Senate panel narrowly endorses personal property tax elimination

A bill that would eliminate the “personal property tax” that Idaho businesses pay to counties for machinery, equipment and tools is headed to the full Senate floor. The Senate Local Government and Taxation Committee, after four hours of testimony and debate March 24, voted 5-4 to send House Bill 599 to the full Senate with a do-pass recommendation. A motion to hold the bill in committee died for lack of a second.

House Bill 599 would phase out the personal property tax over five years starting in fiscal 2010. Personal property acquired after Jan. 1 of this year would be tax-exempt. The amount of personal property purchased earlier - estimated between $110 and $120 million – would be reimbursed by the state in 20 percent increments triggered when state revenues grow at least 5 percent from one year to the next. If revenue growth falls short of that target, the remaining amount would be picked up later in the five-year phase-out cycle.

The House amended the original bill, boosting the state revenue-growth trigger from 4 percent to 5 percent and allowing school districts to add personal property back onto their valuations so as not to reduce bonding capacity. The House passed it 39-31.

Arguments against the bill in the Senate committee hearing included that it would shift the local tax burden to homeowners while reducing revenue to counties and reducing school districts’ bonding capacity - in part because the amount reimbursed would be fixed. Many representatives of school districts and municipalities voiced opposition.

Other arguments in opposition included that personal property tax is a sizable source of revenue in some counties, state revenues currently are stressed and coming in below forecasts, and that a business construction project would be property-tax-exempt by the time it appears on the tax rolls even though the project is under way. Several members of the Senate committee said the bill lacks a sufficient revenue- replacement mechanism, and that phasing out the tax over five years exposes the state to too many unknowns.

Phasing out the personal property tax is proposed by the Idaho Association of Commerce & Industry on behalf of many business groups. Supporters said it’s an unfair tax that is hard to administer and collect, and that money saved in personal property tax would be spent on businesses and their employees – to the benefit of state income and sales tax collections. Idaho many years ago eliminated the personal property tax for individuals, and about eight years ago eliminated it for agricultural equipment. Personal property since 1999 in Idaho increased in raw dollars, but decreased as a percentage of total market value.

Sen. Curt McKenzie, R-Nampa, made the motion to send House Bill 599 to the Senate floor with a do-pass recommendation. Sen. Jeff Siddoway, R-Terreton, seconded it, saying  he supports getting the tax-elimination plan on the books now even though revenue growth may not reach the 5 percent trigger level the first year. The Legislature can modify the bill in future sessions as concerns are studied and addressed, Siddoway said.

Committee Chairman Brent Hill, R-Rexburg, voted in favor of the do-pass motion, saying that business is the only sector now paying a personal property tax that is unfair and that can be manipulated by unscrupulous businesses.

Votes in favor of do-pass recommendation: McKenzie; Siddoway; Hill; Leland Heinrich, R-Cascade; Shirley McKague, R-Meridian.

Votes against do-pass recommendation: Vice-Chairman Tim Corder, R-Mountain Home; Joe Stegner, R-Lewiston; David Langhorst, D-Boise; Diane Bilyeu, D-Pocatello.