Idaho Legislature introduces property tax reduction bill

A new bill introduced Friday in the Idaho Legislature is designed to reduce property taxes and increase the state’s sales tax. 

Sen. Jim Rice, R-Caldwell, is sponsoring the bill, which has not yet been posted online to the Legislature’s website as of Friday afternoon. The bill is expected to be available online Monday. 

Rice’s bill represents a late-session effort to address one of the year’s high profile issues.

“Property tax has probably been one of the biggest topics of discussion, especially the impact on homeowners, and this is a way of approaching that,” Rice told the House Revenue and Taxation Committee on Friday. 

Legislators have set a self-imposed deadline to send bills from one legislative chamber to the other by the end of the day Monday, and they are working to wrap up the session in three weeks, on March 25. 

Tax policy can be tricky, and Rice’s bill makes several changes. 

• It removes all of the property tax paid from a homeowner’s primary residence except for bonds and school levies. 
• Cities, counties, highway districts and other local taxing districts would no longer receive money from property taxes.
• The bill would increase the sales tax from 6% to 7.85%. 
• Most of the increase in sales tax (1.65% of the 1.85% increase) would be sent to cities, counties, highway districts and other local taxing districts in an effort to replace the property tax revenue they would lose out on. 
• The bill would also increase the tax credit Idahoans receive for groceries from $100 to $175 per person.
• A small amount of the sales tax increase (0.2%) plus $12.6 million in funding from the state’s general fund budget, would go toward paying for the increase in the grocery tax credit. 

The bill would reduce the property taxes most Idahoans pay on their primary residences by 65 to 70% on average, Rice said. 

“It’s substantial property tax relief,” Rice said.

Second homes and rental properties would not have property taxes removed, but they could benefit from sales taxes if sales tax collections increase by more than 10% in a year. 

Although legislators voted to introduce the bill Friday, representatives from both political parties said they had several questions and potential concerns.

Some legislators worried the tax shift could help homeowners at the expense of hurting renters and everyone who pays the sales tax. Renters wouldn’t see a benefit through the property tax reduction, but everyone would pay 1.65% higher prices for all of the everyday purchases they make in Idaho that are subject to sales tax.  

“If I’m looking at renters, it occurs to me that while it is not a shift of property taxes to renters that the renters probably are hurt by an increase in the sales tax without an offset by being benefited in terms of a property tax reduction,” said Rep. David Cannon, R-Blackfoot. 

Rice told Cannon the bill increases the grocery tax credit to $175 to try to offset that. 

The sales tax increase would come as high inflation rates are also driving up prices on purchases. 

“I am very troubled that we would move to the highest sales tax rate in the nation and charge that on food, medicine, diapers and other basic necessities,” Rep. Lauren Necochea, D-Boise, said.  

“The homeowner owning up to five acres is going to get a lot more of that benefit than a lot of other people, and I think that is lopsided,” she added. 

Introducing the bill clears the way for it to return to the House Revenue and Taxation Committee for a full hearing. Monday is the Legislature’s self-imposed transmittal deadline to send House bills to the Senate and Senate bills to the Idaho House, so legislators may move quickly Monday to take the bill up.

This is one of several tax cut proposals introduced this year. At the beginning of the 2022 session, legislators passed a $600 million income tax cut and rebate bill that Gov. Brad Little signed into law.