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The 2013 Idaho Legislature Addresses Tax Issues

Added by Richard Smith in Business Law, Health Law, News on May 7, 2013

Hawley Troxell tax attorneys were active in monitoring and assisting clients this year with tax issues in the Idaho legislature. It was a relatively quiet year, at least as measured by the tax bills that passed.

One of the biggest hopes at the beginning of the session was for the long-awaited personal property tax exemption. In 2001, the legislature enacted an exemption for agricultural property, and ever since it has been the expectation (and the assurance by many legislators) that the next step would be a broader exemption covering all businesses. In 2008, the legislature came very close to enacting a full exemption, but the version that eventually passed was an exemption for only $100,000 in property value, per taxpayer per county, and its effective date was to be triggered by a general fund growth target that still has not been reached. This year, the Idaho Association of Commerce and Industry sponsored, and Hawley Troxell supported, a bill that would have exempted all personal property from tax. The bill would have phased-in the exemption over several years, and would have provided for state funding to replace the revenue loss to local governments. A competing bill, promoted by a group led by counties, cities, and school districts simply locked in the $100,000 exemption (without a trigger) and also created a “de minimus” exemption for individual items of personal property worth $3,000 or less. That bill originally excluded the centrally assessed taxpayers such as railroads, telecommunications companies, and utilities. Hawley Troxell was retained to provide an analysis of whether such an exclusion would be constitutional (we believe it would not be), and that provision was later removed from that bill. The local government bill was enacted, although many legislators and the Governor indicated their support for broadening the exemption in the future. The personal property tax is a very unpopular and inefficient tax, and we believe its elimination would stimulate investment and draw new business to the state. Although the $100,000 exemption apparently covers all the personal property for 80-90% of the businesses, the remaining taxpayers provide much of the employment, which drives economic growth. A complete exemption would better attract those larger companies with a more rational tax policy.

One more positive step in the session was the passage of a bill that clarifies the taxation of software for sales and use tax purposes. A dispute arose between taxpayers and the Idaho State Tax Commission over whether software that is accessed over the “cloud” would be taxable. Idaho has become a center for software developers and vendors, and this dispute threatened the growth of this highly valued industry. Hawley Troxell’s tax attorneys, in cooperation with our intellectual property attorneys, drafted, testified for, and promoted passage of legislation to clarify that software that is accessed without obtaining delivery or control of the software (i.e., over the “cloud”) is not taxable to the vendor or the user in Idaho unless the same software is available from that vendor by download or physical delivery. This legislation was viewed by the software industry as a major sign of support from the state of Idaho for the continual development of this industry.

Hawley Troxell’s corporate, health care, and tax attorneys also assisted in the passage of legislation creating a health insurance exchange for Idaho, an option available to states under the federal Affordable Care Act. Hawley Troxell clients and the state as a whole will benefit from having a locally operated exchange that will give Idaho consumers a wide range of choices for insurance, and will ensure that Idaho businesses are included in the menu of options available to health care consumers.

For more information about these tax issues or to contact a member of our tax and employee benefits group, please click here or call 208.344.6000.