Senate votes to close property tax loophole

BOISE – The Senate voted overwhelmingly Tuesday to close a property tax loophole for agricultural land that’s allowed developers and others – including Gov. Dirk Kempthorne – to reduce annual payments to pennies on valuable resort property.

It’s the first property tax bill to pass both houses this year.

It now returns to the House, which must consider a pair of amendments added by the Senate.

The bill passed 34-1, with only Sen. Mike Burkett, D-Boise, opposing it.

Farmers would still get the tax exemption on subdivided land, until they build or sell their property.

Last summer, lawmakers on an interim property tax committee traveled the state to listen to property owners’ concerns.

The loudest complaints they heard, according to Sen. Shawn Keough, R-Sandpoint, were over this tax loophole, which the Idaho Tax Commission says has been used to shift $6.3 million in annual payments to other taxpayers.

That’s angered many who argue that working people shoulder a tax burden that should be borne by wealthy newcomers, including property owners at Tamarack Resort near Donnelly.

“This brings to resolution one of the more troubling issues we faced in discussions from our great citizens this summer,” Keough said before the vote.

Under the bill, subdividing land actively devoted to agriculture does not, in and of itself, cause the land to lose its status as agricultural ground. Owners of agricultural land pay little in property taxes.

Developers and owners of land that was once being farmed – but has been taken out of agriculture – would no longer qualify for the tax break.

Lawmakers have rejected efforts of developers, including Tamarack Resort, to pass a separate tax break of their own on the speculative value of development property, once the agricultural exemption was repealed.

If the House concurs with the Senate version, the bill would go to the governor.

Kempthorne has gotten the benefit of the loophole on 14 acres he owns in Valley County, where he paid only $5.72 in taxes last year. He vetoed a plan in 2005 to phase out the loophole, arguing it was passed too late in the session and didn’t give property owners enough time to react.

Kempthorne press secretary Mike Journee said the governor would consider signing the bill this year.

The original exemption was passed by the 2002 Legislature, when some eastern Idaho farmers complained county assessors were taxing their agricultural property at higher residential rates immediately after they’d subdivided it, but before they’d sold individual lots.

Amendments added later allowed developers and property owners to exploit the exemption – even though they weren’t farming the land.

Before Tuesday’s vote, some senators said the heartache that resulted from this bill since then should be a cautionary tale to other lawmakers trying to tinker with the Idaho tax system.

Unintended consequences abound, said Sen. Brad Little, R-Emmett.

“It’s a take-home lesson after six years, to not overreact in drafting legislation,” Little said.