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Unda' the Rotunda

Who picks up the bill? Tax exemptions get little consideration


A priest walked into the House Revenue and Tax Committee.

No joke. Last week, The Very Reverend Richard Demarest, dean of St. Michael's Episcopal Cathedral in Boise, paid a visit to the legislative committee where all tax bills begin­—and where most tax bills quickly meet their maker.

Demarest had a simple, technical request, backed by Boise Democrat Bill Killen. It did not immediately affect the state budget, ostensibly helped a group doing a public service (housing the homeless across the street from the Capitol), was consistent with existing tax policy and presented no identifiable opposition.

Demarest wanted limited liability companies that are connected to churches or other charitable groups to be considered nonprofits eligible for a property tax exemption.

There were a few questions about whether it could be used by churches to set up tax-free condos or other business ventures. And then the little bill passed on a unanimous voice vote and was sent to the House floor.

Before voting, House Majority Leader Mike Moyle remarked with a smirk: "I'm glad to see my friends on the other side of the aisle expanding exemptions; I think that's great."

The Democrats on the committee were not amused.

House Minority Leader Wendy Jaquet said it was not an expansion of an exemption, it was just a change in code that allowed a group already eligible for an exemption to continue getting it.

But in the end, a number of church-associated LLCs, formed on the suggestion of banks to avoid headlines like "Bank Repos Churchgrounds, Kicks Out Homeless," will be exempted from property taxes.

While minor indeed, the episode shows how hard it is for electeds to resist pleas for tax waivers, credits, exemptions, deductions, breaks, cuts and apologies.

"It's worth examining these exemptions," said Keith Allred, executive director of The Common Interest, an Idaho-based public policy advocacy group. "There is no place in government that is more subject to special interest than tax exemptions."

Since instituting the sales tax in 1965, more than 80 sales tax breaks have been granted, shorting the state—and by extension, other taxpayers—more than a billion dollars a year. Tax breaks on property and income also pare down the state's take—money that is borrowed or robbed from other people's pockets.

Imagine, Allred suggested, that a small portion of these exemptions were lifted, bringing in, say, $60 million more a year. The state could then drop sales tax a few cents or give property owners a decent break.

Then the public might get engaged in the otherwise eyelid-numbing topic of tax policy.

There was an attempt during the summer to take on the exemptions.

An interim committee came up with a set of criteria for examining tax exemptions. The principles­—including fairness, simplicity, certainty and convenience—are now listed in the folders members of the tax committees use to keep track of bills. But they have not had much occasion to break them out this session.

Already this year, the House Tax Committee efficiently killed bills to repeal tax breaks on newspapering equipment, chairlifts, caskets and automobile rebates prior to public hearings. With the possible exception of the dead, there is someone to defend each of these carve-outs in the tax code. Folks with plenty of good reasons for a break: struggling newspapers, ski resorts that bring tourists to Idaho, poor Hummer drivers that thought they got a deal, only to be hit again on their rebate ... who is going to come in to the Legislature to oppose them?

But what about paper clip purchases or Kleenex? Why are they treated any differently than overpriced wooden boxes destined to be worm food?

The larger question, though, is why won't the House Revenue and Taxation Committee even ask these questions?

"I can't understand why you wouldn't want to create a fair and systematic system of taxation," Boise Democrat Nicole LeFavour said.

The one exemption that did get a hearing helps vending machine companies. They pay less sales tax than the rest of us, by the way.

"Other people who sell candy bars and pop ... like a corner store, they're paying that same tax, they're paying 6 cents, why don't the vending machines?" LeFavour asked.

The vending machine guys won the vote to keep their tax break.

It would have just increased the cost of a can of pop if they removed the tax break, House Assistant Majority Leader Scott Bedke said after the meeting.

The resistance to taking on exemptions, according to Sen. Tim Corder, R-Mountain Home, a farmer and trucker, stems largely from beneficiaries of the production exemption, a $166 million carve-out for equipment and supplies used to make things that will be sold (and taxed).

This is the holy grail of exemptions, Corder said.

But it is not carved in stone, and as Idaho demographics change and the legislative map is redrawn in three years, urban lawmakers may not feel as beholden to farmers and their tax-exempt fertilizer, Corder pointed out.

"My position has always been that agriculture can always prove its value. They don't have anything to worry about," Corder said. "It's in their interest to look at tax policy now, before redistricting."

Corder said he supports broadening the tax base—more people pay in—and thereby lowering the rate.

The day after Gov. C.L. "Butch" Otter called for zero-based budgeting starting next year, Democrats called for a zero-based tax policy. That is, make all the recipients of tax breaks come in and prove they are still necessary.

"The people of Idaho need to let the Legislature know that the people on that committee [House Rev and Tax] don't represent their interests," Jaquet said.

Rep. Dennis Lake, R-Blackfoot, chairman of the committee, put his name on all six measures to repeal exemptions, and is getting credit for honoring the process laid out by the summer committee. He has seven more bills that he will hold until he's sure they'll at least get a hearing.

Lake said those blocking a review of exemptions are of two schools of thought: Some think the exemptions, once granted should be permanent. Others said they should look at them all at once, not piecemeal, an idea that Lake said was just an excuse not to look at them at all.

Moyle, who controls a block of conservative votes on the tax committee along with other House leaders, gives all those reasons and more for not reviewing exemptions: can't do them one at a time, can't pick and choose, should look at budgets first rather than raising revenue, should give more tax breaks to casket sales over the Internet.

Senate Assistant Majority Leader Joe Stegner, R-Lewiston, who believes all of the exemptions should be repealed and then reviewed, said Moyle and other House conservatives had the opportunity to review them en masse at the interim committee hearings. But they declined to do so.

"The Legislature caved, and now they refuse to reconsider policies that have been put in place that are inherently unjust," Stegner said.

And good government is rolling over in its tax-exempt grave.