Idaho’s high corporate income taxes cause some companies to not even look at Idaho as a potential location for relocation or expansion, state economic development experts told legislators Thursday.”The very first number they’ll pull is the corporate income tax rate and they’re going to compare it to every other state in the region,” said Don Dietrich, administrator for the Idaho Department of Commerce’s economic development division. “And with that we’ve sort of got our hands tied.”
Dietrich and Randy Shroll, manager of business development at the commerce department, spoke about Idaho’s business incentives at a meeting of the Legislature’s tax exemptions interim committee in Boise.
The 14-member committee also heard concerns from other business leaders that Idaho should eliminate its personal property tax and take the steps needed to make sure online sales taxes are collected.
Shroll told the panel that Idaho has an attractive offering of incentives for companies, and overall the state’s cost of doing business is lower than most neighboring states and California. Unfortunately, he said, many companies just look at the corporate tax rate and don’t go any farther.
Idaho’s tax rate is 7.6 percent — the 12th highest among the 46 states and the District of Columbia that collect taxes. The rate is still lower, however, than the nearly 9 percent rate in California.
Shroll said the difference can be mitigated if the department has the opportunity to talk to companies.
“We can say, ‘yes that corporate tax rate may seem high, but lets look at some exemptions and things to bring overall rate down,'” he said.
Committee co-chair Sen. Brent Hill, R-Rexburg, questioned whether the department would be willing to eliminate other incentives to gain a break in the corporate tax rate.
“If we were to be given a choice of tax exemptions vs. a lower tax rate I think a lower tax rate would be the way to go,” Shroll said.
Thursday was the second day of a three-day meeting that concludes today. The interim committee’s task is to take a look at all of Idaho’s tax exemptions to determine which are still appropriate and recommend to the Legislature if there need to be any changes.
Despite the state’s relatively high corporate rate, Dietrich said business interest in Idaho remains high. He said the department is currently working with 95 companies interested in expanding or relocating to Idaho.
Alex LaBeau, president of the Idaho Association of Commerce and Industry, said his members, including many of the bigger companies in Idaho, are most concerned with Idaho’s continued collection of the personal property tax. That tax applies to business machinery, tools, furnishings, equipment and some fixtures.
LaBeau said it’s one of the most difficult to administer and comply with for government and business and is a burden to economic development.
Meadow Gold Dairies General Manager Ralph Hallquist, representing the Boise Metro of Chamber of Commerce, agreed that the tax should be removed. But the chamber supports phasing out the tax, while LaBeau’s association thinks it should be eliminated completely in one year.
The loss of the tax revenue would cost the state about $100 million a year in revenue, but LaBeau said about half of that could be offset by the benefits of increased business spending and business investment that would lead to more private sector wages and salaries.
He also encouraged state leaders to get involved with the national effort to force companies to collect and remit to the states online sales taxes to cover the losses from eliminating the personal property tax. The state is estimated to have lost $125 million in online sales taxes in 2006, he said.
To compete with other states, LaBeau said Idaho needs to be willing to adjust its tax structure to do what is best for business.
“We should be cautious about reliance on specific taxes,” LaBeau said. “You must remember we’re not just in competition with our neighbors, we’re in competition with the world. We need to look at what China is doing, what Korea is doing and what the European Union is doing in respect to business arrangements.”