Conformity bill proposes corporate tax change but cost largely remains

BOISE — A week after introducing a bill that would implement the tax cuts of the One Big Beautiful Bill, a revised version was introduced Thursday by the House Revenue and Taxation Committee, seeking to spread specific corporate tax changes over several years.  

The bill, authored by Rep. Jeff Ehlers, R-Meridian, changes corporate tax collections for this fiscal year and the next while leaving the slate of personal income tax deductions entirely in effect for the 2025 tax year. 

The key change concerns how corporations expense research and experimentation (R&E) costs. Prior to the passage of the One Big Beautiful Bill, corporations were spreading this deduction, or amortizing it, over five years, starting in tax year 2022. The federal tax changes, however, shift away from this model and allow businesses to fully expense their R&E costs each year, starting in tax year 2025. 

Ehlers proposed adopting measures similar to those in Delaware to complete the five-year amortization period ending in tax year 2026, while allowing businesses to fully expense their R&E costs beginning in tax year 2025. Ehlers said this will enable past R&E expenses to continue to be spread over several years, rather than being taken in a lump sum in the current fiscal year, “making it a little easier on the state’s budget.” 

According to Ehlers, the fiscal impact of this change will be felt through the spread of R&E deductions to subsequent fiscal years, shifting the decrease in state revenues to $175 million for that year. 

The $155 million cost for fiscal year 2026, however, carries over from his previous bill. 

Ehlers said this was due to corporations already assuming R&E amortization would be eliminated, noting that the state received lower corporate tax revenues in the months following the passage of the One Big Beautiful Bill. 

Given the amortization schedule remaining in place and corporations' ability to expense full R&E for 2025, Ehlers said he expects corporate taxes “will be about a wash” for this fiscal year.

Under this assumption, the $155 million cost for fiscal year 2026 is entirely attributable to personal income tax deduction changes, including those for overtime, tips and seniors.

Mirroring the prior bill’s introduction, differences remained between Ehlers and Rep. John Gannon, D-Boise, on how the state should estimate the cost of implementing the new federal tax cuts. Ehlers' number is the midpoint of estimates provided by the Idaho State Tax Commission and was also adopted by Gov. Brad Little in his budget recommendations. 

Gannon cited estimates from Montana’s Legislative Fiscal Division that pegged the cost of conformity for individuals at $114.2 million, accounting for standard deduction changes, a slate of new personal income tax deductions and changes to charitable contributions.

When you consider that Montana has a third of Idaho's population, extrapolation indicates Idaho would face hundreds of millions of dollars in revenue losses from personal income tax changes alone, Gannon said.  

Gannon was the lone committee member opposed to introducing the bill, with differences still outstanding on the fiscal cost. Further debate on the cost of complying with federal tax changes is expected when the bill returns to committee for a public hearing. 

A report from the Idaho State Tax Commission indicates that some personal income tax provisions for tax years 2025 through 2028 carry greater cost uncertainty than others. The enhanced senior deduction, which allows qualified seniors to claim $6,000 in deductions, was estimated to reduce state revenues by $32 million to $33 million. 

In implementing overtime pay deductions, the commission provided a much wider range of $36 million to $73 million, indicating greater variability.

The report further notes that if the One Big Beautiful Bill’s tax changes were to be implemented retroactively to Jan. 1, 2025, as Ehlers is proposing, the commission would need to “immediately redesign forms, direct software vendor updates and provide revised training for tax professionals … resulting in taxpayers having to delay filing” or “file amended returns.”

If the Legislature adopted the One Big Beautiful Bill tax changes effective Jan. 1, 2026, as recommended by Little, the commission could implement the infrastructure changes ahead of the following tax season, thereby reducing the number of taxpayers who would need to file amended returns, the report said.

A letter from Joint Finance-Appropriations Committee leadership earlier this week directed state agencies to prepare budgets in the event of 1%-2% budget holdbacks, a measure Rep. Josh Tanner, R-Eagle, said was needed to implement these tax changes in the 2025 tax year.

What further holdbacks would mean for each agency in the state remains to be seen, but there have been some early indicators.

In a presentation on the Idaho Department of Correction before JFAC this week, budget analysts indicated if the agency had implemented the whole 3% cuts as requested by Little, the department would have needed to furlough its entire staff for a minimum of five days to meet the demand, a course of action that doesn’t account for what would be required if further cuts were ordered.