Proposed change to sales tax distribution advances

BOISE — A proposed revamp of the state sales tax distribution formula received no negative testimony during a House Revenue and Taxation Committee hearing Friday.

Almost every city in north central Idaho would see slower revenue growth under the legislation, which is sponsored by Rep. Jason Monks, R-Nampa.

The bill doesn’t change the overall percentage of gross sales tax collections that flow back to local governments. Nor does it change how much of that amount goes to counties or to special taxing districts.

The manner in which the cities’ share of the money is apportioned between communities, however, would gradually shift to a population-based approach.

“Eventually, this gets us to the point that all the cities are close to the statewide (per capita) average,” Monks said during an hourlong bill hearing.

The current distribution formula has been revised several times, most recently in 1999. Much of the allocation, though, still reflects the property value, population and industrial centers in Idaho from nearly 50 years ago.

As a result, the amount that cities now receive varies wildly on a per capita basis.

In 2018, for example, Sun Valley received $528.88 per person through the distribution formula. Elk River, in Clearwater County, received $170.65. Lewiston, Cottonwood, Craigmont, Grangeville and Orofino all received in excess of $100 per person.

The per capita statewide average, by contrast, was $76.22. Moscow, at $65.49, was the only major town in the region to fall below that.

Monks’ plan would hold all Idaho cities “harmless,” in the sense that they all continue to receive at least as much sales tax revenue as they currently do — so long as gross sales tax collections continue to increase.

If gross tax collections increase year-over-year, the first 1 percent would be distributed to all cities in proportion to their population.

Any increase above 1 percent, however, would only go to cities that are below the statewide average, in proportion to their population.

The net effect, Monks said, is that “everybody grows a little, (but) if revenues grow by more than 1 percent, that additional money would only go to cities that are below the average. I think it’s a good compromise on getting us where we need to be, without adversely affecting anyone.”

Judging by the public testimony, city officials apparently didn’t disagree. Only two people spoke, and they both testified in support.

“The sales tax distribution should follow population growth,” said Ammon Mayor Sean Coletti. “The current system fails to meet those need, because it’s based on some hypothetical base that was frozen according to conditions (in the 1960s).”

The committee agreed to send the legislation to the House floor with a favorable recommendation.

Rep. Priscilla Giddings, R-White Bird, joined the three Democrats on the committee in opposing the motion.

“I have to look to my cities, and they would all take a hit,” she said. “I repeatedly see that rural areas are negatively impacted when (funding) is based off population. Rural areas have very few ways to generate revenue.”

Rep. Thyra Stevenson, R-Lewiston, voted to support the bill. She said she was “shocked” at how much better Lewiston and other communities in her region do, when compared with the statewide average.

Monks’ proposal doesn’t cut funding to any of the cities, Stevenson said. It simply slows the rate of revenue growth for cities that are above the average.

“My question is, why is that so bad?” Stevenson said. “We’re switching to a different way to apportion the money, but we’ll still receive more than we did the year before.”

The bill now moves to the House floor for a vote; if approved, it still has to pass the Senate.

Spence may be contacted at bspence@lmtribune.com or (208) 791-9168.