BOISE • A bill tying an income tax cut to an Internet sales tax bill a Twin Falls lawmaker has been pushing for the past few years is headed to the House floor.
The bill would cut each income tax bracket by one-tenth of 1 percent, reducing state revenue by about $27.4 million a year, while expanding the scope of online retailers that must collect sales tax and pay it to the state.
How much this would increase revenue is uncertain, but the estimate in the bill’s fiscal note, which the state Tax Commission came up with, is that it will boost revenue by $11 million a year.
Rep. Lance Clow, R-Twin Falls, has introduced bills for the past few years to expand tax collection on Internet sales made by out-of-state companies. Under state law, online shoppers in Idaho are responsible for reporting purchases and paying the tax, although it is believed many people don’t do this.
“I think it’s important to remember, it’s a tax that is already due,” Majority Leader Mike Moyle, R-Star, who has been pushing for income tax cuts and is sponsoring the bill, told the House Revenue and Taxation Committee.
The committee cleared Clow’s bill earlier this month, and Moyle had a different tax cut bill earlier this session that passed the House but died in a Senate committee last week. Moyle said he hoped the current proposal would help to create jobs by cutting income taxes while, at the same time, raising some more revenue and being more likely to pass than a straight tax cut.
“I think it’s a good balance,” Moyle said.
Ever since a 1992 U.S. Supreme Court ruling said states could only tax retailers with a presence in the state, states have struggled with how to tax Internet sales, and brick-and-mortar retailers have complained that it isn’t fair they have to collect sales tax while some online retailers such as Amazon don’t.
Clow’s bill would collect more in taxes by expanding the definition of what constitutes a “nexus” in Idaho to include retailers that might not have a brick-and-mortar store but have some other physical business connection to Idaho, such as advertising or employing an Idahoan at an office here. These retailers would then be responsible for paying sales tax like any other store.
The committee voted to send the bill right to the full House’s second reading calendar, rather than holding a full committee hearing, after more than an hour of questioning and debate. Republicans Ron Nate and Heather Scott and Democrat Mark Nye voted against printing the bill.
Nate, R-Rexburg, said that while he supports cutting income taxes, he worried the Internet sales tax provisions were an unconstitutional attempt to tax out-of-state companies and would be tough to enforce. He said lowering taxes would be a better way to make things fairer for in-state retailers.
“We don’t always have to level the playing field by raising taxes or regulations elsewhere,” he said.
Rep. Steve Hartgen, R-Twin Falls, expressed similar constitutional misgivings, but voted for the bill.
“I don’t think we ought to leave town without having an income tax reduction bill,” he said. “And maybe this is as good as we’re going to get.”
About half the states in the country have passed bills to expand tax collection on Internet sales made by out-of-state retailers.
Lawmakers hope to wrap up the session this week — Majority Leader Bart Davis, R-Idaho Falls, said the Senate is hoping to adjourn on Wednesday — and taxes, as well as proposals to extend more health coverage to the uninsured in the “Medicaid gap,” are the two major pieces of business left.
A proposal to authorize the Department of Health and Welfare to apply for a Medicaid expansion waiver was, as of Friday, expected to be introduced into House Health and Welfare on Monday, but the meeting was canceled. As of Monday afternoon, the committee was not scheduled to meet on Tuesday either.