Business tax cut survives, gets panel OK

BOISE – Nearly two dozen county, city and school officials from throughout Idaho implored senators to kill a giant business tax break bill during a four-hour hearing Monday, but a Senate committee passed it, 5-4.

“There’s sure a lot of us that pay that personal property tax on business and are fed up with it,” declared Sen. Jeff Siddoway, R-Terreton.

The measure, House Bill 599, now moves to the full Senate for a final vote. It earlier passed the House on a narrow 39-31 vote. It would phase in the repeal of the property tax on business equipment, which is called “personal” property tax to distinguish it from tax on real property. The result would be a $100 million-plus annual tax break for businesses by 2015, with 16 percent of Idaho’s businesses – the largest ones – reaping the vast majority of the benefit, and a quarter of the benefit going to utilities.

Senate Tax Chairman Brent Hill, R-Rexburg, broke a 4-4 tie in his committee to approve the bill. Hill said he simply sees the tax on business equipment as an unfair tax. “There’s no other way to get rid of it except to get rid of it,” he said. “I really believe that it will improve business in the state.”

Joy Rapp, superintendent of schools in Lewiston, told the Senate Local Government and Taxation Committee, “It truly will be a shift to real property, it will be a shift to homeowners, and it will be a shift to small businesses.”

Rapp added, “This is significant, especially in a community that has not passed a bond since 1960.”

Jim Jeffries, Power County sheriff, told the senators, “I can’t do my job with a 13 percent loss (in funding). It’s like being a little bit dead.”

Ron Bolinger, superintendent of schools in American Falls, said, “This bill would decrease our market value in the school district by 42 percent.”

Some parts of the state would be hit especially hard by the change because large portions of their tax base now consist of business equipment and utility property that would become exempt from tax. In tiny Custer County, more than 60 percent of the property tax paid in 2006 was from the business tax. In Clark County it was 30 percent, and in Power County, nearly 40 percent. Benewah County collected 17 percent of its property taxes from the business personal property tax in 2006; Boundary County, 18.6 percent; and both Bonner and Shoshone counties were just under 10 percent.

In Kootenai County, the figure was 4.1 percent.

The legislation calls for the state to send payments to the counties to offset the losses, but those payments would be fixed and never rise with inflation or property values, as the tax currently does. A fifth of the tax would be repealed each year for five years.

Nez Perce County Commissioner J.R. Van Tassel told the senators, “If nothing else, we’re probably going to need some guidance as to what part of our code-required services we should lop off.”

Testimony at the hearing also turned up a previously unnoticed flaw in the bill that would change the tax treatment of low-income housing credits. Kootenai County Assessor Mike McDowell sent a letter questioning whether it would reclassify boat docks as exempt personal property, rather than real property, which could have huge tax consequences in Kootenai County. An Idaho Attorney General’s opinion has raised constitutional questions about the bill.

Pocatello Mayor Roger Chase told the committee, “I believe this legislation is a disaster for Pocatello.”

Sens. Tim Corder, R-Mountain Home, and Joe Stegner, R-Lewiston, argued strongly against the bill. Corder said it would begin undoing the effect of the Legislature’s 2006 decision to increase the homeowner’s exemption from property taxes, and Stegner said there is “just a ton wrong with this,” adding, “It’s a very good deal for people that have personal property tax, and it’s a very bad deal for everyone else.”

Alex LaBeau, president of the Idaho Association for Commerce and Industry, a business lobbying group that proposed the bill, told the senators, “The bottom line is this is an unfair tax, it’s an onerous tax on businesses in Idaho.”