Right out of the chute, Idaho’s newly installed lawmakers are faced with a difficult dilemma. Gov. Butch Otter wants them to get rid of the personal property tax that his business friends hate with a passion. But where can they find $140 million to pay for the revenue lost if they do what he asks?
Let me do the arithmetic: amount collected in 2012 from business personal property tax = $140,000,000; amount in governor’s budget to replace business personal property tax = $20,000,000; deficit with no revenue source = minus $120,000,000.
The governor’s business friends, especially those in the Idaho Association of Commerce and Industry (IACI) are exceedingly powerful and persuasive. They complain about the time it takes to prepare personal property tax reports.
The personal property tax is only collected from Idaho businesses and is a tax on office furniture, computers, tools and machinery — anything used to make money. Agricultural machinery isn’t included because of what we sarcastically call “the standard agricultural exemption.”
Another small problem: The money raised by the personal property tax doesn’t really belong to the Idaho Legislature. All property taxes are raised and spent at the local level.
I have to admit that the Idaho Legislature has the legal authority to do whatever it wants with the dollars it oversees. But the local folks have the moral high ground. Personal property tax dollars are collected by the counties and allocated to a wide variety of local taxing districts, which would be seriously impacted if legislators choose to dump the personal property tax. The list includes roads, schools, parks, libraries, cities, counties — in short, the entities that provide the infrastructure and services of the communities we live in.
Mayors, city council members, county commissioners, highway district commissioners and many more are officials who have also been elected into office. Should they not have an equal or better say in determining the mechanism that raises the money that runs their operations?
Dangling the possibility of a local option tax before them is hardly a fair exchange. No local option proposal for a property tax increase would ever have a chance of passing if it somehow made it to a ballot. The most likely candidate for a local option tax is a sales tax, which is a regressive tax and very tough on young families and the elderly poor.
The uncertain distinction between real property taxes and personal property tax is another catch in the dilemma. Buildings and land are real property. Personal property in Idaho is taxed only if it’s used for making money. The distinction is somewhat like pornography — that is, you know it when you see it.
The Idaho Tax Commission has issued a 50-plus page analysis of 2012 Personal Property Tax in Idaho, including the amount of dollars assessed per taxing district and what percentage of their budget is from personal property tax. Not racy reading, but believe me, the document reveals the range of the issue. More than 940 taxing districts in the state count on some personal property tax dollars for their operations. That number includes 44 counties, 190 cities, 114 school districts, 177 cemetery districts and 156 fire districts.
Rural Caribou County, off in the easternmost portion of Idaho, depends on collections from the personal property tax for 45 percent of its budget. Amazingly, and responsibly, Monsanto Corporation, which is the principal taxpayer in Caribou County, does not support repealing the personal property tax, recognizing that Caribou County roads, schools and law enforcement are dependent on funds from that tax.
Ironically, it is the rural, cash-strapped areas of the state that are most dependent on the business personal property tax.
It is my observation that whenever Idaho legislators start fiddling around with property taxes, they mess up. Case in point: For the brief seven months in 2006 that U.S. Senator Jim Risch was governor of Idaho, he persuaded a special session of the Idaho Legislature to remove maintenance and operation of the state’s public schools from their property tax base and, instead, let the state’s general fund support the schools.
Then came the Great Recession and the flow from the general fund’s spigot ran dry. Public schools have been seriously hurting for funds ever since.
The chief beneficiaries of the Risch caper in 2006 were large property owning corporations — members of IACI — who would now benefit most from the repeal of the business personal property tax.
For the 2014 fiscal year, the Idaho Legislature should take the $20 million in the governor’s budget intended to provide skimpy cover for the proposed repeal of the business personal property tax, and invest those dollars in the public schools to begin to make up for these last few years of crimping and cutbacks.
In the meantime, legislators should get together with the cities and counties to improve the administration of the unloved, but necessary, business personal property tax.