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Attorney general issues warning on tax credit bill

Soon after the state Senate on March 17 approved a measure to create tax incentives for large businesses, the attorney general’s office warned that the bill could leave Idaho “constitutionally vulnerable.”

The legal opinion objects to giving the seven-member Economic Advisory Board the final word on which companies get tax breaks, with no option to appeal the decisions. Under the legislation, Idaho would refund up to 30 percent of state corporate income taxes, payroll taxes and sales taxes to businesses that create 50 new jobs in urban areas and 20 in rural areas.

The lack of an appeals process means identical applicants could receive different tax incentives based on their ability to negotiate, Deputy Attorney General Chelsea Kidney wrote in the opinion.

She wrote that the issue could be fixed by allowing the panel’s director to consider an appeal if an application is denied or if a company contests its tax rate or other terms of an incentive agreement. The board is made up of citizens appointed by the governor to three-year terms advising the commerce department.

After the opinion was released, Senate Majority Leader Bart Davis, R-Idaho Falls, gave a notice of reconsideration that allows him to call for another vote and that stalls the bill in the chamber until March 18.

Before the attorney general’s opinion threw the Senate’s 29-6 vote into limbo, backers touted it as a way to entice companies to expand in the Gem State.

Sen. Jim Rice, R-Caldwell, said it was a low-risk way to compete with other areas for new projects. Typically, he said, states hand out tax breaks and hope businesses hold up their end of the bargain — with no recourse if the company goes belly up.

Under the legislation, companies wouldn’t reap the tax benefit until hitting the job creation mark, even if it takes several years.

“They start getting it when they perform sufficiently,” he said. “What they receive back is money that they’ve paid in, so the state has already received the funds.”

Sen. Todd Lakey, R-Nampa, agreed, noting that bringing in businesses will help fill Idaho’s coffers even if it has to hand some of that money back.

“Do we want to have 70 percent of a good thing or 100 percent of nothing?” he asked. “This is a competitive tool we need in Idaho.”

The measure also mandates workers must be paid wages that at least match the county average.

That’s something lawmakers hope could lift Idaho from its position as the state with the second-lowest average wage and the nation’s highest share of workers per capita earning the minimum wage.

But other legislators warned that deep tax breaks for incoming big businesses would clear the way for them to squeeze out smaller competitors who don’t qualify for the incentive.

Sen. Clifford Bayer, R-Meridian, said it was unfair for business owners who have only a handful of employees. He said that even if they double their ranks, they wouldn’t come close to the numbers needed to qualify for an incentive. The bill could lead to two very similar companies paying vastly dissimilar tax burdens.

“I think it can create some disparities,” he said.

Others — including Sen. Steve Vick, R-Dalton Gardens, who requested the attorney general’s opinion — offered up doubts about the fairness of a process that couldn’t be appealed, saying it has the potential to open the door to cronyism.

The measure passed the House on a 63-5 vote earlier this month.


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One comment

  1. The best thing the legislature could do is simply eliminate altogether, the corporate income tax. It only generates 5-7% of general fund revenues. And it generates a lot of angst at the State Tax Commission. So if we want a real differentiator, that doesn’t cost a lot, that is certainly constitutional, that treats all businesses fairly, and that eliminates the wheeling and dealing at the Tax Commission, just simply get rid of the corporate income tax.