Sales Tax Exemptions

[Tom Trail <ttrail@moscow.com>]

Visionaries:  There has been some discussion about Idaho's sales tax
exemptions.  As Tom Hansen
indicated in his e mail and the quote on July 30, 2002 Spokesman Review
(handle edition)--
"Idaho's slaes tax was set up in 1965 to focus on goods, rather than
services.  In the 37 years it's been in place, the economy has shifted from
mostly goods  to mostly services.  In addition to most
services, Idaho's sales tax law also exempts specifric goods, uses and
entities."   This serves as
background.  Over the years the Idaho Legislature has granted sales tax
exemptions as a matter
of economic policy and also to assist charitable endeavors.

I talked with Saul Cohen of the State Tax Commission today, and he provided
some interesting
background.   Overall the total tax exemptions in the state total over
$300,000,000.

Production exemptions which account for about $180 million.  Production
exemptions are granted
for purchase of machinery, irrigation equipment and supplies, commercial
aircraft, trucks involved
in interstate commerce, broadcasting equipment, certain types of contracts,
etc.  For example, if
you sell your car on a trade in for a new car and get credit for $10,000
and the cost of the
new car is $30,000 you only pay sales tax on the difference or $20,000.
The sale of business
assets provides an exclusion if the new owner uses the machinery, etc. in
the same manner as
the previous owner.

Most charitable groups are granted exemptions, i.e. Red Cross, etc.
Foodstamps and wickstamps
or products purchased with their use are excluded.   Other exclusions
include purchase of snow
cleaning equipment, the microchip cleaning room at Micron, fuels used to
heat rooms, delivery
of energy from utilities, vending machines, prescription drugs and medical
equipment, caskets,
literature sold by non-profit organizations, used trailers and used
manufactured homes, tele communications equipment, and supplies and
equipment purchased by non-profit hospitals.

Many of these are included in a category called Goods not taxed.   This
total is about $125 million and include exclusions of $46 million for
utilities, $44 million for fuel, $10 million for hospital
purchases, and the list goes on.   Again, the figures are rounded off.


Mr. Hansen has correctly pointed out that we have shifted to a service
economy and the Tax
Commission  indicates there is about $660 million in services that could be
taxed.  Some of the
areas are construction-$86 million, professional services--$148 million,
health and medical
area $150 million, social services--$45 million, barbers and
hairdressers-$8 million and the
list goes on.  These are services that are now not taxed.

Mr. Cohen of the Tax Commission reported, "One subject we did not discuss
relates to the amount of
tax we could expect to raise if exemptions were eliminated or new tax
bases, such as services were
added.  It would take considerable time to educate the vendor and buying
public even after the tax
was enacted.  Even with a well educated public, there is always a
considerable gap between what is available and how much we expect to
collect with voluntary compliance and compliance efforts such as
collections and audits.  Some compliance issues might result in legal
challenges."

Rep. Bruneel introduced a bill in the Rev and Tax Committee several years
ago that would have
lowered the sales tax to 4 cents and pick up about $200 million from taxes
on services.  The
positive difference would have help reduce the M & O for school districts.
The bill was defeated.

No doubt there will be increased discussion this coming session in terms of
how the Legislature
can come up with new sources of revenue to support K-12 and Higher
Education.  There are
certainly are some opportunities available including placing a moratorium
on the personal income
tax cut passed in 2001.  This took almost $100 million out of the tax base.

Organizations who receive a sales tax exemption often consider it a right
when in fact it is a
privilege granted by the state.  I'm working on legislation that would
require at least 20% of
the organizations granted exemptions to have these reviewed each year and
have these organizations
justify why the exemptions should be continued and provide evidence that
the exemption has
provided benefit to the state.

Rep. Tom Trail/Dist. 5

Dr. Tom Trail
International Trails
1375 Mt. View Rd.
Moscow, Id. 83843
Tel:  (208) 882-6077
Fax:  (208) 882-0896
e mail ttrail@moscow.com