Idaho’s legislative session is around the corner. Last year Gov. Brad Little specified that prudent budgeting last year would allow the sales tax to be removed from food, possibly beginning this coming year.
A legislative committee has been examining approaches to mitigate the burden of property taxes driven up by Idaho’s red hot real estate market. Idaho’s school funding formula is likely to be a hot topic that could have an impact on local efforts to use property taxes for education.
Our neighbor to the south — Utah — has gone a somewhat different direction. Utah’s Gov. Gary Herbert just called the Legislature to pass a massive tax reform bill. The measure passed and actually expanded the sales tax on food and expanded the reach of the sales tax to some services.
The driving force is that Utah policymakers are concerned with the imbalance between rapidly growing income taxes and more modest growth in sales taxes. This effort was designed to broaden the tax base and rebalance the tax system.
Here are some of the specifics of the Utah tax reform bill, according to the Salt Lake Tribune:
- Cuts income taxes by $630 million by reducing rates, boosting the per-child exemption and other credits (including one to offset the grocery tax increase for lower-income residents).
- Raises sales taxes by $475 million by:
- Boosts grocery tax from 1.75% to 4.85%
- Repeals sales tax exemptions for ski lift electricity, locomotive fuel, college athletic admissions, textbooks, newspaper subscriptions, car washes, and motor fuel.
- Boosts tax on diesel fuel.
- Taxes some services such as ride services like Uber and Lyft, daycare, haircuts and salons, car rentals, streaming media, dating services and more.
And, Utah is discussing going further in its forthcoming legislative session. On tap may be repealing Utah’s earmark of income taxes for education and automatically boosting property taxes for education by linking them to inflation boosts.
Idaho’s tax picture is a bit different with rising sales taxes and more modest growth on the income tax side. According to the Idaho State Tax Commission, Idaho’s individual income tax collections in FY 2019 came in roughly $100 million below projections while sales taxes have come in $105 million above the previous year’s level. For FY 2020 Idaho expects to see income taxes rise but at less of a rate than the rise in sales taxes.
This is the opposite of what Utah has been experiencing with income taxes outrunning sales taxes.
But, there are some lessons for Idaho to learn from Utah’s tax efforts.
Utah’s tax reform shifts sales taxes more to services. Services in both Utah and Idaho are a bigger and bigger portion of overall economic activity. Idaho, at some point, might want to consider taxing services, perhaps offset by a tax cut elsewhere. That will preserve the tax base.
The sales tax on food is a much more sticky issue. Utah cut its sales tax on food dramatically years ago and now has reversed course. Idaho should carefully and thoughtfully evaluate whether a food tax reduction or elimination is the best long term. Much of the focus during the debate in Utah was on that reversal. Getting the policy on food taxation “right” next year here in Idaho could avoid pain down the road.