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Trail wants to add sales tax to services

Trail wants to add sales tax to services

Idaho Freedom Foundation staff
April 2, 2010

Idaho lawmakers finished their session less than a week ago, but one member already wants them to come back to the Capitol to find more money for education by changing the state sales tax.  Moscow Republican Rep. Tom Trail wants a special session of the Legislature to look at expanding the state sales tax to services that go untaxed and lowering the tax rate from 6 percent to 5 percent.  According to Trail’s math, the move to broaden the tax base would bring in $200 million, which could prevent cuts to public schools and other state programs.

“The way we’re headed right now in the state in public and higher education are really creating some major problems,” Trail told IdahoReporter.com.  Lawmakers approved a plan to reduce state funding for K-12 public schools by $128 million for the next school year.  Trail said that will lead to reducing teachers and services in his local district, and that the solution is changing the state’s tax policy.  “We really need to have a major reform on our tax system, which is about 50 years out of date.”

Services that would be taxed under the plan include haircuts and car repairs, as well as professional services like tax preparation and legal services.  The plan would also remove exemptions on computer software, and apply the state sales tax to downloads on music, movies, and other digital media purposes.  Trail would keep the current tax exemption for medical services on the books.

Trail said he’s heard from House Republican leaders that tax reforms will be one of the key issues next year.  “We felt that it was time to get out on the cutting edge of this whole debate,” he said.  He’s sent his proposal on a special session to other lawmakers and Gov. Butch Otter, the only person with the power to call a special session.  “We’ve heard some positive remarks back from other legislators (and) we haven’t heard back from the governor’s office yet,” Trail said.  “I suspect this next week we’ll be getting some feedback.”  Trail also expects that as the plan moves forward, he’ll face resistance from businesses that provide the services that could be taxed.  “Any time you talk about the golden egg from the goose, or anybody that’s had a tax exemption, you’re going to have a conference room filled with lobbyists trying to protect that particular exemption,” he said.

House Majority Leader Mike Moyle, R-Star, has said that he’d hold a hearing on any plan to raise revenue, but he’s not sure that expanding the sales tax or removing tax exemptions would be palatable to lawmakers during difficult economic times.  Sales tax exemptions account for $1.7 billion in potential tax revenue this year, according to the Legislature’s Fiscal Facts handbook.  That's more than the $1.2 billion the sales tax is expected to bring in this year.  The Senate approved a plan to look into tax exemptions this session, but it didn't reach the House floor for a vote.

Trail has worked on the tax changes with Bob Huntley, a former Idaho Supreme Court justice, lawmaker, and Democratic candidate for governor.  Huntley has also sued the state to make changes to education funding, and said that the governor should call lawmakers back to the Capitol to tackle the problem.  “Let’s have a special session that focuses on education,” he said.  Huntley said he served on an Idaho House of Representatives committee in 1965 that helped create the sales tax, which he said now has too many exemptions and needs to be modernized.  According to Huntley, 60 percent of the state economy comes from services, which go untaxed.

The Idaho Education Association, a group representing teachers, and the AFL-CIO labor union also endorse expanding the sales tax to services and lowering the tax rate.

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