Counties, cities, school boards pan Otter tax cut

BOISE (AP) - Cities, counties and school boards are opposed to the governor's proposal to dump Idaho's $140 million personal property tax paid by businesses, drawing a battle line on one of the Legislature's marquee upcoming issues.

In a letter to Gov. Butch Otter obtained by The Associated Press on Monday, the Idaho Association of Counties, the Association of Idaho Cities and the Idaho School Boards Association objected to the measure, which could shift about $40 million of the tax burden to other taxpayers, including homeowners.

The three groups also said the proposal to eliminate the tax by 2020 creates an "untenable burden" on Idaho's general fund, because the state must come up with $90 million in replacement funding for local governments, according to the proposal.

In his Jan. 7 State of the State speech, Otter cited doing away with the tax on everything from power transmission lines to desks and computers as a keystone of the 2013 session. Companies including Idaho Power Co., the state's biggest utility, and semiconductor maker Micron Technology Inc. say the tax hurts the state's business climate.

But the county, city and school groups argued the Republican governor's proposal, while still in draft form, narrows Idaho's tax base and unfairly shifts the burden for funding for schools, law enforcement, fire protection, roads and other services.

"The legislation will result in a significant shift in property tax burden to homeowners, farms, and small businesses," they wrote. "This will make passing school bonds and supplemental levies significantly more difficult."

Instead, the three groups support immediately triggering a not-yet-enacted 2008 law to exempt the first $100,000 in business personal property.

That year, the Legislature agreed to pick up the roughly $20 million cost of that move for counties, in order to eliminate the tax for about 89 percent of Idaho businesses. The legislation hasn't kicked in yet, because lawmakers in 2009 opted to delay implementation until state revenue began growing again following the Great Recession.

"Because this legislation provides full replacement revenues, it will not result in a shift of tax burden from businesses to homeowners," the cities, counties and school boards wrote in their letter.

On Monday, Otter spokesman Jon Hanian declined to comment on the opposition to the governor's plan. He added the proposal is hardly etched in stone.

"It's for discussion purposes," Hanian said. "We're close to having something for introduction, it's not there yet. It's still being worked on."

Meanwhile, the Idaho Association of Commerce and Industry, a pro-business group that includes Idaho Power and Micron, has reacted favorably to Otter's proposal.

Alex LaBeau, its president, contends the cities, counties and school boards are unfairly exaggerating the effect of Otter's measure on their members in order to drum up opposition among lawmakers.

He points out that Idaho taxing districts take in a combined $1.4 billion in revenue annually from all property taxes, including the personal property tax. If Otter's plan passes, the most that Idaho's 44 counties, cities, schools and other taxing districts would have to make up annually would be less than half a percent of that total figure - about $6 million a year through 2020, according to the Idaho State Tax Commission's calculations.

LaBeau argues that few Idaho residents would even notice any increased burden, even if their local governments opted to shift the full amount.

"It's disingenuous at best," LaBeau said Monday, of the three groups' arguments. "I think we're at a philosophical divide: Government doesn't want to get rid of this tax - and business does."