Exemption repeals on the back burner for lawmakers this year
As state lawmakers have faced shortfalls in the hundreds of millions of dollars in the last couple of years, there’s been talk of doing away with some of Idaho’s $1.7 billion worth of sales tax breaks granted 118 goods and services, but the push to review exemptions seems to have lost some steam and the issue is not likely to come up this session, many key legislators indicate.
But Assistant Majority Leader Sen. Chuck Winder, R-Boise, who last year sponsored a measure calling for review of exemptions every five years, said he will “test the waters” for support for a new push this session. Winder’s exemption review proposal cleared the Senate last year but it went nowhere in the house, House, which is the body constitutionally responsible for introducing revenue legislation. Winder’s legislation didn’t get a hearing in the House. Similar legislation proposed last year by Rep. Wendy Jaquet, D-Ketchum, got shelved in the House Revenue and Taxation Committee.
Some like Jaquet argue exemptions, once they are passed, are nearly impossible to change or repeal, even though they may have outlived their original purpose to encourage certain economic or social behavior. Many exemptions came in along with the sales tax in 1965, while others have been added since.
Some exemptions that catch the eye – breaks on caskets, glider kits, commemorative silver medallions, pet care, and barber services – are curious but don’t represent a whole lot of money. The big dollar exemptions are for professional, business, and health services – those categories together total about $750 million in tax breaks annually.
House Revenue and Taxation Committee Chair Dennis Lake, R-Blackfoot, said he’d hear proposals to get rid of any exemptions.
“If there’s some exemptions that need to go, bring a bill,” Lake said. He said many exemptions are likely safe, including the largest on production equipment.
Despite the action last year, and Winder’s willingness to keep the issue alive, many now say there’s no appetite for a new fight over exemptions. That’s as it should be, said Alex LaBeau, president of the Idaho Association of Commerce and Industry (IACI). Gov. Butch Otter’s sound thumping of Keith Allred, who called for a review of all exemptions, sends a message to legislators to steer clear, he said. Senate President Pro-tempore Brent Hill, R-Rexburg, who co-chaired a committee with Lake in 2008 looking at exemptions, said a says an exemption review system is still warranted. But for now, he said, “I don’t think anybody wants to do anything that could hurt business.”
Senate Minority Leader Les Bock, D-Boise D-Boise, says many exemptions simply amount to gifts and should be reviewed. But he agrees with Hill that the time isn’t now.
“I don’t think there’s any energy or any political will to actually tackle the problem,” he said. “You have people coming at this with different motivations. You have some people out there who are simply anti-government and they view any revenue generation as having a tendency to expand government … that argument ignores fundamental needs. They’re just not going to vote for it despite it making good business sense … I just don’t think you’ve got the votes … I think it gets to be academic. It’s not going to happen.”
Minority Leader Rep. John Rusche Rusche, D-Lewiston, said: “My guess is not much will be accomplished.” He added that changes likely won’t happen until “we figure out a more systematic way to look at tax exemptions to be sure they are performing the way we want them to.”
Rusche said many exemptions make good economic sense, but that the system should be evaluated as the economy shifts from dealing less in goods and more in services.
Jaquet hopes a current issue – the expiration of the alternative energy rebate – could spur a renewed look at exemptions across the board. She said the debate over renewal of the alternative energy rebate (enacted in 2005) could become a model for looking at the state’s many other sales tax exemptions.
“The burden needs to be on the industry to tell us why they need it (the exemption),” Jaquet told the Statesman.
She told IdahoReporter.com that lawmakers might be better served by conducting a blanket review of exemptions to broaden the taxable base of economic activity to include services.
“I don’t think there’s an appetite to do that, but I think there’s a conversation to do that.”
That would be welcome news to the Idaho Education Association, and the AFL-CIO, groups which have previously backed the taxing of services and a lowering of the overall tax rate. Some Tea Party leaders have called for the same.
But IACI president LaBeau said the debate is past and is now “popular among academics.” He said Idaho’s exemptions are in line with other states.
The state budget book stresses that exemption figures represent how much tax is being avoided by the beneficiaries and not the revenue that would be raised by eliminating an exemption. Changes could upset business models and consumer behavior.
