IRS conformity bill on fast track

Click below for a full report on the IRS tax conformity bill that emerged from the House Rev & Tax Committee today, from AP reporter Todd Dvorak. The bill, which brightens the state’s budget picture by $50 million from where it was last Friday, could be voted on by the full House as soon as today.

Panel votes to match Idaho tax code with IRS
By TODD DVORAK, Associated Press

BOISE, Idaho (AP) — The Idaho House Revenue and Taxation Committee voted Thursday to bring part of Idaho’s tax code in line with federal rules, a move that will cost the state $20 million but spare a bigger hit to the budget this year and next.

The legislative panel agreed to conform with a federal tax code provision that enables farmers and small business owners to immediately write off investments up to $500,000, instead of depreciate the value over several years.

The move, approved 17-1, was projected to cost the state $10 million this fiscal year and another $10 million in fiscal 2012.

Lawmakers opted to avoid matching the state’s code to another federal provision, saving the state about $50 million combined this year and next, and shrinking a budget gap that some pegged a week ago at $185 million.

“This reduces that hole by $50 million,” said Rep. Dennis Lake, R-Blackfoot and chairman of the committee.

The bill was sent to the House floor for a vote that could come as early as Friday. Lake said it was being put on the fast track to give accountants time to include the change in 2010 tax returns.

Last week, lawmakers were hit with grim fiscal news after Republican leaders announced that conforming the Idaho tax code could cost the state $70 million. They also reported that sales-tax rebates paid to companies investing in alternative energy projects could cost another $50 million over two years.

That estimate would bring the projected deficit to $185 million and reinforce some of the difficult cost-cutting decisions facing the legislature over the next two months.

Lawmakers usually prefer to synch the state’s tax code with the federal version to make it easier for residents and businesses to do their taxes or avoid having to keep separate accounting books to track the different rules.

Both changes in the federal tax code were approved by Congress late last year in legislation to extend Bush-era tax cuts and a separate jobs bill.

House Assistant Majority Leader Scott Bedke said the urgency to conform to the more costly tax provision dimmed after lawmakers surveyed some business and industry group leaders. The tax change would apply to investments in equipment and property exceeding $500,000 and allow bigger companies to write off the value in the first year.

Bedke said executives at some of the state’s biggest companies reported they wouldn’t likely change their accounting practices that enable them to depreciate an investment over five years.

“We tried to ground truth this idea, and what we learned is that businesses that would be eligible to use this wouldn’t bother,” Bedke told The Associated Press. “They still want to be able to spread the cost of those investments out over a longer period of time for tax purposes.”

Lawmakers got more good news this week when initial reports showed Idaho’s January tax revenues likely exceeded forecasts by about $15 million.

Copyright 2011 The Associated Press.