Homeowner exemption adjustment passes Idaho House

The Idaho House has approved legislation to cap the state's homeowner property tax exemption, but opposition says the move could cause tax shifts between residential and commercial property.

House lawmakers voted 55-15 Tuesday to fix the maximum homeowner exemption at $100,000.

State law allows qualified homeowners to claim the property tax exemption for their primary dwelling and up to 1 acre of land. The exemption is for 50 percent of the assessed home value, to a maximum of the exemption limit.

Rep. Janet Trujillo, R-Idaho Falls, introduced the bill.

"The current system is inherently unstable," Trujillo said. "This bill will make our system a little bit better."

Rep. Kathy Sims, R-Coeur d’Alene, voted against the measure.

“I don’t think you need to put a cap on the exemption limit,” she said. “I own all kinds of property and my taxes are already higher than they should be.”

Rep. Ron Mendive, R-Post Falls, voted for the bill.

“It simplifies things and adds clarity and predictability,” Mendive said, adding most homes are valued at less than $200,000.

Mendive said there was some debate on the floor before the bill passed, but not much.

Currently, the exemption limit changes each year based on the state’s housing market. When housing market values increase, the exemption limit increases with it. Likewise, when home values decrease, the exemption limit follows. The average housing market values are based on the Idaho House Price Index published by the Federal Housing Finance Agency.

By eliminating that tax index system, Kootenai County Assessor Mike McDowell said the state is going back to a system that was in place prior to 2006.

According to McDowell, the Legislature created the property tax exemption for owner-occupied homes in 1980. At that time, it set the exemption limit at $10,000 on the value of the home.

In 1982 the state increased that exemption to 50 percent of the value of the home or up to $50,000 of the home’s value, whichever was smallest. At that time the average home price in Idaho was $55,000, so everyone enjoyed a 50 percent exemption on their property taxes.

McDowell said that system worked until 2005, when average home prices had increased to $220,000, but the exemption limit was still capped at $50,000.

“That amounted to roughly a 25 percent tax exemption,” he said, adding that was when the Legislature decided it was time to tie the exemption limit to the Idaho House Price Index. “That worked pretty well.”

McDowell said the limit climbed with the housing market through the real estate bubble and the limit peaked in 2008 at $104,000 and then it crashed with housing prices as the bubble burst. By 2013, the exemption had plummeted to $81,000.

The limit has since recovered to roughly $94,000 this year, he said.

McDowell said if the limit is fixed at $100,000, an owner-occupied home valued at $250,000 would only receive a roughly 45 percent tax exemption that would reduce year after year if housing prices continue to increase.

McDowell said the Idaho Association of Counties met this week to oppose the bill because it believes the bill will “exacerbate shifts in tax between different property types.”

It has drafted a letter it plans to send to legislators as soon as possible, McDowell said.

In that letter, the IAC explains how tax revenue from residential commercial property taxes balance each other.

For instance, the letter said, when the value of residential property increases at a faster rate than commercial property, more of the tax burden is shifted to residential property owners to offset the decreased revenue collected from the slower-growing commercial sector.

When residential property growth slows below commercial growth, more of the tax burden shifts to the commercial sector.

With the index in place, residential property owners were shielded from paying the higher rates on 50 percent of the value of their primary residence.

With the index removed, property taxes will go up for homes that are valued at $200,000 or more.

In fact, Democratic Rep. John Gannon of Boise argued on the House floor that the measure only ensures higher taxes for homeowners.

"When inflation increases the value of your home to more than $200,000, you will not have the benefit of a higher exemption, so you will essentially have a higher tax," he said.

McDowell said the association of counties was caught off guard because Trujillo did not discuss the bill with the association prior to introducing it.

“There was no discussion with us on this,” McDowell said. “I don’t think it’s a good policy decision.”

The bill now heads to the Senate.

The Associated Press contributed to this story.