“This change will save the state more than $22,000 a year in mailing and printing costs,” said Dan John, tax policy supervisor for the tax commission. “It will also reduce the amount of paper we use.”

Retailers or individuals that have electronically filed their sales tax returns for six straight months or two consecutive quarters won’t receive paper returns, starting with forms for April.  The tax commission has a calendar on its website listing due dates for monthly and quarterly sales tax filers.  Most sales tax due dates fall on the 20^th of the month.

“The way we’re headed right now in the state in public and higher education are really creating some major problems,” Trail told IdahoReporter.com.  Lawmakers approved a plan to reduce state funding for K-12 public schools by $128 million for the next school year.  Trail said that will lead to reducing teachers and services in his local district, and that the solution is changing the state’s tax policy.  “We really need to have a major reform on our tax system, which is about 50 years out of date.”

Services that would be taxed under the plan include haircuts and car repairs, as well as professional services like tax preparation and legal services.  The plan would also remove exemptions on computer software, and apply the state sales tax to downloads on music, movies, and other digital media purposes.  Trail would keep the current tax exemption for medical services on the books.

Trail said he’s heard from House Republican leaders that tax reforms will be one of the key issues next year.  “We felt that it was time to get out on the cutting edge of this whole debate,” he said.  He’s sent his proposal on a special session to other lawmakers and Gov. Butch Otter, the only person with the power to call a special session.  “We’ve heard some positive remarks back from other legislators (and) we haven’t heard back from the governor’s office yet,” Trail said.  “I suspect this next week we’ll be getting some feedback.”  Trail also expects that as the plan moves forward, he’ll face resistance from businesses that provide the services that could be taxed.  “Any time you talk about the golden egg from the goose, or anybody that’s had a tax exemption, you’re going to have a conference room filled with lobbyists trying to protect that particular exemption,” he said.

House Majority Leader Mike Moyle, R-Star, has said that he’d hold a hearing on any plan to raise revenue, but he’s not sure that expanding the sales tax or removing tax exemptions would be palatable to lawmakers during difficult economic times.  Sales tax exemptions account for $1.7 billion in potential tax revenue this year, according to the Legislature’s Fiscal Facts handbook.  That’s more than the $1.2 billion the sales tax is expected to bring in this year.  The Senate approved a plan to look into tax exemptions this session, but it didn’t reach the House floor for a vote.

Trail has worked on the tax changes with Bob Huntley, a former Idaho Supreme Court justice, lawmaker, and Democratic candidate for governor.  Huntley has also sued the state to make changes to education funding, and said that the governor should call lawmakers back to the Capitol to tackle the problem.  “Let’s have a special session that focuses on education,” he said.  Huntley said he served on an Idaho House of Representatives committee in 1965 that helped create the sales tax, which he said now has too many exemptions and needs to be modernized.  According to Huntley, 60 percent of the state economy comes from services, which go untaxed.

The Idaho Education Association, a group representing teachers, and the AFL-CIO labor union also endorse expanding the sales tax to services and lowering the tax rate.

“I would like to do projects that could have an immediate impact,” OPE director Rakesh Mohan told the Joint Legislative Oversight Committee (JLOC), which on Monday set OPE’s investigations for the year. Sen. Elliot Werk, D-Boise, one of the chairs of JLOC, sided with four Republicans in selecting the agencies to examine. Werk said the proposal would be a reasonable workload for OPE staff, and were reasonable agencies to study.

Rep. Maxine Bell, R-Jerome, said the state liquor division should be studied due to its recent expansion. “The growth continues, and there doesn’t seem to be any policy in this area,” she said. The $15 million in yearly funding for the liquor division comes from the profits on liquor sales, though the division’s budget is approved by lawmakers. Bell said the study would answer a key question: “Are we continuing to build this behemoth, and does this building outpace the funding?” she asked.

Sen. Jim Hammond, R-Coeur d’Alene, said he hopes OPE will examine whether Idaho should stop having state liquor stores. “Government is here to provide things that private enterprise can’t provide by itself,” Hammond said, also saying that other states allow private companies to distribute and sell liquor.

OPE will also examine Idaho’s seven Area Agencies on Aging. The proposal from Rep. Darrell Bolz, R-Caldwell, would focus on the large budget for senior services in Region Three, which serves southwest Idaho. Sen. John McGee, R-Caldwell, said there’s a great deal of confusion regarding who is in charge of those services. “There’s just, I believe, a lot of inefficiencies right now,” McGee said. State funding for the area agencies comes from the Commission on Aging, which gets $5 million in state tax dollars.

The study of emergency medical services, suggested by Huston Republican Sen. Patti Anne Lodge, would compare Idaho’s first responders and other service providers to their counterparts in other states.

