Idaho's Tax Structure

Idaho's Tax Structure

The League of Women Voters of Idaho supports a tax structure that is balanced, progressive, i.e., graduated based upon income, and adequate, and which is administered in a thorough and cost-effective manner.
Position In Brief: 

Support for a tax structure which is balanced, progressive, i.e., graduated based upon income, and adequate, and which is administered in a thorough and cost-effective manner; support for greater understanding and involvement in the budgeting processes; support for increased taxation on extraction of mineral resources; support for revision of the state income, property, and sales taxes. (Amended, February of 2015)

Position History: 

In 1975, Convention delegates voted to begin a study of Idaho’s tax structure. This logical extension of the League’s studies of the Idaho Constitution, financing education and land-use were believed to be basic to an understanding of how state and local governments function. The study began with an overview and inventory of present taxes and the constitutional limitations on taxation.

The study focused on property taxation with an emphasis on the assessment of the real property. The budget processes of local taxing units—especially cities, counties and school districts—were observed.

Beginning in 1977, property tax exemptions, classification of property for differential taxation and property tax relief measures such as “circuit breaker” and “homestead exemption” were studied. While League members reached an agreement concerning the “circuit breaker,” no consensus emerged on the “homestead exemption.”

The focus of the tax study then moved to the financing local government with particular reference to the effects of the 1% property tax limitation, state “revenue sharing” and local option taxes. Public workshops on these topics were held throughout the state in October 1979.

During 1981-83, the study of “existing and alternative revenue sources” examined the possibilities of severance taxes for Idaho, and League members agreed to support increased state taxation on mineral resource extraction. League also supported increased appropriations for tax auditors and other measures to improve the collection of state taxes due.

The study of sales tax exemptions yielded only two (the exemption of purchases of INEL now INEEL and the exemption on purchases of precious metal bullion and monetized bullion) that members could agree to eliminate. League members did agree that some type of production exemption should be maintained in the sales tax code. Preference for an income tax increase over an increase in sales tax rates was indicated due to the regressive nature of sales taxes.

The League of Women Voters of Idaho supported the full implementation of the 1986 Tax Reform Act into Idaho Code. With the exception of the investment tax credit, federal code changes were generally adopted in Idaho. During the same session, Idaho made a few steps toward more progressivism in the state’s income tax schedule.

In 1992, voters rejected an initiative to re-impose the 1% property tax limitation. Over the years, the legislature has passed laws weakening the effects of the 1% initiative approved by voters in 1978. The 5% cap on local government budgets was removed in 1991 and “Truth in Taxation,” an attempt to involve the public in budget decisions, was instituted. The law, requiring a certain advertising format when budget increases are proposed, has been ineffective, partly due to the confusing format of the advertisements. Legislation to improve these advertisements failed in 1993 and 1993.

During the 1980s and early 1990s, Idaho’s income tax structure was one of the most progressive in the United States. The top bracket went to 8.5% in the 1980s.

Most property tax measures supported by the League at that time were in effect in 1994, with the noticeable exception of full disclosure of the selling price of a property. Also, there continued to be no provision or payment of avoided property taxes when land changes from agricultural to another use.

The “circuit breaker” program in which the state pays property taxes for qualifying senior citizens had been expanded prior to 1994, with higher income limits and higher maximum payments.

League members will continue to work to bring about a better understanding of the entire tax structure in Idaho. Another continuing goal is more public understanding of and involvement in the budgeting process at all levels of government. Additional areas for future study may include Real Estate Transfer Taxes and Corporate Income Tax Structure. (Updated  in1994, amended May of 2002)

Since 1994, League has not undertaken a serious study of any issues related to Idaho’s tax structure. Meanwhile, much has changed both in the state’s economy and in the state’s tax policy, with consequent effects on the state’s tax structure.

Governor Batt successfully backed legislation in 1994 that attempted to respond to concerns raised by the 1% initiative. “Truth in Taxation” was dismantled. Also, in effect since 1995, budgets of local taxing districts are capped at annual increases of no more than 3% plus a component for new construction. A simple majority of votes can override the cap for two years, though it seldom goes to a vote. A 2/3 majority can raise levies permanently to the levy limit.

A final piece of Governor Batt’s response to the 1% initiative was to begin replacing a portion of local school districts’ maintenance and operations levies with state funds. He proposed to phase this effort in over several years. However, after the first step was taken, no subsequent steps followed. Meanwhile, with supermajority (2/3) requirements remaining in effect for bond elections, Idaho stands alone as the only state in the nation with both no state funding for school facilities and a supermajority requirement for bond elections. These and other factors combine to raise questions about the ability of the local school districts to provide safe and adequate school facilities. In general, the adequacy and fairness of funding for education remain contentious.

Over this period Idaho has been one of the five fastest-growing states in the nation. Housing prices have escalated, raising questions about such issues as the $100,000 ceiling on the homeowners’ exemption, the lack of “circuit breaker” protection for non-senior low-income homeowners, and the fairness of the tax code’s treatment of renters.

Legislation enacted in 2000 and 2001 reduced corporate and personal income tax rates, addressed ‘bracket creep’ and the so-called marriage penalty, and extended a variety of other credits and exemptions. Meanwhile, the personal income tax brackets have never been adjusted for inflation, so the progressivism of Idaho’s personal income tax has eroded over time.

