House Bill H0311 2015 Freedom Index Score: (+2) Analyst: Parrish Miller Date of analysis: March 26, 2015 ANALYST'S NOTE: House Bill 311 makes several significant changes to Idaho's taxes, specifically to the income tax, sales tax, and motor fuel tax. It lowers the top income tax rate to 6.7 percent and creates a flat 6.7 percent income tax for all filers above certain thresholds. (Individuals under those thresholds will see no change in their income tax rates.) The bill also eliminates the sales tax on groceries—which are defined as SNAP-eligible items—and partially offsets this elimination by repealing the $100 per person grocery tax credit. Finally the bill increases the motor fuel tax (paid on gasoline and diesel fuel used in motor vehicles) from 25 cents a gallon to 37 cents a gallon. The bill makes a few more minor changes to Idaho code as well such as requiring that any motor fuel in inventory on the last day of the 25 cents-per-gallon rate will be subject to a "floor stock tax" of seven cents per gallon. The seven cent motor fuel tax increase will be distributed to the highway distribution account to be appropriated at a rate of 60 percent to the state highway account and 40 percent according to the provisions of subsections (1) through (7) of section 40-709, Idaho Code. Another change guarantees that jurisdictions benefiting from "revenue sharing" under Section 63-3638, Idaho Code, will receive at least as much in future years as they did in fiscal year 2015. This provision will sunset on November 1, 2018. The bill is positive in its totality although certain components such as the increase in motor fuel tax are negative. The bill will serve to lower taxes for Idahoans overall, though, especially in future years. Some of the reasons for this include the fact that as food prices increase, the positive impact of the elimination of the sales tax on groceries increases correspondingly. Conversely, as fuel prices increase and vehicles become more fuel efficient, the relative impact of a flat, per-gallon tax decrease. Point No. 5 — Does it directly or indirectly create or increase any taxes, fees, or other assessments? Conversely, does it eliminate or reduce any taxes, fees, or other assessments? ANALYSIS: House Bill 311 modifies Section 63-2402, Idaho Code, to increase the tax on motor fuel from twenty-five cents to thirty-two cents per gallon. It further modifies the section to require that "when the tax rate imposed on motor fuel subject to the tax in this chapter is changed, the motor fuel in inventory on the last day of the old rate is subject to a floor stock tax. The floor stock tax is the difference between the old rate and the new rate. The floor stock tax will be reported and paid by Idaho licensed distributors as prescribed by the state tax commission." The impact of this tax increase is estimated to be $42.5 million in higher taxes for FY16 and $65 million in higher taxes for FY17 and each year thereafter. [Page 1, lines 35-37; Page 2, lines 37-42] (-1) ANALYSIS: House Bill 311 modifies Section 63-3024, Idaho Code, to stipulate that "for taxable years beginning on or after January 1, 2015, and each taxable year thereafter the tax rates in subsection (a) of this section shall apply only when Idaho taxable income as defined in this chapter is less than four thousand dollars ($4,000) as adjusted in subsection (a) of this section. All other Idaho taxable income as defined in this chapter shall be taxed at the rate of six and seven-tenths percent (6.7%)." While this change will increase taxes for some people, the overall impact of this change is a tax reduction. Additionally, moving to a fairer, flatter tax creates a better and more stable environment in which to live, work, do business, and raise a family. (+1) ANALYSIS: House Bill 311 creates Section 63-3622VV, Idaho Code, to declare that "there is hereby exempted from the taxes imposed by this chapter the sale of food sold for human consumption. The types and kinds of food products eligible for exemption by this section shall be the same types and kinds of food products that are eligible for purchase with benefits provided under the federal supplemental nutrition assistance program (SNAP) and do not include restaurant sales of food." House Bill 311 repeals Section 63-3024A, Idaho Code, which is the section of code dealing with the grocery tax credit. This $100 per person income tax credit ($120 for those over 65) is designed to help offset the sales tax paid on groceries, but does not cover the amount of tax actually paid on groceries for many Idahoans. The net effect of exempting groceries from sales tax and repealing the grocery tax credit is a significant tax cut for most Idahoans. (+1) Point No. 7 — Does it increase government spending (for objectionable purposes) or debt? Conversely, does it decrease government spending or debt? ANALYSIS: House Bill 311 decreases income and sales taxes while increasing gas taxes. One impact of this change is to reduce the amount of money flowing into the state's general fund— the main pot of money from which the state makes many and sundry appropriations—and to increase the amount of money flowing into the states dedicated fund for transportation—roads, bridges, etc. Until such time as transportation funding is moved into the general fund where it can compete head-to-head against less worthy expenditures, this change serves to reduce the amount of money available for appropriation to questionable or objectionable causes and to increase the amount of money available for duties more closely aligned with the proper role of government. House Bill 311 has a significant potential to decrease objectionable spending and to increase appropriate spending by the state legislature. (+1)
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