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Spokane, Washington  Est. May 19, 1883

Panel proposes tax break review

Betsy Z. Russell Staff writer

BOISE – Idaho should do away with its investment tax credit, repeal three other tax breaks and review a long list of others, a joint legislative interim committee decided Tuesday.

The call for repealing nearly $50 million in tax breaks and re-examining millions more came after years of debate over Idaho’s swelling load of tax exemptions, credits and deductions. A similar joint legislative committee spent months studying the same issues four years ago, but failed to recommend any specific changes.

“I feel good – we’ve made a good start,” said Senate Tax Chairman Brent Hill, R-Rexburg. “This is what our committee in the Senate wanted, was just a chance – let’s evaluate these things. This is why you didn’t see a single one go through the Senate committee this year.”

Senators blocked all new tax breaks in the last legislative session, holding out for a review of existing exemptions.

House Tax Chairman Dennis Lake, R-Blackfoot, who co-chaired the interim committee with Hill, said he’ll take the committee’s directions to heart and take them up in his House Revenue and Taxation Committee, a key panel that gets first crack at all tax legislation. “I’m going to work through it, you bet,” he said. “There are issues on the list that obviously I don’t agree with, but still, we’ll work through them.”

The joint committee agreed on a list of eight criteria by which all tax breaks should be judged as they’re reviewed. The criteria include equity and fairness, benefits, and appropriate government revenues.

The panel had voted Monday to repeal the four tax breaks, but indicated it might reverse that decision Tuesday in favor of a more comprehensive review of a longer list of exemptions.

The committee overwhelmingly agreed Tuesday on the larger review, but when Hill asked members if they then wanted to take back the earlier repeal votes, the lawmakers declined. “I don’t think these are conflicting,” said Sen. Tim Corder, R-Mountain Home. “That fits well within what we’ve just done.”

The biggest change recommended by the legislative panel was repeal of Idaho’s investment tax credit, a controversial business incentive that now costs the state $41.4 million a year.

Hill, a certified public accountant, said, “I’ve never had a client make a decision on buying a piece of equipment based on the Idaho investment tax credit – ever. It’s not a consideration.”

When the credit first was enacted in the early 1980s, it went along with a long-since repealed federal investment credit. The idea was to spur companies to invest in equipment during a time of recession to get the economy moving again. But after the federal credit expired, Idaho kept its 3 percent credit on the books.

Hill said it lost its effectiveness as an incentive because it never expired – so it didn’t cause companies to speed up any of their purchases in order to qualify. “It didn’t accelerate the economy. All it did was give a benefit.”

The other three tax breaks that the committee voted to recommend repealing are:

•A $600,000-a-year tax break for Idaho ski areas. The exemption excuses them from paying sales tax on ski lifts or snow-grooming equipment.

•A $2.6 million-a-year exemption from sales tax for broadcasting equipment and supplies.

•A $165,000-a-year exemption for publishing equipment and supplies for newspapers that are given away free.

The panel also agreed on a list of 15 existing tax breaks as a top priority for lawmakers to review against the new criteria during the legislative session that starts in January, and another eight as a second priority for review. All four of the breaks that the panel recommended be repealed are on the first-priority list.

Rep. Jim Clark, R-Hayden Lake, said, “I’m all for looking at all of ‘em. … I actually think we’ll reduce some of these.”

An audience of nearly two dozen lobbyists watched closely as the lawmakers worked through the list of tax breaks.

Russ Westerberg, who lobbies for clients including Hagadone Corp., the Kootenai Tribe, Revett Minerals and PacifiCorp, said, “I’ve got a whole battery of clients that are interested in what they’re doing.”

Westerberg said he wrote the bill that granted the ski area tax break back in the 1980s, though he no longer represents ski areas. “Maybe that exemption is no longer justified – maybe it’s time for the state to look at it,” Westerberg said.

He noted that if lawmakers offset the loss of tax breaks by lowering tax rates, it could end up as a net benefit for his clients.

Norm Semanko, lobbyist for the Idaho Water Users Association, said, “It’s difficult and it’s time-consuming, but I think it’s the responsible thing for the Legislature to do, to take a look at these things once in a while.”

John Watts, lobbyist for the Idaho Chamber Alliance and several other clients, agreed. “It’s a very painful process, but I think it’s an important process,” he said.

The panel’s first-priority list of tax breaks to review also includes the popular income tax credit for donations to the Idaho Youth Ranch and other youth rehabilitation organizations; special tax credits designed to attract corporate headquarters to the state; and tax breaks for vending machines, funeral caskets, local government purchases, lottery tickets and pari-mutuel betting, and auto manufacturer rebates.

Lake said the corporate headquarters incentives, which were promoted several years ago in a bid to persuade the Albertson’s grocery store chain to remain and expand in Idaho, never worked. Albertson’s was sold and broken up, and nobody has used the credits.

“Most everybody wants that to disappear,” Lake said. “I think everybody realizes that that was legislation that was ill-conceived.”