Governor Brad Little

Governor Brad Little.

BOISE -- Last Friday, March 27, Governor Brad Little announced additional executive measures to assist Idaho’s response to the 2019 novel coronavirus, or COVID-19. Through executive order, he is directing a $39.3 million transfer from the Tax Relief Fund to the Disaster Emergency Account.

“Specifically, it will allow us to purchase more personal protective equipment [PPE] for first responders and healthcare workers, more test kits to minimize the spread, more lab supplies and hospital beds to boost critical care capacity,” Little said in his Friday press conference. He also said the funds would be used to support temporary care facilities and essential services like childcare, food and hygiene.

“We do anticipate that under the CARES Act, the federal funding will cover some of these expenses, but this action is intended to ensure Idaho does not have to wait for critical supplies,” the governor said.

Idaho statute gives the governor broad authority to direct money from the general fund and other state funds into the disaster emergency account during a declared emergency.

What is the Tax Relief Fund?

The legislature created the tax relief fund in 2014 as a place for sales taxes collected and paid by retailers who weren’t necessarily required to do so. Idaho lawmakers had discussed collecting taxes on Internet sales since the mid-2000s, but precedent from the U.S. Supreme Court at the time said that retailers only had to collect sales tax if the business had a physical presence in the state.

During that time, Idahoans were supposed to be self-reporting tax-free purchases they made online or out-of-state and paying a “use tax” on those items. However, NPR reported, only 1.36 percent of Idaho taxpayers paid their use tax in 2012. This was also the case in most of the country, as states sought to make online retailers collect and pay sales taxes directly.

In the 2018 session, Idaho finally passed a law to collect sales taxes from online retailers with an in-state affiliate, satisfying the “physical presence” rule. In June 2018, however, the Supreme Court overturned that requirement in a 5-4 ruling, opening the door to direct sales taxes for online purchases.

In the majority opinion for South Dakota v. Wayfair, Inc., Justice Anthony Kennedy wrote that the physical presence rule had become “a judicially created tax shelter for businesses that decide to limit their physical presence and still sell their goods and services to a state’s consumers—something that has become easier and more prevalent as technology has advanced.”

The legislature responded to that court decision last year, passing a law to collect sales and use tax from online sellers who do more than $100,000 of business in the state per year.

“It will be collected by the seller, instead of our citizens having to report it on their income tax returns on their use tax,” Sen. Jim Rice, R-Caldwell, said when he sponsored the bill in 2019. “This is not a new tax — it’s a tax that was always due and a change in the method in which it’s collected.”

The 2019 internet sales tax bill directed that new revenue directly into the tax relief fund, rather than sending it through the traditional sales tax distribution formula. That lengthy formula sends amounts to various state funds, shares a portion of the revenue with counties and cities, and then deposits the remainder in the state general fund.

The bill was amended to put a five-year limit on that practice, beginning to direct online sales taxes through the regular formula in 2024. However, after distribution the remainder will still be deposited into the tax relief fund, rather than the general fund.

The tax relief fund is projected to total around $80 million at the end of the year.

What relief has the Tax Relief Fund provided?

In his January budget recommendation, the governor suggested using $35 million from the fund for grocery tax relief, leaving the details up to lawmakers. House Speaker Scott Bedke, R-Oakley, introduced legislation to use those funds to increase the annual grocery tax credit.

Idaho citizens qualify for $100 grocery credit—$120 for those age 65 or older— when they file a state tax return. Bedke’s proposal would have increased that credit to $135 for all age groups.

“In the past, the mentality was we only had a limited amount of money,” Bedke told the House Revenue and Taxation Committee on January 22. “We bumped the amount for seniors up, knowing that we would come back later to negate the effects of sales tax on food for all citizens.”

That proposal saw some pushback from members like Rep. Priscilla Giddings, R-White Bird, who introduced her own bill which she described as mimicking the grocery tax repeal that passed the legislature in 2017 but was vetoed by then-Governor C.L. “Butch” Otter.

The tax committee sent House Bill 494—the final draft of Bedke’s tax credit increase—to the full House mid-February. From there, however, the final floor vote was delayed several times.

Majority Leader Mike Moyle, R-Star, asked the House for consent to hold HB 494 on its calendar ten times over the session, until eventually the Senate adjourned sine die (without a return date) on March 19. Without the opportunity for a bill to pass through the other chamber, grocery tax reform in the House effectively ended for the year.

The final week of the session, Assistant Majority Leader Jason Monks, R-Nampa, put forward a bill to utilize the fund for property tax relief. His bill would have paid out the full balance in the fund to homeowners—by his calculations, a check of about $180 per household.

Democratic lawmakers pointed to internet sales taxes several times during the session as a component of their property tax relief slate. They argued that rather than directing online sales tax revenue into a relief fund until the Legislature decides what to do with it, all sales tax revenue should be sent through the distribution formula to cities and counties.

“Brick and mortar sales in this state are diminishing, and they’re moving to online sales,” House Minority Leader Ilana Rubel, D-Boise, said in a February press conference. “The pot of money that’s available to fund local government and to fund state needs is shrinking, while the pot of money that has been cordoned off and has been rendered totally unavailable to local governments is growing.”

No bills utilizing the tax relief fund passed into law this session, leaving it intact until Little’s $39.3 million appropriation by executive order for coronavirus response.

Where are we now?

The steep economic drop off caused by the pandemic response is expected to limit state revenue collected by the end of the fiscal year in June, both in sales taxes and in income taxes. The governor’s second executive order directs state agencies to hold back one percent of non-coronavirus spending for the year, which his office expects to save about $40 million.

“Although the state budget will take a hit from the disruption in our economy in recent weeks, I want to assure Idahoans we have a plan to ensure governmental services will continue,” Little said Friday. “We will meet our constitutional requirement for a balanced state budget without having to raise taxes.”

Idaho has extended the state tax filing deadline to June 15, while the federal deadline has been extended to July 15.

Little also announced temporary changes to the unemployment system Friday, extending deadlines and making it easier for an employee to qualify as job-attached if they have been laid off due to coronavirus circumstances. The Department of Labor has more coronavirus unemployment details at labor.idaho.gov.

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