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Legislation proposed to change sales tax formula for local governments to decrease property tax. Cities express concern

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A new proposal in the Idaho legislature would require sales tax increases to be used to cut property taxes. Some city leaders say the move will further hamstring their ability to provide services as Idaho booms. 

Rep. Mike Moyle, R-Star, introduced legislation requiring half of any increased sales tax revenue local taxing districts receive to go toward cutting the portion of the budget funded by property taxes. This means cities will not see a decrease in sales tax revenue, but half of any increase must go to property tax cuts. The other half could go toward normal city operations. Local taxing districts include cities and counties.

[Boise homeowners feel the pinch of rising property tax burden]

For example, if the City of Boise received an increase of $10 million in sax tax revenue next year they would be required to use $5 million of it to reduce property taxes.

Right now, 11.5% of Idaho’s sales tax revenue from in-person, brick and mortar shopping is sent back to local governments to use for services for their residents. The state uses a revenue-sharing formula to decide how much money each district receives based on a number of different factors. In recent years, the amount distributed to cities has been increasing every year as the economy continues to grow. 

The bill was introduced at the House Revenue and Taxation Committee by Moyle, the House Majority Leader on a unanimous vote and is expected to have a full public hearing and committee vote in the coming days. 

A trend of local government budget controls

This proposal is the latest in a number of proposals from Moyle aimed at cutting local government budgets as a way to provide property tax relief. 

After the Idaho Legislature opted to stop indexing the homeowner’s exemption to inflation in 2016 and residential properties have risen in value more quickly than commercial ones, homeowners have been carrying a larger and larger tax burden in Idaho. This has been especially acute in rapidly growing cities like Meridian, Nampa, and Boise. 

To solve the problem, Moyle led several efforts in recent years to cap local government spending in an effort to provide relief. This included a failed push to freeze local government tax increases for a year in 2020 to push negotiations on changes. He was also one of the architects of sweeping property tax reforms in 2021. His bill, HB 389, capped local governments’ ability to increase tax collections on new construction along with several other changes. 

All of these bills, including last year’s package that included a slight boost to the homeowner’s exemption to $125,000, were opposed by cities who said capping their ability to increase property taxes on new construction made it difficult for them to keep up with costs for police, fire and other services residents demand. 

Instead of capping their budgets, cities and opponents to Moyle’s legislation said the state should reindex the homeowner’s exemption so the tax relief for homeowners grows as prices increase. Critics also say the state should put more funding toward schools to reduce supplemental levies to lower property tax burden. 

[Explain this to me: Inside Idaho’s complicated property tax system]

Cities advocate says bill would be ‘detrimental’

It’s still early, but local governments aren’t jumping up and down excited about Moyle’s latest bill. 

Association of Idaho Cities Executive Director Kelley Packer told BoiseDev while her board has not decided whether to take an official position on this bill yet, she is concerned it will add another barrier to cities’ ability to cover necessary costs. She said using sales tax increases to cut property taxes means cities will have to turn around and use property tax boosts and the sales tax revenue they will receive to backfill the cuts, leading to a stagnation of services. 

“(Moyle is) going to stop giving the cities and counties and other local taxing districts that share in (sales tax revenue) any increase of sales tax moving forward,” Packer said. “(This sales tax revenue) is our world from this point forward and not only that this is our world moving forward, we’re decreasing your property taxes you use to meet the needs of your residents.”

She said AIC would much prefer another version of this legislation not yet introduced that uses money from the state’s internet sales tax collections toward property tax relief. The money from this fund, often referred to as the Wayfair Fund, has been sitting unused and rapidly growing for several years now as legislators failed to come to an agreement with how the money should be spent. 

Like AIC, the Idaho Center for Fiscal Policy is still analyzing the bill, but Director Alejandra Cerna Rios said their research shows those struggling most with property tax bills are low-income homeowners and the most effective way to provide relief is targeting those most in need. 

“The most notable aspect of this legislation is for when it comes to property tax relief is this doesn’t really provide property tax relief for those struggling to meet their rising property tax bills,” she said. “A really broad reduction in a particular county or city’s base budget won’t translate into tax relief for any particular segment of a community or any type of person that we know is struggling with these costs.”

Other tax bills

This is not the only property tax proposal out this week. 

Moyle also brought legislation to create a process for counties to share information with each other to ensure Idahoans can only get a homeowner’s exemption for one of their properties. Currently, there is no mechanism for counties to check and see if someone applying for a homeowner’s exemption already gets one for a home elsewhere in the state. 

“If an individual has more than one homeowner’s exemption, everybody else pays more taxes,” Moyle told the Revenue and Taxation Committee. “We want to make sure people can have the homeowners exemption they’re entitled to but no more than one.”

He also teamed up with Rep. John Gannon, D-Boise, to propose a bill allowing cities the power to give rebates on property taxes like what the state can do when it has a surplus from income tax collections. This doesn’t require cities to turn back property tax revenues, but only allows them the option. 

It’s unknown how much these payments will be or if any local governments will take advantage of the law allowing them to pay them. When Ada County cut property taxes by $8 million last year, it saved a home valued at $400,000 with a homeowner’s exemption $29.50

Margaret Carmel - BoiseDev Sr. Reporter
Margaret Carmel - BoiseDev Sr. Reporter
Margaret Carmel is a BoiseDev reporter focused on the City of Boise, housing, homelessness and growth. Contact her at [email protected] or by phone at (757)705-8066.

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