Annual Idaho tax bill raises questions, from gay marriage to tractor depreciation

BOISE – An Idaho House committee agreed to introduce the annual IRS conformity bill on Wednesday, but only after lots of questions about everything from tractor-depreciation to same-sex marriage.

Because Idaho, like most states that have state income taxes, uses federal adjusted gross income as its starting point for its state income tax, the state has to conform its tax laws each year to match federal tax changes. Otherwise, Idahoans would have to make extensive calculations each year to adjust for the differences.

This year’s bill is a big one, because Congress in December extended or made permanent a slew of tax deductions and breaks. The fiscal impact of the bill is estimated at $17.2 million to Idaho’s general fund in the current year, and $28.7 million next year.

The biggest portion of the impact, Congress’ move in late December to permanently extend an expired provision with regard to depreciation for small businesses, comes to $13.3 million for Idaho in fiscal 2016, and $22.3 million in fiscal 2017 – the majority of the impact. That Section 179 deduction is popular with farmers, contractors, and other Idaho small businesses; if Idaho didn’t conform to the federal change, those taxpayers would have to pay more next year. It allows those businesses to deduct the full cost of an equipment purchase in a single year, rather than depreciate it over multiple years.

Other pieces of the conformity bill include permanent extension of a deduction for expenses for elementary and secondary school teachers, which is estimated at $257,000 in Idaho impact; extension through 2016 of the deduction for college tuition, with an estimated $360,000 Idaho impact; and extension through 2016 for deduction of mortgage insurance premiums at $1.3 million. Another piece extended a break for people with underwater mortgages through 2016; that has an estimated $2.5 million Idaho impact. An energy-efficient commercial buildings deduction that got extended has a $301,000 Idaho impact.

This year’s conformity bill also deletes a section Idaho added to its tax law in 2014 after same-sex married couples were allowed under federal tax laws to file joint returns; that section required Idaho same-sex couples to essentially recalculate their taxes and file separately for their state returns, because the state at that time didn’t recognize same-sex marriage.

“Judgments in the U.S. Supreme Court have made (that) subsection legally inoperative, null and void,” state Tax Commission Chairman Ken Roberts told the House Revenue and Taxation Committee. “Because of these rulings, this section should be removed from the Idaho statute.”

Rep. Heather Scott, R-Blanchard, questioned that. “It appears that the Tax Commission is conforming to the federal change in the definition of marriage. Is that correct?” she asked Roberts.

He responded, “Those battles were fought in the court system. It was taken clear to the United States Supreme Court. They made a ruling. Whether you or I or anyone else agrees or disagrees, that was their interpretation. So this provision, Subsection C, is null and void.”

Scott said when Roberts returns to the committee for the conformity bill’s full hearing, she wants to hear “how you will address Article 3 Section 28 of the Idaho state Constitution in this change.” That’s the Idaho Constitution’s ban on same-sex marriage, which was invalidated when the U.S. Supreme Court ruled that same-sex marriage is legal nationwide.

House Majority Leader Mike Moyle, R-Star, and Rep. Dell Raybould, R-Rexburg, questioned whether the bill really had an ongoing cost to Idaho’s general fund, saying if a farmer deducts a tractor in a single year, that means he pays less in tax, but in future years, he pays more, because he doesn’t have the offset of the multi-year depreciation deductions on that tractor. Roberts said the ongoing fiscal impact comes because people continue to buy new tractors or other equipment in future years.

Moyle moved to introduce the bill, and the motion passed unanimously, but committee members made it clear they’ll have plenty of questions for Roberts when he returns for the bill’s hearing.

Roberts said taxpayers with basic returns, with no business activities, were able to start filing their 2015 Idaho income tax returns yesterday, but taxpayers with more complex returns that include business activities must await action on this bill. “Until the conformity bill is passed, other filers will not be able to file,” he said.