Among the topics of inquiry rejected by lawmakers were comparing the costs and benefits of charter schools, magnet schools, and traditional public schools, examining the state’s prison sentencing laws, and studying sales tax exemptions. Rep. Shirley Ringo, D-Moscow, said she wanted OPE to look at exemptions, since revenues have been a contentious issue this legislative session. She said she wants to make sure that tax exemptions all serve a purpose. “We have given exemptions in hopes of stimulating jobs,” she said. “We never really go back and look at those and see if they’re proving up.”

OPE released studies about the Idaho Department of Correction and Idaho Commission on Pardons and Parole. Those studies made news, but have not led to significant legislation this session. Read IdahoReporter.com’s coverage of the corrections department here and parole commission here.

The Streamlined Sales Tax Compact has support from 23 other states. The House Revenue and Taxation Committee Wednesday failed to move forward a plan letting the Idaho State Tax Commission look into joining the compact. Lawmakers rejected the plan on two separate votes. One that would have sent the plan to the House floor with the committee’s recommendation failed by a wide margin and a plan to send it on without a recommendation stalled after a tie vote. Democrats on the committee supported the plan on both votes. Republican votes were split, though leading Republicans, including House Majority Leader Mike Moyle, R-Star, and Rep. Scott Bedke, R-Oakley, voted no both times.

“One thing we cannot ignore is the growing volume of online… sales,” said Rep. Bill Killen, D-Boise. “It’s continuing to grow. There’s no indication that it will reverse itself.” He said the problem of Internet sales not being taxed will ultimately need a federal solution, but that joining the multi-state agreement could urge Congress to come up with a national standard.

Idaho likely won’t get there this year. Moyle told IdahoReporter.com that proposals for to join the compact looking for Internet sales, including the legislation approved by the Senate, are unlikely to move forward this session.

The House’s proposal included language saying that the streamlined compact couldn’t preempt state tax law, but lawmakers would need to make changes to meet the compact’s standards. Dan John with the tax commission said some of the changes would be small, including writing new definitions for soda, prepared food, and computer software. “A number of states exempt food (from sales tax), so they have to define prepared food and candy to pick up the nuances,” Johns told lawmakers. All those policy changes would need to be approved by lawmakers in the future if they want to fully join the compact.

Read IdahoReporter.com’s coverage of the Streamlined Sales Tax Compact here. The text of the House legislation is available here.

Sales taxes exemptions account for $1.7 billion in potential tax revenue this year, according to the Legislature’s Fiscal Facts. That’s more than the $1.2 billion the sales tax is expected to bring in this year. Most of the exemptions are for services. It’s unclear whether lawmakers would repeal some of the largest exemptions, including those on health and medical services, construction, or production equipment.

Read IdahoReporter.com‘s coverage of Winder’s proposal here.  The text of Winder’s tax exemption legislation is available here.

Idaho loses roughly $30 million a year in Internet sales, and Idaho Sen. Mike Jorgenson, R-Hayden, wants the state to take steps to recapture some of that money and help brick-and-mortar stores in Idaho. He’s proposing that Idaho join the Streamlined Sales Tax Compact, a multi-state effort to simplify sales taxes and collect from businesses located out of state. Gov. Dirk Kempthorne signed an executive order in 2005 to participate in the program, but that expired last year.

“The ultimate purpose of this bill is to begin to close a giant tax loophole,” Jorgenson said. He said collecting Internet sales tax would help main street businesses, which have become demonstration spots for products that people test out before buying online for a cheaper price. “Right now, Idaho is in a condition that it needs to consider something like this.” Under current law, Idahoans should be paying sales tax for Internet purchases – there’s a line on state tax forms for people to declare such items – but the State Tax Commission has no clear way to enforce the requirement.

Most of the Senate committee members approved the measure. “There’s value in this for Idaho businesses,” said Sen. Joe Stegner, R-Lewiston. “I’ve never considered this to be a tax generation issue as much as a fairness issue.”

Only Sen. Shirley McKague, R-Meridian, opposed the plan. “To me this is an additional tax and I don’t think it’s the right time to do this,” she said. However, the effort could face more opposition in the House. That’s because, under the Idaho Constitution, all new revenue laws must start in the House, not the Senate.

“Why should we continue to do this if we know that the [House] is going to think that we’re going to push this constitutional issue,” said Sen. Tim Corder, R-Mountain Home, who voted for the plan. Jorgenson said he’s fine with moving on the plan in the Senate because he doesn’t consider it a new tax, and said he hasn’t heard of a similar proposal that would get a hearing in the House this session. Other lawmakers understood the constitutional issue, but still supported the measure.

“I’m not particularly troubled by what the body across the rotunda will do at this point,” Stegner said.
 
