Idaho Statesman Editorial: Gov. Butch Otter and the state’s big-business lobbying behemoth have it partly right: Idaho needs to get rid of the “personal property tax” on businesses.
But to do it right, they need to think about why this tax needs to go — and how it ought to be wiped off the books.
Done the right way, personal property tax relief would make Idaho more business-friendly, without unfairly shifting the state’s tax burden onto families. Done poorly, and this becomes an unsustainable and unfair giveaway, with serious ramifications for state agencies and local governments.
WHY DO IT?
Speaking to the Idaho Association of Commerce and Industry’s annual conference in Sun Valley Monday, Otter told business leaders what they wanted to hear. And when he spoke of an “undaunted” commitment to get rid of this tax, IACI members greeted the news with applause.
With the stage set for a run at this tax, let’s talk about what’s wrong with it. It’s unwieldy, cumbersome — and for businesses trying to run as lean as possible, it’s labor-intensive.
The tax is collected on a company’s “personal property,” from the furniture and the computers down to mundane office supplies such as staplers. Before businesses can cough up the money they owe, they first have to inventory their supplies. That’s where the tax becomes a time-wasting headache for businesses.
In case you think a phaseout of the personal property tax is a sop to businesses, take a quick look around your house. Would you want to draw up an annual inventory of everything from your living room set to your kitchen appliances to your phones, and then pay a tax on it? Doubtful.
So, in the big picture, the revenue the state collects from this tax does not justify the imposition it places on businesses. This also means that eliminating the tax and its paperwork is itself a money-saver for businesses — a move that allows businesses to run more efficiently and profitably.
Which means businesses should be willing, and able, to offset the cost of this tax cut.
HOW TO DO IT?
As onerous as the personal property tax is for businesses, it is also a $129 million-a-year revenue source, money that goes to local governments. Four counties derive more than a quarter of their property tax revenue from this source; the statewide average is 11 percent.
The temptation — or, it seems, the Idaho default position — is to cut taxes and hope, with crossed fingers, that the resulting economic activity covers the difference. Idaho has this nasty habit of passing tax relief that creates budget shortfalls, as lawmakers did in 2001 and 2006. Undeterred by history, the 2012 Legislature passed $35.7 million personal and corporate income tax cuts without finding an offset to cover the difference.
Taking the same approach to personal property tax repeal would be doubly reckless — and not just because of the greater sum of money at stake. The state would, essentially, wager other people’s money, a tax used to support local governments. Were the $129 million gamble to fall short, legislators and Otter would be forced to find money for local governments at the expense of state programs such as education or Medicaid, or stiff local governments.
An even worse option is in play: eliminating the personal property tax, while giving cities and counties greater latitude to increase property taxes by more than 3 percent per year. Sure, that would grant some measure of local control, but it’s a cynical ploy. It would allow legislators to be the good guys, the architects of tax relief, while local governments play the bad guy, increasing property taxes that are unpopular with businesses and homeowners alike.
The best answer is a fair trade. Get rid of the personal property tax, but repeal some of the state’s $1.7 billion in sales tax breaks and exemptions to cover the difference.
That won’t be easy. Special interests line up quickly to defend the exemptions, which is why some of them, like the sales tax itself, have been on the books nearly half a century. But it really comes down to a simple question, if politicians have the gumption and the good sense to pose it.
What do businesses value more: a repeal of the far-reaching and universally disliked personal property tax, or sales tax breaks that sometimes favor a sliver of the business community?
“Our View” is the editorial position of the Idaho Statesman. It is an unsigned opinion expressing the consensus of the Statesman’s editorial board.