“In many cases, especially those involving substantial structural changes, tax law changes could reasonably be expected to change the economic behavior of taxpayers,” the report reads. It goes on: “The estimates of the amount of lost revenue contained in this report do not take into consideration the overhead that would be needed to collect the lost revenue.”
Lawmakers should tread carefully when considering repealing exemptions and consider possible ramifications, said Sen. John McGee, R-Caldwell.
“Any time you look at (repealing) a sales tax exemption, it’s going to be a tax increase for somebody.”
IdahoReporter.com reporter Brad Iverson-Long contributed to this story.
Detail, history of select exemptions
Ski Lifts and Snowgrooming Equipment – exempts the lifts, snow groomers, and snowmaking equipment used by the owner of a ski area. Enacted in 1995.
Clean Rooms – exempts any tangible personal property used in or that becomes a part of a “clean room” used to manufacture semiconductors. Also includes property that is used to maintain a clean room. Enacted in 1999. Extended to include clean rooms used for research and development in 2005.
Alternative Electricity-Producing Equipment – provides a refund of sales tax paid for machinery and equipment used in alternative types of electricity production. To qualify, the facility must have a capacity of at least 25 kilowatts. The alternative methods that qualify for this exemption are fuel cells, low-impact hydro, wind, geothermal, cogeneration, solar, landfill gases, and biomass. Enacted in 2005, sunsets July 1, 2011.
Research and Development Equipment – exempts tangible personal property used in research and development activities. Enacted in 2005.
Small Employer Headquarters Construction – this rebate is contingent on a taxpayer qualifying under the “Idaho Small Employer Incentive Act of 2005.” It provides a sales and use tax rebate for 25% percent of sales and use taxes paid on property constructed, located, or installed in the “project site” (as specified in 63-4402) from January 1, 2006 Jan. 1, 2006, through December Dec. 31, 2020. General qualification criteria are specified in 63-4402, and can be summed up as making an investment of at least $500,000 in new facilities and adding at least ten 10 new jobs paying at least $19.23 per hour. The average wage for each additional job above the initial ten 10 must be at least $15.50 per hour. Enacted in 2005. Amended in 2006. Average wage calculation amended in 2008. Amended in 2009 to extend to 2020.
Glider Kit Vehicles – enacted in 2006.
Funeral Caskets – exempts goods sold in conjunction with a funeral. Enacted in 1977.
Precious Metal Bullion – exempts sales of precious metal bullion and coins. Enacted in 1982.
Idaho Commemorative Silver Medallions – exempts sales of Idaho commemorative silver medallions. Enacted in 2003.
Professional Services – legal, accounting, engineering, architectural, consulting, scientific research, and advertising services fall within this category. Exempt since enactment of the sales tax in 1965.
Business Services – office services, employment services, building services, employment agencies, facility services, and security agencies are some of the major elements of this category. NAICS major groups 561 and 562 are in this category. Exempt since enactment of the sales tax in 1965.
Personal Services – laundry and dry cleaning, barbers and beauticians, shoe repair, funeral services, massage parlors, and escort services are among the elements of the personal services major group. Exempt since enactment of the sales tax in 1965.
Health and Medical Services – doctors, dentists, hospitals, and nursing home services are the principal elements of this category. Exempt since enactment of the sales tax in 1965.
Miscellaneous exempt services – includes pet care, barber shops, and parking lots and garages. Exempt since enactment of the sales tax in 1965.
Sales by Indian tribes on reservations Tribes on Reservations – allows a tribal enterprise to make sales to both Indians and non-Indians without collecting sales tax, provides that no use tax applies to the purchase if a non-Indian removes the goods from the reservation. Enacted in 1984.
Sales by Outfitters and Guides – allows outfitters to exclude from the taxable amount charged to their customers the federal fees imposed on outfitters for the right to use recreational sites. Enacted in 1990. Amended in 1994 to eliminate the provision that the federal fees must be for the purpose of managing the land or water upon which the outfitting occurs.
