A Twist In The Legislature’s Nascent Personal Property Tax Discussion

Idaho Legislature

Former state representative Dennis Lake is a past chairman of the House Revenue and Taxation Committee.

In absence of a bill, the Idaho Legislature’s personal property tax discussion has played out behind closed doors so far this session. But former Representative Dennis Lake introduced a twist today when he went before his old committee to suggest a simple change to the definition of real and personal property.

Lake’s bill would narrow the definition of personal property, a change that would blunt the effect of the business personal property tax exemption sought by business interests and Gov. C.L. “Butch” Otter.

“With the definitions we’re working under right now, the only thing that’s taxed as real property is the land, buildings, and some fixtures, such as air conditioning and heating, that’s in the building,” Lake explained as he presented his bill to the House Revenue and Taxation Committee. “But everything else — lights, electrical — is being treated as personal property.” 

Lake’s bill proposes that “machinery, equipment or other articles that are affixed to real property to enable the proper utilization of such articles” now be considered “fixtures,” and be assessed as real, not personal, property.

The committee voted unanimously to introduce the bill. Alex LaBeau, president of the Idaho Association of Commerce and Industry, the state’s most influential business lobby, was quick to voice his disapproval.

“This is just a red herring by local government to not deal with the problem straight-up,” he said of Lake’s proposal. “To use that as the standard for what is real property, I think, is totally inappropriate.”

He also said he believed the classification change could inflate county budgets. According to the Idaho State Tax Commission’s Alan Dornfest, that does not appear to be the case. “Our initial review suggests strongly that the property now deemed a ‘fixture’ and therefore real property instead of personal property would not qualify as new construction,” Dornfest wrote in an email this afternoon. “Therefore, there would, in all likelihood, be no additional budget capacity generated.”

What does seem clear is that Lake’s bill would reduce the tax savings available to large manufacturers, utilities and railroads in the event that the Legislature does pass a bill to exempt business personal property from taxation. Such businesses are among those that stand to benefit most if Idaho’s business personal property tax goes away.