House Joint Resolution 5 — Property tax on rented public property

House Joint Resolution 5 — Property tax on rented public property

by
Lindsay Atkinson
February 19, 2020
Lindsay Atkinson
February 19, 2020

Bill description: HJR 5 would ask voters whether to amend the Idaho Constitution to give the Legislature authority to impose a tax on rental agreements in which a public agency is the lessor.

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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? 

HJR 5 would ask voters to approve an amendment to the Idaho Constitution. This amendment would impose a property tax on properties owned by public entities, but rented out to private entities. The tax would be determined by county assessors, and paid by the private entity renting the property.

Thus, this amendment would impose taxes on those not currently paying them. It would impose property taxes on private entities that are only renting property, and do not own such property. This means private entities renting publicly owned property would have to directly pay a tax that other renters — who rent private property — do not have to pay. 

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This joint resolution would provide some property tax relief to Idahoans who pay property taxes on their private homes and businesses. It would provide such relief by bringing into the larger property tax equation a pool of taxpayers that are currently exempt from paying property taxes — private organizations that rent public land/property. The tax money received from this new pool of taxpayers would “be used for the sole purpose of reducing proportionately the levy rates on all properties in the affected taxing districts.” 

Thus, this new money would not be additional tax money for a government entity, instead it would be used to reduce the overall tax burden on all properties that fall within the boundaries of such government entity.

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Does it increase government redistribution of wealth? Examples include the use of tax policy or other incentives to reward specific interest groups, businesses, politicians, or government employees with special favors or perks; transfer payments; and hiring additional government employees. Conversely, does it decrease government redistribution of wealth? 

This joint resolution corrects the current system of redistributed wealth by recognizing that some government entities in the state own and rent out a lot of currently tax-exempt land. 

When a city owns a property within its boundaries, that land is tax-exempt, whether it is the city using it or a private entity. It is a pretty simple picture to paint: The more land a government entity owns within the boundaries of a taxing district, the more the tax levy imposed in such a district burdens private landowners.

A public agency that owns too much land takes taxable property off the tax roles, hurting everyone else.

Consider the city of Boise as an example. As of November 2018, the city was the lessor in 535 lease agreements. Approximately half of those lease agreements leased city-owned housing units to private individuals and families. The rest of the agreements leased land/property to private businesses and nonprofits. Specifically, 206 lease agreements leased city-owned land, hangar space, and the like, either on or around the Boise Airport grounds. Another 25 agreements were with private businesses and nonprofits for parcels scattered around the city.

Taxing districts that purchase more land than they need, and put the extra land up for rent, perpetuate a system of exemption that keeps certain businesses from paying their fair share of taxes. This constitutional amendment would end this perpetuated system by ensuring that public property rented out to private entities is held to the same standard as private properties that are rented out.

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Does it violate the principle of equal protection under the law? Examples include laws which discriminate or differentiate based on age, gender, or religion or which apply laws, regulations, rules, or penalties differently based on such characteristics. Conversely, does it restore or protect the principle of equal protection under the law? 

HJR 5 only imposes direct property taxes on renters of publicly owned property. Thus, direct taxation on renters is not applied equally to all renters. Renters of private property are not directly charged a property tax. However, it is a reasonable assumption that renters of private land do indirectly pay property taxes, passed onto them by their landlords through their rent pricing.

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Analyst’s Note: While the merits of HJR 5 are to decrease the tax burden on Idahoans by removing unfair exemptions, the resolution has several looming implications that could take months to play out. This resolution has two main parts. The first part is to ask voters whether the Legislature should have the authority to impose a tax on rental agreements in which a public agency is the lessor. The second part (which will only occur if voters pass the first part) is that the Legislature will set up the details of such taxation.

As with any constitutional amendment, the language of the law can be used for reasons beyond its primary purpose, especially in the legal system. For instance, some would say the whole system of renting out publicly owned property to private entities is a violation of Article VIII, Section 2 of the Idaho Constitution (commonly referred to as the Gifts Clause). This section states that “[t]he credit of the state shall not, in any manner, be given, or loaned to, or in aid of any individual, association, municipality or corporation.” By creating a constitutional amendment about  leasing publicly owned property to private entities, the state may in fact be perpetuating a violation of another part of the Idaho Constitution. Please read more about the implication of leasing publicly owned property to private entities on page 77 of our policy report, Are You Kidding Me, Boise?

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