H.R. 1, the One Big Beautiful Bill Act (OBBBA) was signed into law this year and will have tax implications at the state level. When federal tax law changes, states go through a process called tax conformity to align their tax codes with the federal Internal Revenue Code. In Idaho, the legislature must actively decide which new federal tax provisions to conform to or decouple from.

Idaho’s Tax Commission has not yet published its cost estimates for conforming to OBBBA.  However, the nonprofit Tax Foundation published its analysis of what the tax provisions in OBBBA will cost the states. It acknowledges that estimating the revenue implications is difficult and defers to the figures generated by state revenue agencies where available.

In Idaho the Tax Foundation estimates the revenue loss for Tax Year 2026 to be at least:

• $167.4 M in temporary personal income tax deductions
• $117 M in corporate income tax business expensing provisions

That is a total of $284.4 M in estimated annual revenue loss to Idaho.  However, the overall conformity cost will likely be higher because the analysis did not include cost estimates for several other personal and corporate tax provisions. Conformity costs will also skyrocket if lawmakers choose to conform to tax provisions they previously chose to decouple from – such as the bonus depreciation provision – which would result in a total revenue loss of at least $435.4 M.

The personal income tax deductions, such as no tax on tips and overtime, can be taken in addition to the standard deduction. However, these deductions will not benefit households with taxable income at or below the enhanced standard deduction because their tax liability will be reduced to zero before they can claim additional deductions. Therefore, working families that earn the least will not benefit from this tax relief.

Certain federal corporate tax provisions may encourage investment nationally, but they offer little benefit to Idaho. Idaho taxes only its share of a corporation’s nationwide profit-total nationwide sales minus nationwide expenses. If the state conforms to the new federal tax provisions, corporations could deduct expenses from investments made anywhere in the country, not just in Idaho. As a result, Idaho would lose revenue to subsidize business activity in other states.

To prioritize Idaho businesses and protect revenue for public services, the Center recommends remaining decoupled from (1) bonus depreciation, and decoupling from (2) qualified production property deduction, (3) research and experimentation (R&E) cost recovery, (4) relaxed interest deductibility cap, and (5) deduction of foreign derived intangible income. Idaho could choose to conform to the small business expensing provision because smaller businesses are less likely to have multi-state operations.

Appendix: Definitions

Personal Income Tax Provision Definitions

No Tax on Tips: Workers can deduct up to $25,000 of tips each year from their taxable income.

No Tax on Car Loan Interest: Households can deduct up to $10,000 of annual interest on new car loans from their taxable income.

No Tax on Overtime Pay: Workers can deduct up to $12,500 of annual overtime pay from their taxable income. (Married couples filing a joint tax return can deduct up to $25,000.)

Enhanced Deduction for Seniors: Seniors ages 65 and over can deduct up to $6,000 from their taxable income.

Corporate Income Tax Provision Definitions

Bonus Depreciation: When businesses make investments in machinery, equipment, or property improvements, they generally are not permitted to write off the full cost right away. Instead, businesses must recover the cost of these purchases through depreciation schedules that spread deductions out over multiple years to reflect the use of the asset over time. However, “bonus” depreciation is a tax incentive that allows businesses to deduct the cost of qualifying assets immediately, instead of over time. This deduction can reduce a company’s taxable income so much that its tax liability can be zeroed out. The OBBBA permanently restores 100% bonus depreciation.

Research and Experimentation Cost Recovery: The Tax Cuts and Jobs Act of 2017 required corporations to start deducting R&E expenses over 5 years instead of immediately in the year in which the expense is incurred because the benefits of R&E are realized over a multiple year period. The OBBBA restores the immediate write-off and makes it retroactive to 2022 for certain businesses.

Qualified Production Property Deduction: Qualified Production Property Deduction is a new tax incentive in the OBBBA that allows manufacturers to claim a 100% first-year bonus depreciation deduction for the cost of their factory buildings. Prior to the OBBBA, real property was not eligible for full expensing and had a depreciation schedule of 39 years.

Small Business Expensing: TheSmall Business Expensing tax incentive change allows small and mid-sized businesses to immediately deduct up to $2.5 million of purchases of qualifying assets such as machinery, equipment, software, and improvements to non-residential real property (e.g. roofing, HVAC, security systems) in the year that the assets are placed into service. This new limit is double the prior limit of $1.25 million.

Interest Deductibility Cap: The Tax Cuts and Jobs Act of 2017 imposed a cap on the ability of large corporations to deduct interest on their bonds and other debt, limiting the deduction to 30 percent of taxable income. A 2021 law made a technical change in how that taxable income for purposes of the cap was calculated, and it had the effect of tightening the limit. The OBBBA restores the looser limit which can result in corporations excessively leveraging debt to reduce their tax bills.

Foreign-Derived Deduction Eligible Income (FDDEI, previously called Foreign-Derived Intangible Income): The OBBBA makes slight modifications toa specialdeduction for profits deemed attributable to foreign sales of goods and services that incorporate U.S. held intellectual property like patents and trademarks. This provision taxes this income well below the standard corporate rate and has proven to be more costly than originally estimated. There is no guarantee that R&D, marketing, or management of intangibles incentivized by the FDDEI provision will occur in any particular state, yet states like Idaho that are coupled to this provision lose revenue regardless. No revenue loss estimate for Idaho’s conformity to this provision is available.

Sources:

Walczak, Jared. “State Tax Implications of the One Big Beautiful Bill Act.” Tax Foundation. July 31, 2025.

Johnson, Nick, and Mike Mazerov. “OBBBA’s Corporate Tax Breaks: A Practical Guide.” Institute on Taxation and Economic Policy. October 27, 2025.

Bipartisan Policy Center. “The 2025 Tax Bill.” 2025.