Tax Relief

Property tax relief invoice proposes elevating gross sales tax | Native

BOISE — Idaho homeowners would see about $750 million in annual property tax relief under legislation that was introduced in the House Revenue and Taxation Committee on Friday.

House Bill 741 proposed a major shift in how local government entities are funded: It permanently eliminates their ability to levy most property taxes on primary residences, but replaces that lost revenue by raising the state sales tax for everyone.

In addition, it calls for an advisory vote in November to see how voters feel about the proposal.

“What the bill does is remove all property taxes on primary residences, except for (voter-approved) bonds and school levies,” said Sen. Jim Rice, R-Caldwell. “So cities, counties, highway districts, etc., will no longer be taxing people’s primary home.”

The legislation also boosts the grocery tax credit by $75, to $175 per person.

To pay for those changes, HB 741 increases the state sales tax by 1.85%, from 6% to 7.85%.

Of that, 1.65% would flow back to the local units of government to replace the lost property tax revenue. The money would be distributed according to a formula that was developed with the assistance of the Idaho Association of Counties and Association of Idaho Cities. A portion of it would also go into a new stabilization fund or rainy day savings account, to help buffer local governments from future economic downturns.

The remaining 0.2% — along with another $12.2 million in general fund revenue — would pay for the higher grocery tax credit.

Overall, Rice said, the proposal would cut property taxes on primary homes by about $764 million, or 65% to 70% on average statewide.

“It would be substantial property tax relief,” he said.

Moreover, people who are just visiting or passing through Idaho will end up paying the sales tax on local purchases — meaning they’ll be helping to fund the local government services they benefit from while in the state.

“The beauty of this bill is that it takes a narrow tax and replaces it with the broadest possible tax,” Rice said.

The Revenue and Taxation Committee agreed to introduce the legislation, but members had a number of questions about the 41-page measure.

For example, Rep. Lauren Necochea, D-Boise, worried about the impact the change would have on renters. They’ll be stuck paying the higher sales tax, she said, but won’t see any benefit from the lower property taxes.

Rice noted that the bill fully replaces the lost property tax revenue, so local governments shouldn’t be shifting taxes onto other classes of property.

“When we (take) the property tax (off primary residences) and replace it with sales tax, we remove it from those local budgets,” he said. “What’s left is only what those other property classes were already paying. So rentals, ag, commercial — none of them will get a property tax increase as a result of this legislation.”

In addition, Rice said boosting the grocery tax credit to $175 per person will shield most taxpayers from any ill effects. For a family of four, that would fully offset the 7.85% sales tax on about $8,900 in annual purchases.

In response to other questions, Rice noted the bill increases the amount of land that’s eligible for the homeowners exemption.

The exemption currently applies to a primary residence and up to 1 acre of surrounding property. HB 741 increases that to five acres.

The higher sales tax would take effect July 1. The property tax relief and increased grocery tax credit would also take effect this year.

In an effort “to be responsive and responsible” to the citizens of Idaho, the legislation calls for an advisory vote in November “to guide the Legislature as to whether the sales tax rate should continue at the rate of 7.85%.”

The last time Idaho had an advisory vote was in 2006, when 72% of voters agreed to keep the 6% sales tax rate in place.

Now that it’s been introduced, HB 741 will come back to the Revenue and Taxation Committee for a public hearing. The House Republican leadership team also announced Friday that it will hold informational sessions Monday and Tuesday to help lawmakers understand the complex measure.

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