaho, said with the exception of school districts, local government officials decide where to set their budgets within the state rules. That does affect how much people pay in property taxes.

“If people don’t want to have certain things included in the budget, you need to show up at the budget hearings and find out why it’s growing so much, or not have one of your projects in there,” Nelson said. “I worked in local government 13 years, and there weren’t a whole lot of people that showed up at those public hearings on the budget.”

But Nelson said property tax relief is the job of both local government and the state.

“The rules are set by the state,” he said. “The state’s a big player.”

Alan Dornfest, tax policy supervisor for the state Tax Commission, said it’s a local, not state, funding source.

“It’s a local tax, and there are local issues involved in that. Yet there are state laws governing the process, restricting the revenue, governing the assessment of property, etc.”

Overall, Dornfest said, “There’s a combination here, and I don’t think it can be characterized as one or the other.”