Lawmaker warns federal tax breaks could mean revenue loss for Idaho

BOISE – Under the federal economic stimulus, people who buy new cars, pickups or RVs between Feb. 17 and the end of the year can get a tax break on their 2009 income tax returns.

But because the state of Idaho bases its income tax system on the federal system, Idaho will have to give that tax break, too – or force people to essentially keep two sets of books to do their state taxes.

That’s one of eight areas that Idaho Senate Tax Chairman Brent Hill, R-Rexburg, has identified as a potential loss to Idaho’s state tax revenues because of tax breaks in the federal stimulus bill – breaks that add up to $14.1 million in lost state tax revenue next year.

On Monday, Hill, a certified public accountant, briefed lawmakers on his findings and strongly recommended that the state match the federal breaks in seven of the eight areas, including the new-car tax break. The one exception: a change in carryback of net operating losses for small businesses. Idaho hasn’t conformed with such changes in the past, and it’s common to have different time frames in that area, he said.

But as for the rest, Hill said it’d be extremely difficult for Idaho taxpayers to cope with differing laws on the state and federal level. “These are massive things – these are massive changes,” he said.

The state should find other ways to cover the $14 million, he said. Options might include raising Idaho’s income tax rate by a tenth of a percent, or delaying next year’s scheduled increase in the grocery tax credit.

Members of the House Revenue and Taxation Committee were surprised by those suggestions Monday. “I really applaud his effort in putting that together – how we’ll deal with it I don’t know,” said House Tax Chairman Dennis Lake, R-Blackfoot. “It’s almost overwhelming.”

Lake said he’s troubled by the tax-rate increase idea. “The problem there is then we tax everybody so that a small number can have a benefit.” He said he’s awaiting figures on how many Idaho tax returns are affected by each of the tax breaks before he makes up his mind.

“Believe me, he had people’s attention,” Lake said of Hill. “It’s just something we need to be apprised of and we’ll have to work through.”