BOISE – A House committee on Friday introduced sweeping tax legislation that would raise Idaho’s sales tax to the highest in the nation while eliminating most property taxes on owner-occupied homes.
The House Revenue and Taxation Committee approved a possible hearing on the bill that also uses some of the increased sales tax money to raise the grocery sales tax credit from $100 to $175.
The move will bump Idaho’s sales tax from 6% to 7.85%, the highest in the nation, according to the nonprofit Tax Foundation group that analyzes tax policy. California currently has the highest sales tax at 7.25%.
City and county taxes would be eliminated on primary residences in Idaho, but voter approved bonds and school levies would remain.
“The beauty of this is you’re taking a narrow tax and you’re replacing it with the broadest possible tax,” said Republican Sen. Jim Rice. “So people that don’t live in the state of Idaho that come visit in our state, vacation here, drive through, will help pay for the services that they get the benefit of in our state.”
Many lawmakers appeared to have a hard time digesting the 41-page bill.
“Everything on this looks good, sounds good, but I just have this niggling feeling that it may not be as good as it all looks,” said Republican Rep. Linda Hartgen.
Democratic Rep. Lauren Necochea said she was concerned Idaho businesses could be hurt because there would be an incentive for residents to buy items in other states with lower sales taxes.
“This is going to increase people’s incentive to go across the border to buy, especially big-ticket items and their regular groceries,” she said.
Rice said he didn’t think it would make that much difference, noting in particular that residents who buy vehicles in other states have to pay Idaho taxes on them. That calculation involves sales tax in other states.
The measure has an unusual aspect in that, if lawmakers approve and it’s signed into law by Republican Gov. Brad Little, voters will get a final say.
“We will put this on the ballot in November, and ask the public: ‘Do you agree that this was the right thing to do?’” Rice said. “This can be unwound after the first year.”
Property owners in Idaho for years have been asking the Legislature to do something about increasing property taxes caused by skyrocketing home prices.
But sales taxes are generally considered a regressive tax because low-income taxpayers pay a higher percentage of their income on sales taxes than high-income taxpayers.
The bill also includes the hot-button issue of the grocery sales tax credit, which is what Idaho tax filers must use to recover on taxes paid on food. Currently, the annual maximum credit people can receive is $100 for people under 65, and $120 for those 65 and over.
That would be upped to $175 under the proposed bill, which doesn’t appear to have a difference for age groups.
Little briefly spoke about the food tax credit on Wednesday during a news conference with reporters, noting the complexities of doing away with the grocery sales tax.
“When you go to the grocery story, everything you buy there, is that exempt, or is it just food?” he said. “You have to define what you’re exempting because people say groceries and they just look at their grocery bill.”
He noted that under the current plan, “if you’ve got a larger family, $120 per family member is significant.”
The bill could return to the House Revenue and Taxation Committee for a public hearing next week.
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