Sales Through Vending Machines – allows retailers selling products through vending machines for $1 or less to pay tax on 117% of their acquisition cost of the products rather than on the retail sales price. Enacted in 1977. Auto manufacturer Manufacturer Rebates – allows dealers to deduct the amount of a rebate given to the buyer, by the motor vehicle manufacturer, from the taxable sales price of the vehicle. Enacted in 1990.
Services not taxed 2011 2012 2013
Health and Medical Services $394.2 million $410 million $429.5 million
Professional Services $212.9 million $219.9 million $227.4 million
Business Services $121.5 million $125.5 million $129.7 million
Construction $97.5 million $100 million $109.5 million
Information Services $88.3 million $88.3 million $89.9 million
Social Services $65.3 million $67.9 million $71.1 million
Repairs $44.4 million $45.9 million $47.4 million
Transportation Services $35.7 million $36.9 million $37.9 million
Educational Services $33.4 million $34.5 million $35.7 million
Lottery and Pari-mutuel betting $10 million $10.4 million $10.8 million
Personal Services $9.9 million $10.2 million $10.5 million
Ag and Industrial Services $3.7 million $3.8 million $3.9 million
Miscellaneous Services $2.5 million $2.6 million $2.7 million
Media Measurement Services $68,000 $70,000 $73,000
Nonprofit Shooting Range Fees $34,000 $35,000 $36,000
Uses not taxed 2010 2011 2012
Production Equipment $59.5 million $67.9 million $74.2 million
Production Supplies $45 million $51.4 million $56.2 million
Trade-in Value $23.3 million $24.6 million $28.5 million
Motor Vehicles Used Outside of Id $13 million $13.7 million $15.9 million
Food Stamps/WIC $13.5 million $14 million $14.5 million
Pollution Control Equipment $8.8 million $8.3 million $7.9 million
Research/Development Equipment $7.2 million $7.2 million $7.2 million
Interstate Trucks $5.5 million $5.7 million $6.7 million
Out-of-State Contracts $3.4 million $4.1 million $4.5 million
School Lunch/Senior Citizen Meals $3.9 million $4 million $4.2 million
Irrigation Equipment $3.7 million $3.8 million $3.9 million
State Tax Anticipation Revenue $3.3 million $3.3 million $3.3 million
Broadcast Equipment $2.1 million $2.4 million $2.7 million
Railroad Rolling Stock $2.5 million $2.5 million $2.5 million
Sale or Lease of Bus. or bus. assets $1.7 million $1.9 million $2.1 million
Commercial Aircraft $1.8 million $1.8 million $1.9 million
Ski Lifts/Snow grooming equip. $600,000 $600,000 $600,000
Clean Rooms $480,000 $480,000 $480,000
Glider Kit Vehicles $239,000 $253,000 $292,000
Publishing Equipment $138,000 $157,000 $172,000
Small Employer HQ Construction $115,000 $115,000 $115,000
Lodging, Eating, Drinking Places $76,000 $79,000 $82,000
Media Production Projects $61,000 $64,000 $66,000
Drivers Education Automobiles $37,000 $39,000 $40,000
Incidental Sales of Tangible prop $12,000 $12,000 $12,000
Donations of Real Property to state $4,000 $4,000 $4,000
Alternative Electricity equip. $300,000 $900,000 Sunset
Goods not taxed 2011 2012 2013
Motor Fuels $157.4 million $166.8 million $174.1 million
Utility Sales $90.6 million $93.3 million $96.1 million
RX/Medical Equipment $41.2 million $44.4 million $47.7 million
Heating Materials $5.2 million $5.3 million $5.4 million
Used Mobile Homes $2.7 million $2.7 million $2.7 million
New Manufactured Homes $2.2 million $2.3 million $2.4 million
Telecommunications Equip. $1.5 million $1.7 million $1.8 million
Funeral Caskets $1.3 million $1.4 million $1.4 million
Precious Metal Bullion $558,000 $558,000 $558,000
Personal Prop. Tax on Rentals $400,000 $400,000 $400,000
Nonprofit Literature $133,000 $135,000 $137,000
