Revenue shortfall could affect 2020 budget setting

photo of chamber panel
From left, Sen. Maryanne Jordan, Rep. Jeff Agenbroad, Rep. Mat Erpelding, Rep. Mike Moyle and Idaho Chamber Alliance lobbyist John Watts. Photo by Sharon Fisher.

The Idaho Legislature may face a challenge in setting its budget in January because revenues for the fiscal year are currently falling below projections and experts aren’t sure why.

For the 2019 fiscal year, year-to-date collections have come in about $12.7 million less than anticipated. Since July 1, $568.3 million in revenue has been received, less than the projected $581 million, the Idaho State Division of Financial Management (DFM) said in a report issued Sept. 10. All of the shortfall is due to lower individual income tax revenue, wrote Jani Revier, Gov. C.L. “Butch” Otter’s budget chief, in the report – $17.8 million in July and $24.5 million in August.

While this could presage a downturn, Rep. Mike Moyle, R-Star, House majority leader, said he wasn’t concerned because the state was only two months into the fiscal year, and it is still over projections, he told the Southwest Idaho Legislative Business Summit on Sept. 19.

DFM said the shortfall could be attributed to either an Idaho tax change signed into law earlier this year by the governor that reduced individual state income tax rates, or Idahoans receiving pay that is “under-withheld” under the new federal tax law. According to a report released in July by the federal Government Accountability Office, roughly 30 million workers received pay that was “under-withheld.” If that is the case, then the revenues will be made up by April as people fill out their tax forms, learn that they were under-withheld, and make up the difference.

“Under this scenario, individual income taxes would be postponed but not lost,” Revier wrote. “Lower-than-expected monthly withholding payments would then be offset by higher-than-expected filing payments and lower-than-anticipated refunds in the spring of 2019 when taxpayers file their 2018 Idaho tax returns.”

The problem with that scenario is that the Legislature’s Economic Outlook and Revenue Assessment Committee has to decide in January on its revenue target for the 2020 fiscal year, which starts on July 1. And if they don’t know whether the revenues will catch up in April, they will likely play it safe by choosing a lower figure. That could mean budget cuts for the following year – and tough decisions for the newly elected governor and legislators.

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Gov. C.L. “Butch” Otter, before speaking to the develop.idaho conference in Boise on Sept. 12. Photo by Sharon Fisher.

It wouldn’t be the first time, said Otter, who will be governor until the candidate elected in November takes office on Jan. 7. When he took office in 2007, Idaho had a $3.2 billion budget ready to go, and he had to cut it based on economic conditions at the time, he said. While he is creating a budget now on the usual schedule for release in January, whoever takes over as governor will be able to modify it, he said.

In such a case, newly elected legislators and newly appointed committee chairs would have a lot of work to do. Up to 30 percent of legislative seats could turn over in the election, Sen. Maryanne Jordan, D-Boise, said at the panel. In addition, a number of committee chairs are likely to change due to retirements and primary losses. In particular, both the Senate and House chairmanships of the Joint Finance-Appropriations Committee, which handles the budget, will be open.

The gubernatorial candidates are Republican Lt. Gov. Brad Little and Democrat Rep. Paulette Jordan.

Idaho House passes online sales tax collection bill

The Idaho Statehouse
The Idaho Statehouse. The state House has voted in support of a bill that would direct online vendors to collect sales on online sales to Idaho residents. File photo.

Some vendors outside Idaho are more likely to need to collect sales taxes on online purchases made in Idaho, after a House of Representatives vote.

Bill H578, sponsored by Rep. Lance Clow, R-Twin Falls, directs some online vendors – those which do not have a presence in the state but which have at least $10,000 in sales in Idaho, as well as an in-state affiliate who helps with sales — to collect sales tax on online sales made to Idaho residents. Previously, only vendors with a presence in the state, such as an office, needed to collect sales tax on online purchases, based on a 1992 Supreme Court decision, Quill Corp. vs. North Dakota.

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Mike Moyle

“I’m the guy who helped stall this bill for years, but things have changed,” said Majority Leader Mike Moyle, R-Star. “This helps honest people stay honest.”

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Lance Clow

That’s because the existing law doesn’t let Idaho residents who shop online off the hook. They are supposed to report online sales on their Idaho income tax form and pay a use tax. But in practice that rarely happens, if only because it requires saving online receipts for an entire year. “The tax is due,” said Rep. Jason Monks, R-Meridian. “We’re just simplifying how it’s collected,”

A number of Idaho brick-and-mortar retailers supported the bill because otherwise they said they operated at a disadvantage to online retailers.

“If you’re going to tax businesses for performing retail sales, you have to tax all businesses,” said Gaylon Hughes, owner of Wilson’s RV Repair, in Boise. “Otherwise you’re picking winners and losers.” His company sells parts for recreational vehicles, some of them priced at $800 to $900, and his customers tell him they will order them online so they can save $40 to $50 on sales tax, he said.  “In our industry, there’s a lot of smaller retailers out there who are setting up businesses in their house and selling parts, and they have a built-in price advantage.”

The Boise Metro Chamber and the Idaho Chamber Alliance support the bill, said Ray Stark, senior vice president of the Boise Metro Chamber.

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Gaylon Hughes

Clow estimated that the state is losing $22 million to $37 million annually from unpaid sales taxes on online purchases. At the same time, bill sponsors hedged their bets by recommending that no appropriations in fiscal 2018 should rely on this anticipated revenue. The Idaho State Tax Commission doesn’t have information on how much online tax is unpaid,  but more than 11,500 taxpayers reported use tax of more than $850,000 on their 2016 income tax returns, said Renee Eymann, public information officer.

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Ron Nate

The bill passed with a vote of 46-21 after a lengthy debate. Opponents Reps. Ron Nate, R-Rexburg, and Vito Barbieri, R-Dalton Gardens, suggested the bill violated the law by charging an interstate tariff and warned Idaho could now increase taxes on out-of-state purchases.

Others, such as Reps. Priscilla Giddings, R-White Bird, and Greg Chaney, R-Caldwell, recommended the Legislature wait until next year to pass the bill, because the Supreme Court has said it will rule in June on a South Dakota case widely expected to overturn Quill. But Clow and Moyle said they were confident that the Supreme Court ruling wouldn’t affect H578.

The bill will now move to the Senate side of the Capitol and, if approved there, to Gov. C. L. “Butch” Otter for his signature.