Idaho legislator proposes new exemption to address property tax shifts

In an effort to address widening tax burdens between commercial and residential properties each year and to bring stability to the system, Sen. Jim Rice, R-Caldwell, is working on a proposal that would create a new exemption in Idaho’s tax code.

Rice discussed the idea at a meeting Friday of the Legislature’s Property Taxes and Revenue Expenditures Study Committee, which is a joint committee composed of six senators and seven representatives.

The committee’s goal is to study Idaho’s property tax system, including expenditures of property tax revenues, and make recommendations to provide property tax relief, encourage economic development and meet the needs of local branches of government.

Rice, who serves as the committee’s co-chairman, said he and fellow co-chairman Rep. Jim Addis, R-Coeur d’Alene, have spent the past few months researching property tax assessment methods that would create a more equitable system.

Since 2012, the amount of property taxes paid by residential homeowners versus commercial owners has continued to diverge into a wider gap, especially in Ada County.

Rice and Addis recently visited Nevada’s government offices as part of a research effort to understand the state’s approach to assessments for property taxes. While they determined Nevada’s system would create too many complications to implement in Idaho, it led to the idea of creating a county-based formula for a more equitable approach based on percentages of increases in property values.

“If residential goes up 20% in a particular county in value but commercial goes up 5%, you would do an exemption that would be the other 15% of the increase for residential,” Rice told the committee. “So for tax purposes, they both went up 5%.”

The exemption would be expressed as a dollar amount and would provide a greater benefit to those who stay in their homes for more than a year, Rice said, because the exemption would reset if the property transferred to a new owner.

Committee members asked questions related to property values in Boise versus a smaller town in Idaho such as Burley and how the exemption would account for market differences. Rice said the formula would be county-specific rather than statewide for that reason.

Rep. John Vander Woude, R-Nampa, asked Rice about the current assessment methodology that bases a commercial property’s value on its income based on the type of business. Rice said that’s still something he’s working on with local assessors in addition to a base formula.

But if he can iron out the details, Rice said the results could be significant.

“Tax shifts occur when one of the major tax types is changing at a different rate than one of the other major tax types,” Rice said. “Because we don’t have anything that limits that change in value to get them to be occurring at the same rate up and down, that’s where you get shifts. So if you have the budget growth cap combined with something that causes your major tax types to move in assessed taxable value up and down at the same rate at the same time, you actually increase how well your budget growth cap works.”

The committee has not yet scheduled when it will meet next. Depending on how quickly Rice can work with local assessors to develop a formula, legislation to address the exemption proposal could be introduced in the spring 2022 legislative session.