Another proposal coming out of the committee would require lawmakers to look at all the state sales tax exemptions once every five years. The legislation from Sen. Chuck Winder, R-Boise, would give every exemption a five-year time limit unless the Legislature approved an extension. Sales taxes exemptions account for $1.7 billion in potential tax revenue this year, according to the Legislature’s Fiscal Facts. The sales tax brings in $1.2 billion. Most of the exemptions are for services. It’s unclear whether lawmakers would repeal some of the biggest exemptions, including those on health and medical services, construction, or production equipment.

Winder said it would be a good idea to dust off every exemption every five years to make sure it serves a purpose. “This does need to be looked at,” he said. “I think the public expects it to be looked at.”

The Senate committee unanimously approved sending the legislation to the floor for a full vote, though Stegner said it may not be the right way to examine exemptions. He said that looking at all the exemptions at once would be the best policy. “I am convinced that it needs to be done with a broad brush,” he said. He said he favors reducing the number of exemptions to broaden the tax base and then lower tax rates.

Sales tax exemptions have been a common topic this legislative session as lawmakers look to find alternative revenues to compensate for lagging tax collections. A proposal in the House from Rep. Wendy Jaquet, D-Ketchum, would create a 16-member Tax Review Commission to study exemptions. Jaquet introduced that plan in January but it hasn’t made it out of House committee.

Read Jorgenson’s Streamlined Sales Tax legislation here and Winder’s tax exemption legislation here.

“We really don’t have a dog in this fight,” Patrick Balducci of the consulting contractor Battelle told lawmakers Monday afternoon.  “The output of our model doesn’t typically discriminate against different vehicles.”  He is leading a six-month study that will offer more data to the Governor’s Task Force on Modernizing Transportation Funding.  His project began in December and a final report should be finished by the end of June.  The study will cost the state about $200,000, according to the Idaho Department of Transportation.

The new data should help lawmakers trying to decide on where to find new funding for road construction that is stable and politically palatable.  Gov. Butch Otter set up the task force after lawmakers rejected his proposals for tax and fee increases to fund highway infrastructure needs last year.  The task force has a December deadline.

“The study will guide us if we make decisions that ask for further funding from the public,” said House Transportation Committee Chair JoAn Wood, R-Rigby.  “If we have a study that verifies the responsibility of different users, then it would be much easier for us to carry a request to the public for added participation in cost.”  She said more fuel-efficient vehicles and rising prices of oil would likely skew the funding equity.  “We have to depend on something besides the fuel tax if it continues to go that way,” she said.  One alternative source she mentioned would be dedicating the sales tax on new and used vehicles as well as tires and auto parts to highway construction.  That money currently goes into the general fund.

Representatives for drivers and truckers both spoke in favor of the study to find equitable funding for roads.  Dave Carlson with AAA Idaho said the results would inform any discussion on new revenue for roads.  “It’s going to be a much easier pill to swallow, frankly, when we’re all asked to pay an equity that’s consistent with what we all use,” he said.

“There’s got to be more funds and they’ve got to be spent on the roads in order to protect the commerce of the state of Idaho,” said Clay Handy of Handy Truck Line.

The Highway Cost Allocation Study will look at how cars, trucks, busses, and other vehicles pay for highway construction, as well as how they use and wear out roads, bridge, rest stops, and other parts of the road infrastructure.  Balducci included several policy options from a similar study in Nevada in 2008.  Those options included raising the tax on diesel or gas, increasing registration fees for heavy trucks, and other taxing hikes and tweaks.  Balducci said he could examine other policy options that members of the task force or the Idaho Transportation Department want him to consider.

The Idaho Division of Financial Management’s latest report says the state general fund is $4.6 million ahead of projections for the fiscal year, that started in July, but sales tax receipts, which are supposed to be the biggest chunk of state tax dollars, have been lower than expected three months in a row.  Personal income tax numbers were also down $2.2 million in October, but remain up $12 million since July.

In the report, the  governor’s chief economist, Michael Ferguson, wrote that consumer spending and sales tax revenues are expected to stay down.  “The rate of decline is diminishing, but just not fast enough,” Ferguson wrote.  If that’s true, the FY2011 budget may well be less than the current budget of $2.3 billion.

Ferguson also wrote that while spending across the country should begin to increase starting next year, people will be more frugal than they were before the recession hit.  His report said disposable income will likely rise more than spending, and that consumers won’t be as big a boost to the national economy as they were earlier this decade.

One surprise for the state is the slight increase in taxes from tobacco and alcohol.  Those products have brought in $300,000 more than expected over the past four months.

For more, read Ferguson’s complete two-page state revenue summary and outlook (pdf) at the Idaho DFM website.