The composition of the state’s General Fund has changed dramatically since the early 1990s. Today, it is significantly more dependent on the personal income tax and less dependent on the sales tax and especially the corporate income tax than it was a decade ago. It may be time to ask if Idaho’s tax structure is out of balance.

Several tax expenditures, including the investment tax credit, the production exemption, and several sales tax exemptions are growing quite rapidly. Perhaps the effect of some of these tax expenditures on the state’s ability to fund citizen needs should be re-examined.

In the wake of recent tax reductions, Idaho now appears to have a structural deficit—a tax structure that is inadequate for raising the revenues necessary to fund the state’s on-going commitments. Over the next few years, proposals to raise taxes in one form or another (in particular the sales tax) can be expected to be put forward.

In view of the length of time since League last undertook any serious study of tax issues and in view of the magnitude of the changes that have occurred in the state’s economy and in the state’s tax structure in the interim, the time seems ripe for a serious re-examination of Idaho’s tax structure. League would then be enabled to make a valuable contribution to tax structure debates when they arise, as they inevitably will over the next decade. (Adopted May of 2002) 

During 2013-14, an “update” study on tax structure positions generated new consensus positions on basic tax principles and sales taxes.  The term “equitable” was replaced with “progressive, i.e., based upon income” as a League-supported principle of taxation.  

The 2013-14 study included a close look at the proliferation of sales tax exemptions and the resulting loss of state revenue.  This generated a new position with support for only those exemptions related to basic needs listed as food, prescriptions, and utilities.  Further, the position directs that these exemptions be based upon objective criteria and that they include sunset clauses and provisions for independent review for effectiveness to justify renewal. This position was adopted in February of 2015.

Principles of Taxation

The League of Women Voters of Idaho believes that Idaho should maintain a balanced tax structure which includes a variety of broad-based taxes such as the property tax, income tax, and sales tax.  League supports measures that will make Idaho’s tax structure progressive, i.e., graduated based upon income,  financially adequate for citizen needs and which can be administered with thoroughness and fairness. (Adopted July of 1977; amended May of 1988, amended February of 2015)

Local Fiscal Authority

The League of Women Voters of Idaho believes that there are unnecessary restrictions on the fiscal authority of local governmental units. League supports the elimination of rigid statutory limits on taxes and opposes limits on yearly budget increases. The 5% cap on increases in the property tax part of local tax district budgets should be repealed or raised. The 1% property tax limitation should be similarly eliminated. (Adopted January of 1970; amended July of 1979; amended May of 1985)

The League supports changes in the laws pertaining to elections for tax levies and bond issues to require not more than a 60% majority of the votes cast for passage. League members agree that elections to set property taxes above a limit set by law (overrides) should require a simple majority vote for passage. (Adopted May of 1969; amended July of 1979)

The League believes that local option taxes should be available to local governments; approval by a majority vote should be required before the imposition of a local option tax. (Adopted February of 1980)

Property Tax

The League of Women Voters of Idaho supports appraisal practices and reappraisal schedules that treat like properties in a like manner in all counties in Idaho. The public needs to be better informed about appraisals, reappraisals, and sales ratio studies. More understandable and informative assessment notices and tax notices with clear explanations and definitions should be developed.

The League favors the assessment of property at full cash value. League members support a full disclosure law to give assessors information on the selling price of a property so appraisals can be more accurate. Assessors and appraisers should meet definite job qualifications and should also be required to complete approved training courses. Real and personal property should be appraised by county officials rather than by the state. (Adopted July of 1977)

In order to focus property tax relief on those who need it most, the League members support “circuit breaker” type property tax reduction. (Adopted February of 1979)

The League of Women Voters of Idaho supports taxing agricultural land on the basis of its value for agricultural production. When the use of agricultural land is changed, an amount of money equal to at least three times the difference for that year between the property tax on the land appraised as agricultural land and for the new use should be collected and distributed to the governmental units which tax that land in order to offset some of the public costs of development (Adopted August of 1980)

Budget Process

The public needs to be better informed about the budget processes of the state, counties, cities, school districts and other taxing units because in many instances setting budgets effectively determines tax rates. The public should have ample opportunity to have input into setting budgetary priorities so the budget will reflect the needs and desires of the community as a whole. (Adopted July of 1977, amended July of 1979, amended May of 2002)

Severance Tax

League supports increased taxation on extraction of mineral resources, with part of that revenue to go to the state general fund and part to be used specifically to mitigate local impacts of the extraction activity on the social and natural environment. (Adopted February of 1982)

Income Tax

The League of Women Voters of Idaho believes that the progressivity in the state income tax structure should be maintained and improved. (Adopted May of 1985, amended May of 1994, amended May of 2002)

Sales Tax

We favor those exemptions to state sales taxes related to basic needs like food, utilities, and prescriptions. These exemptions should be based upon clearly defined objective criteria. All sales tax exemptions should include sunset clauses and an independent review to determine their effectiveness and continued justification. (Adopted May of 1984; amended November of 1986 and May of 2015)

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