What is the Personal Property Tax?

It’s a tax that costs you money and time that you don’t have.

Idaho’s business personal property forces business owners like you to document and pay taxes on anything from computers and printers to toolboxes and desks. It’s flat-out egregious. It’s taking time and energy away from the things that matter most to our community: building strong businesses that create jobs, foster economic growth and help maintain the quality of life for Idahoans.

It doesn’t have to be this way.

We can fight to repeal this tax now.

You have probably already received your annual notice to file your personal property taxes.

Your business has already paid sales taxes on your equipment, but every year you have to pay this property tax again and again.

Wouldn’t it be great if this were the last time you had to file it?

You can help make that happen.

As a business owner, you know how much this tax hurts you and your business in time and money. In the upcoming legislative session, our elected officials in Boise have a chance to put an end to the personal property tax for businesses. They need to hear from you today, and they need to know just how much Idaho’s small businesses need relief from punishing taxes and red tape.

Once you fill out and return the form on our Get Active section, we will contact you with further details and ways to take action.

 

Personal Property Tax Q & A

Why is the Personal Property Tax bad?

The personal property tax is fundamentally flawed and fails to meet the generally accepted principles of taxation outlined by Adam Smith in Wealth of Nations. The tax is not certain, equitable, simple for taxpayers, neutral or straightforward for government to administer. As public policy, the tax fails on all counts.

Why not just do a $100,000 exemption?

This is a populist argument that has no basis in sound economic or tax policy. It is basically telling any business that invests heavily in Idaho that is it not welcome due to the penalty that it pays that the non-equipment intensive businesses do not. The fact is that 96% of Idaho businesses employ 50% of Idahoans. The other 50% are employed by the remaining 4% of larger employers. Business is business, and Idaho’s government should not be trying to parse out taxes to large from small for the sake of good sound bites.

Why not negotiate with local government?

IACI has actually spent many years meeting with local government representatives, offering a multitude of solutions, including some that contain all the ideas that local governments have put forward. It is clear that local governments are taking a short-term view and are not truly interested in eliminating a very bad tax.

What is the economic benefit?

A tax on personal property discourages investment. For every dollar of the tax eliminated, it results in $6 of new income to the state through investments in equipment and employees.

What is at “3% flooring?”

A 3% flooring is the concept used to ensure that all local government will be treated equally with the elimination of the personal property tax. For any local government that relies on property tax collected from real and personal property, any local budget more than 3% reliant on personal property tax will be backfilled dollar for dollar at the 2012 level.

How are schools impacted?

School bonds will be reimbursed until paid off. All levies of schools will be reimbursed above the 3% flooring. Levies that expire will not be allowed to collect personal property tax in the future. Schools will be allowed to shift any potential amount as well, which is included in the $6 million estimate. Essentially all local government, including schools, will be held harmless.

What portion is shifted?

The remaining 3% of personal property that is not backfilled will be allowed to shift. To put it in perspective, though, if shifted over seven (7) years, the amount potentially to be shifted would be 0.42 percent. Statewide the total property tax is $1.4 Billion, so the total conceptual shift annually would be $6 million. Considering that local (city and county) property tax budgets grew approximately 30% between 2006 and 2011, there is little likelihood of a “shift” actually occurring.

What is the effect on bonds?

Revenue lost with bonds will be replaced until they expire. New bonds will not have personal property tax in their market value for budgeting and tax purposes.

Will this make bonds tougher to pass?

Doubtful. No bond in Idaho is ever sold to the citizens by government by telling them they pay more or less because of a tax on equipment, tools and machinery.

How much are the bonds in total?

Idaho does not track the amount of total bonding by all local government; we therefore have no idea how much Idaho’s taxpayers are in debt. We do not have that information yet, but it would be necessary to ensure Idaho can reimburse properly.

Will business continue to report?

Yes, businesses will continue to report throughout the phase-out to ensure there is no competitive advantage for new businesses that start after the phase-out begins. This is necessary to satisfy Idaho’s constitutional requirement for equal protection.

How is urban renewal treated?

Bonds from urban renewal will be paid off through a property tax on the real property contained within the urban renewal area. It should be noted that tax increment financing is not a cure-all. It is difficult to work with, and banks are reticent to utilize it. IACI encourages the Department of Commerce to explore how other states use municipal, industrial and other revenue backed bonds for financing infrastructure in entities similar to urban renewal areas.

What about operating property?

Operating property is a term used to identify businesses that are assessed by the state of Idaho rather than localities. Generally, these businesses are large and have equipment that spans multiple counties and jurisdictions. Therefore, for efficiency, the state centrally assesses their value and apportions it to the localities. Businesses assessed in this manner include utilities, railroads and a whole host of other businesses that compete with locally-assessed businesses. A prime example would be telecommunications that have competitors in both categories of taxation. Rate-regulated businesses that service other businesses and residential customers have rates that are set and monitored by the Idaho Public Utilities Commission. Any tax benefit to these companies would necessitate a reduction in rates to all customers. Therefore, everyone benefits from eliminating the tax, including homeowners.

What is the reality about “levy rate caps?”

One of the scare tactics of local government is to say they will lose massive amounts of money for providing services due to the caps on their levies for property tax if the personal property tax were eliminated. The legislation addresses this issue by giving the County Commissioners the ability to allow an entity to exceed their cap by the amount that would have been collected with personal property tax. The state Tax Commission did an analysis, and the MAXIMUM amount of possible loss without any allowance for exceeding a levy rate cap would be approximately $4 million out of $1.4 billion. It is negligible.

What is the total fiscal cost?

The estimated cost for the state will be $90 million. The number will drop as bonds and levies expire, so the amount is likely to be significantly less. If coupled with the analysis provided by IACI, which said the state would gain about $70 million in revenue annually from this policy change in 2007, the potential is for the state to have a net gain of at least $600 million over time. The potential cost to local government is zero, after all dollars above the 3% flooring are replaced, and the slow shift of the remainder happens while their budgets increase. On average, local property tax budgets have grown 5% annually over the last six years, even during the recession. The shift represents only 0.42% over the next seven years. Therefore, the $40 million total shift will be not only exceeded by significant local government budget increases, but unnoticeable to the taxpayer.

 

Paid for by the Idaho Association of Commerce & Industry