Idaho Senators pass business tax-break bill

BOISE – In a show of unity and compromise rarely seen in this year’s legislative session, Idaho senators came together late Thursday to transform a controversial business tax break bill into one they all supported unanimously.

Instead of phasing in a $120 million-a-year tax break for businesses, the measure now will cost the state just $15.5 million a year but will exempt 86 percent of Idaho’s businesses entirely from paying the property tax on business equipment.

Senators decided to limit the tax break to the first $75,000 in value for business equipment. They also excluded operating property, which is utility property such as transmission lines. If the newly amended bill wins support from the House and the governor, it would take effect Jan. 1, 2009.

“This is a good solution to a problem that we’ve wrestled with for some years now,” said state Sen. David Langhorst, D-Boise. “All those small businesses – this takes care of them. … This is a great compromise.”

Idaho businesses long have complained about the so-called personal property tax, a property tax they pay each year on business equipment such as computers, desks and machinery. Several years ago, lawmakers exempted agricultural equipment from the tax, and agreed to send payments to counties, school districts and other taxing districts to make up the loss. The state doesn’t receive any of the tax – as a property tax, it goes entirely to fund local government and schools.

But those state payments to counties don’t increase over time when businesses grow, like the tax did, and the result has been a tax shift that means other property taxpayers in each county – including homeowners – pay a little more to make up for what farmers are no longer paying.

That same scheme was proposed in HB 599, which was sponsored by the Idaho Association of Commerce and Industry, an influential business lobby. The tax would have been phased out over five years, with the state sending payments to counties based on the value taxed on Jan. 1, 2008. The eventual cost to the state was a hefty $120 million a year. School, county and city officials from across the state flocked to hearings to oppose the bill, saying it would leave them unable to provide the basic services that they’re required to by state law.

Testimony at the hearings also uncovered several other flaws in the bill. One was that it changed a definition of real property in a way that Kootenai County Assessor Mike McDowell said likely would redefine all boat docks as tax-exempt personal property, a change that would have huge tax consequences in North Idaho. That change in definition was removed from the bill as part of the amendments.

Senate President Pro-Tem Bob Geddes, R-Soda Springs, said some of the largest businesses that stood to gain the most under the original bill were supportive of the changes. Under the original bill, 18 percent of Idaho’s businesses would have gotten 95 percent of the benefit, with nearly $30 million going to utilities alone.

Geddes said a representative of one of Idaho’s largest businesses came to him and told him, “We would rather pay the tax than push this onto the backs of our employees.” Geddes said, “That’s one more testament to how great a place the state of Idaho is to do business in.”

The original bill had passed the House on a 39-31 vote. There, Democrats repeatedly proposed limiting the tax break to the first $50,000 in value, but the proposal was defeated both in committee and in the full House.

Geddes said that given the close vote earlier in the House, he’s confident the amended bill will win support there. “I think it was a good compromise,” he said. The original bill, he said, had divided lawmakers. “The people supporting it were really hard-pressed, I think, to understand and explain all of the implications. Usually when you get people in that much of a quandary, you need to take a step back.”

IACI President Alex LaBeau told the Associated Press late Thursday that he’d fight to keep the amended bill from passing the House.