Official Documents $66,000 $67,000 $68,000
Containers $37,000 $38,000 $39,000
Idaho Comm. Medallions $2,000 $2,000 $2,000
Entities not taxed 2011 2012 2013
State/Local Govt. Purchases $26.7 million $27 million $27.7 million
Hospital Purchases $23.9 million $24.9 million $26.1 million
Ed Institution Purchases $9.5 million $9.8 million $10.2 million
Sales by Indian Tribes on Reservations $5.1 million $5.2 million $5.4 million
Yard and Occasional Sales $3.2 million $3.3 million $3.5 million
Sales Through Vending Machines $2.4 million $2.5 million $2.6 million
Motor Vehicle Purch. by Family Mbrs. $1.6 million $1.9 million $2 million
Canal Company Purchases $1 million $1 million $1 million
Incidental Sales by Churches $808,000 $839,000 $867,000
Auto Manufacturer Rebates $533,000 $616,000 $665,000
Health Entity Purchases $392,000 $407,000 $421,000
Food Bank Purchases $281,000 $292,000 $302,000
Museums $198,000 $206,000 $213,000
Volunteer Fire Departments $181,000 $188,000 $195,000
Senior Citizens Centers $43,000 $45,000 $46,000
Forest Protective Association Purchases $44,000 $45,000 $45,000
Sales by 4-H and FFA Clubs at Fairs $28,000 $28,000 $28,000
Sales by Outfitters and Guides $16,000 $16,000 $16,000
Sales of Meals by Churches to Members $13,000 $13,000 $13,000
Free Dental Clinics $10,000 $11,000 $11,000
Advocates for Survivors of DV $9,000 $10,000 $10,000
Blind Services Foundation, Inc. $8,000 $8,000 $8,000
Centers for Independent Living $5,000 $5,000 $6,000
Nonsale Clothier Purchases $1,000 $1,000 $1,000
Ronald McDonald House Rooms $1,000 $1,000 $1,000
Uses of Income Not Taxed 2010 2011 2012
Grocery Credit $78.7 million $93.8 million $109.6 million
Other States Tax Credit $62.6 million $64.5 million $67.7 million
Investment Tax Credit $30 million $33.3 million $36.2 million
Health Insurance Deduction $13.7 million $14.2 million $14.8 million
Schools, Libraries, and Museums Cr. $4.2 million $9.3 million $9.6 million
Youth and rehabilitation credit $8.4 million $8.5 million $8.7 million
Child Care Deduction $4.2 million $4.3 million $4.4 million
College Savings Deduction $1.5 million $1.5 million $1.5 million
Long-Term Care Insurance Deduction $1.1 million $1.1 million $1.2 million
Medical Savings Account Deduction $911,000 $939,000 $978,000
Insulation Deduction $785,000 $809,000 $843,000
Elderly Dependent Credit $668,000 $687,000 $717,000
Research Activity Credit $1.6 million $746,000 $629,000
Broadband Investment Credit $744,000 $495,000 $418,000
Alternative Energy Device Deduction $383,000 $395,000 $411,000
Workers’ Comp. Premium Deduction $400,000 $400,000 $400,000
Small Employer Cap. Investment Cr. $453,000 $90,000 $118,000
Technological Equipment Deduction $63,000 $65,000 $68,000
Small Employer New Jobs Credit $179 $40,000 $68,000
Adoption Expense Deduction $48,000 $48,000 $48,000
Biofuel Investment Tax Credit $0 $1 $38,000
Live Organ Donation Expenses Credit $40 $32,000 $36,000
Small Employer Real Property Credit $0 $1,000 $29,000
Recycling Equipment Credit $28,000 $28,000 $28,000
Elderly and Developmental Disability $9,000 $9,000 $9,000
Promoter Sponsored Events Credit $0 $1,000 $4,000
County Incentive Investment Tax Cr. $200,000 $526,000 Sunset
Sources of Income Not Taxed 2011 2012 2013
Social Security $55.1 million $56.9 million $58.4 million
Capital Gains $27.3 million $28.1 million $29.3 million
Railroad retirement benefit $6.9 million $7.2 million $7.3 million
Idaho Lottery Winnings $4.7 million $4.8 million $4.9 million
Government Interest $3.7 million $3.8 million $3.9 million
Indian Earnings on Reservation $573,000 $590,000 $616,000
World War II Reparations $0 $0 $0
Marriage Penalty Deduction $0 $0 $0