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Explain this to me: How idea to cut most homeowner property tax and increase sales tax would work

Your property tax bill could soon get a big shakeup. 

On Friday morning, Sen. Jim Rice, R-Caldwell, made his pitch to the House Revenue and Taxation Committee on his long-awaited property tax reform he’s been crafting that would remove nearly all of the property taxes on homeowners in Idaho, resulting in millions of savings. To replace the revenue lost to local governments, he proposes boosting the sales tax rate by 1.85% to 7.95%. 

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

This is the latest pitch to give property tax relief to Idaho’s homeowners who have been bearing more and more of the brunt of the cost of government services in recent years as growth in residential home values is outpacing commercial properties. Rice told the committee members this change would result in a net tax cut of $12.16 million, while also not hurting local governments and shifting the tax burden to rental properties and other property taxpayers. 

“The beauty of this is you’re taking a narrow tax and you’re replacing it with the broadest possible tax so people who don’t live in the state of Idaho who visit will help pay for the services they get the benefit of in our state,” he told the committee. 

The bill is expected to come up for a vote in the Revenue and Taxation Committee in the coming days. If you would like to read the bill, click here.

How will it work?

If you are a homeowner, this bill would be a big windfall for you. 

The proposal would remove all property taxes off of properties that qualify for a homeowners exemption except for those from bonds and school levies. Cities, counties, highway districts, cemetery districts and other local taxing districts would no longer use property taxes from these properties to fund normal operations and those funds would be removed from local budgets. 

Rice said he examined a bill from a home in the City of Meridian and this change would remove $2,600 off of that tax bill, leaving only $600 per year due for the property owner. 

To pay for the cuts, Idahoans would start paying the higher sales tax rate at the cash register. A large portion of the new sales tax revenue would flow back to local taxing districts through a formula developed with help from local governments, Rice said. A smaller portion of the sales tax revenue would stay with the state in a “stabilization fund” to keep local governments whole if there is an economic downturn and sales tax revenues crater. 

[Explain this to me: How 2020 sales tax change impacted local budgets in Boise, smaller cities]

To offset the higher grocery bills, the bill would also include a grocery tax credit hike to $175 annually. And in “really good years” when the revenue growth in sales tax revenue is over 10%, extra funds will be sent to drop the property taxes on other properties still paying, like rental properties, agricultural landowners and commercial landowners. 

Rice said this bill doesn’t hurt those payers because by dropping the property tax revenue from homeowners off of local government budgets, it doesn’t shift that burden to other property owners. It also increases the acreage for a homeowners exemption property up from one acre to five acres. 

The bill also contains a clause requiring it to go before the voters in November for approval. 

“This can be unwound in the first year,” he told the committee. 

Mixed reactions

The bill got the green light to move ahead in the process, but that doesn’t mean everyone on the committee was happy about it. 

Several legislators across the political spectrum raised questions about how hiking the sales tax would impact taxpayers at a time when rapid inflation and hikes to cost of living are hitting pocketbooks. Both Rep. Tammy Nichols, R-Middleton, and Rep. Lauren Necochea, D-Boise, said they were concerned this will drive more people to go shop for necessities across the border. 

“In my district, we are close to a border and I do have a lot of people who go across the border to make purchases so I am concerned about how I can sell this to my constituents with inflation the way it is, with gas prices the way they are and everything going up and up,” Nichols said. 

Rep. Linda Hartgren, R-Twin Falls, had several questions for Rice about how this would impact farmers and their bottom line. She opted to support the bill moving forward, but she wants to see how her constituents in the Magic Valley feel about it before putting her stamp of approval on it.

“Everything on this looks good, sounds good but I have this niggling feeling that it might not be as good as it all looks,” Hartgren said. “I want to check with a lot more locals to see how they feel.”

Lobbying, policy groups still analyzing the proposal

The Idaho Center for Fiscal Policy, a think tank that analyzes policy on education, criminal justice and housing, isn’t ready to make a firm stand on the bill this early in the process, but there are concerns about how it will impact low-income Idahoans. Director Alejandra Cerna Rios said trading a sales tax boost for a massive tax cut on homeowners would shift the tax burden onto the state’s renters.

“The bill would raise the sales tax by almost 2 percentage points and use that revenue to offset a lot of property tax for people who are homeowners, but for folks who aren’t we’re concerned that those folks will be saddled what could be upwards of several hundred extra hundred dollars per year in a tax hike,” she said.

Idaho Association of Cities Executive Director Kelley Packer said her organization isn’t ready to take a position on the bill yet either. 

“We’re very grateful the sponsors and the stakeholders invited us to the table to work on formulas and factors to make sure if the idea was a good one it would work right, but our members are concerned with such a major change to tax policy and need time to think through it and work through it before they take a formal position.”

What about that other property tax relief bill?

Idaho property taxes

This isn’t the only piece of legislation floating around the statehouse to address property tax relief this session. 

HB 648, brought by House Majority Leader Mike Moyle, R-Star, would require half of any increases to sales tax revenues sent to cities to be used to cut the budget and reduce property taxes. The legislation passed the House on Friday 43-24, but it’s unclear exactly how this bill would work with Rice’s proposal if both passed. 

In a text to BoiseDev Friday, Moyle said both bills would work together and provide property tax relief, but he did not elaborate on the details. Rice did not return a call for comment by press time asking for more clarification. 

Moyle said this legislation would make a difference over time, while also keeping local governments whole by not cutting the sales tax revenue they already get. 

“We’re not trying to harm the local taxing districts, we just need a little bit back for the property taxpayer,” Moyle said. “You want property tax relief, I think it’s better to do it a little at a time and not cut their throats.”

He did get pushback on the floor from both sides of the aisle. Necochea pointed out that as sales tax revenues rise, local governments have increased costs they need to keep up with and reducing the amount they get in increased revenue only undercuts their ability to provide services in the long run. Rep. Lance Clow, R-Twin Falls, said it didn’t do enough for the taxpayers. 

“If it makes you feel good to say we did this and we took some of your taxes and reduced other amounts of your taxes and we made a 1% difference, if that makes you feel good you’re fooling yourself and you’re fooling your constituents,” he said on the floor. 

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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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