You’ve probably heard that the Idaho Association of Commerce and Industry has asked lawmakers to repeal the personal property tax. Not only could this be one of the biggest issues of this legislative session, it could also be one of the biggest threats to public school budgets this year. The video below explains what the personal property tax means to Idaho. The primer below gives more details on this important revenue source—and why we can’t afford to eliminate it.
The personal property tax is really a tax on businesses, not people.
Only companies with facilities in Idaho pay this tax, which despite its name, isn’t levied on property held by individuals. It’s levied on businesses and is based on the value of equipment a company uses —equipment like pipelines, mining machinery and aircraft.
The personal property tax provides $140 million in revenue to county and local government entities, including schools.
These dollars go to schools, fire protection, law enforcement, emergency response systems, and community colleges, among other public systems.
Rural areas are especially dependent on this income source.
The revenues generated by this tax stay in the county in which they’re generated, which means that for rural counties with a single big factory or manufacturing plant, the tax can be the major revenue source for their entire county or municipal budget, and for most of the services they provide.
The problems associated with the tax can be addressed without taking the radical step of eliminating it.
Some have suggested exempting small businesses from the tax. Others are talking about exempting 85-90% of Idaho businesses and nonprofits from paying the tax, reducing revenue by $22 million. An outright repeal for all businesses would reduce revenue by a whopping $140 million and devastate budgets in counties and municipalities everywhere in Idaho.
The Business Equipment Tax provides a lot of bang for the buck: it represents a tiny cost for business but a critical source of revenue for communities.
Repealing Idaho’s personal property tax will have a dramatic impact on school budgets.
Cities and counties aren’t the only government entities that count on the personal property tax to fund their programs and activities. Schools districts also rely on it, with school districts sourcing an average 9% of their tax income from personal property tax.
Rural counties are especially reliant on the personal property tax. More than 50% of total property tax that funds Richfield schools comes from this source. Though property tax isn’t the only source of funding for school budgets, it’s an important one, and with school funding already slashed to the bone, most districts can’t afford another cut.
While bigger school districts don’t typically rely as heavily on personal property tax as some rural counties, they face millions of dollars in cuts. If the legislature completely eliminates the personal property tax, the Boise school district will have to find another $7.8 million to keep budgets whole. Nampa schools, already facing a $4.3 million levy in March, would need to find another $1.2 million and Pocatello would find themselves $1.4 million short. With state economic growth—and therefore state taxes–still anemic, these budget gaps would more than likely be filled by increased local property taxes.
Repeal of the state’s personal property tax would mean cuts to already-challenged school budgets, and/or a shift in taxes from corporations to individual property owners. Idaho taxpayers are still struggling with the effects of the Great Recession and can’t afford this radical change in our revenue stream right now.
Eliminating the personal property tax will mean that tax rates will likely go up for average taxpayers.
Often, tax cuts aren’t really tax cuts—they’re tax shifts. Many services in Idaho are already operating on shoestring budgets and cannot endure further cuts. When one tax is cut, local governments are forced to look elsewhere to fill budget gaps. This year’s push to eliminate the personal property tax could mean a dramatic tax shift from business—to you.
If proponents are successful in their effort to persuade the legislature to repeal Idaho’s personal property tax, it would create a massive hole in local and county budgets, totaling more than $140 million, putting local services—everything from schools and emergency services to road maintenance–at risk.
Reliance on this revenue source varies greatly across Idaho’s 44 counties, making up over 40% of Caribou’s entire tax revenue, to 21% in Elmore County, to less than 2% in Teton County. Idaho municipalities also depend heavily on the revenues the personal property tax provides. 45% of the City of Plummer’s tax revenue comes from the personal property tax, as does 11% of Pocatello’s.
Of course, whether local budgets are hit 2% or 20%, already cash-strapped counties and municipalities won’t simply eliminate services–they’ll attempt to fill the hole created in their budgets by raising revenues elsewhere. Local governments don’t have many options when it comes to raising revenues, and they’ll be forced to look to property taxes.
In other words, if Idaho companies no longer have to pay their tax bill through personal property taxes, individual tax payers will have to pick up the tab. It’s a shift in taxes from corporations to individuals.