Committee approves tax conformity bill

BOISE — A two-hour public hearing on Idaho’s tax conformity bill brought concerns from Idahoans who feared cuts or eliminations of state programs if business and personal income tax provisions were adopted by the state. The bill seeks to adopt a variety of personal and business income tax changes enacted by the One Big Beautiful Bill over the summer, including new deductions for tips, overtime and seniors.  

After being introduced last week, House Bill 559 on Monday went before the House Revenue & Taxation Committee, which voted on party lines to send the bill to the House floor. 

It marks the second effort from Rep. Jeff Ehlers, R-Meridian, to bring forward a bill conforming with these changes that he estimates will reduce revenues for the state by $155 million for this fiscal year and $175 million for the next. While this is similar to the $155 million revenue reduction projected by Gov. Brad Little in his budget recommendations, Ehlers' bill notably differs from Little's in seeking to make the tax changes retroactive to the 2025 tax year, rather than begin starting in tax year 2026.

The individuals who testified Monday largely fell into two camps: those representing business interests and those who were not. In the first camp, individuals either testified in support of the bill’s effort to conform with federal tax code or said the bill didn’t go far enough to implement the totality of tax benefits available to businesses and corporations. 

Mark Wynn, vice president of tax for Lamb Weston, said conformity is “the right choice for Idaho” but maintained concerns about several business provisions. He pointed to a restriction in the bill barring Idaho businesses from using research and development expenses for the state’s own tax credit and the federal deduction. Not allowing the use of the state tax credit in tandem, Wynn said, represented a tax increase for innovators in the state.

Miguel Legarreta, president of the Associated Taxpayers of Idaho, did not express a position on the bill one way or the other, but expressed concern about the state continuing to not conform with some of the federal tax code for businesses. Though he acknowledged a shift to adopt the federal bonus depreciation statute — which the state decoupled from during the Great Recession — was unlikely given the state’s tight budget picture for this fiscal year, he sought to have this and other business provisions to be put up for further consideration in trailer bills. 

Concern of further cuts

The overwhelming majority of testifiers who spoke for themselves or for organizations outside of the business realm were opposed to the conformity bill, voicing fears its passage would bring a a significant reduction in revenue for this fiscal year in and, in turn, require drastic cuts to state services.

Several state agencies including the Idaho Department of Correction, the Idaho State Police and the Idaho State Board of Education submitted letters to the Legislative Services Office on Friday, in response to JFAC leadership requesting reports on how 1-2% cuts for this fiscal year and the next would impact their agency.

Agencies that responded said layoffs, furloughs and broad declines in public safety and public education outcomes were to be expected if the cuts floated to accommodate the estimated cost of tax conformity were made. For those who testified in opposition, their concerns with conformity were couched in terms of fearing the federal tax cuts would come at the cost of reducing or eliminating state programs.  

Bonnie Pfaff, a Boise resident, urged the committee members to vote no on the basis that seniors would see little benefit from the senior deduction added as part of the federal tax changes. Citing a report from the Tax Policy Center, she said fewer than half of seniors would benefit from the temporary deduction, as the lowest-income seniors already have an income below the standard deduction.  

If cuts to state programs were made to make way for tax cuts they will not benefit from, these seniors would be worse off accessing health care, food benefits and other forms of relief, Pfaff said.

Beth Markley, executive director of the Idaho National Alliance for Mental Illness, testified on behalf of the organization Monday and spoke to concerns that a significant reduction in state revenue would put essential services, including those offered by Medicaid, at risk. 

She said Medicaid-funded mental health services remain “the most cost-effective tools Idaho has to prevent pensive crisis responses.” Last year’s cuts to Medicaid provider rate payments, however, prompted funding for behavioral health services to be eliminated, including programs for peer support services and community treatment teams, which assist individuals facing drug addiction and mental illness.

Markley noted the cuts to these programs have been opposed by both the Idaho Sheriffs' Association and the Idaho Supreme Court, both of which said they would increase pressures on jails, courts and law enforcement. Now these institutions will be tasked with devoting resources to psychiatric crises previously filled by these behavioral health programs, she said. 

If Medicaid cuts went further, they would bring an outsized impact on the state’s rural health facilities. Markley said hospitals may need to either curtail services or close, preventing Idahoans from getting the care they need. If many people start to put off care for too long, the result would be “an urgent need for expensive, often less-effective emergency services,” she said.

Alicia Mondour, a Middleton resident, spoke to her personal experience as a mom of a child with a rare form of muscular dystrophy. Mondor — whose son benefits from both the family’s private insurance as well as Medicaid to fund the treatment needed for his condition — said “it is incredibly egregious to talk about cutting benefits” for kids like her son while also considering tax cuts in excess of $100 million.  

“There are thousands and thousands of kids and parents just like me who are willing to fight for our kids,” Mondour said, “and we are very upset that Idaho seems to be wanting to give tax breaks to corporations rather than taking care of their vulnerable.”

Committee deliberation 

In his wrap-up of testimony on the bill, Ehlers maintained the $155 million cost of conformity for this fiscal year remained fair in its appraisal of cost and outside of the bounds of the state budget. “This bill is about tax conforming,” he said in closing. “It’s not a budget bill. It is not addressing those things. It is about our tax policy and how we conform to the One Big Beautiful Bill.”

He emphasized that the revenue impact calculated in his bill stems from numbers put forward by the Idaho State Tax Commission, which analyzed the cost of all 39 provisions impacting Idaho taxpayers.

Rep. John Gannon, D-Boise, who consistently opposed both versions of Ehlers' conformity bill, said Monday it would be “premature” to vote in favor of the bill.

He expressed continued disagreement with the commission’s stance the changes to R&E expensing would come without fiscal cost. The commission, like Ehlers, has contended that many businesses have already priced the deduction changes into their tax filings following the passage of the federal tax cuts, assuming Idaho would conform in the same way it had previously.

If the impact of this change and other tax adjustments ended up being $100 million more than anticipated, the impact would be “devastating” for state programs, Gannon said.

The committee’s ultimate vote with a “do pass” recommendation will allow the bill to arrive at the House floor for further consideration.