House committee votes to introduce $155 million tax conformity starting this fiscal year

BOISE — The House’s Revenue & Taxation Committee voted Friday to introduce legislation seeking to conform with personal and business tax changes passed into law this summer through the One Big Beautiful Bill Act.

The legislation brought forward by Rep. Jeff Ehlers, R-Meridian, would bring the state into alignment with a series of new personal income tax changes — including deductions for tips, overtimes and seniors — as well as business expensing changes to research and experimentation costs, known as R&E.

Exceptions are made for R&E, however, to ensure this federal deduction cannot be used at the same time as the state’s respective research and investment tax credits. 

Due to Idaho’s static tax conformity status, it automatically adopts federal tax changes dating to the first of the calendar year, with the conformity legislation generally functioning as a formality unless the state elects to not enact certain provisions. 

The bill comes short of implementing the full slate of federal tax changes as it continues to decouple Idaho from a business expensing provision known as bonus depreciation. 

According to the Idaho State Tax Commission, depreciation can be understood as a federal income tax deduction that allows a taxpayer to factor in the costs of wear and tear for certain income-producing property (such as factories or work vehicles). Bonus depreciation is an additional deduction allowing depreciation to be taken in the same year that property is put into use. 

Due to the state having previously separated from federal tax code for bonus depreciation, it does not apply to property acquired after 2009 or before 2008 when filing state taxes. 

The bill estimates the cost of conforming to personal and business tax changes for the current fiscal year and each fiscal year thereafter to be $155 million. This aligns with the number Gov. Brad Little suggested in his “Enduring Idaho” budget plan — a midpoint of estimates from the Idaho State Tax Commission, which ranged from $111 million to $192 million.

Little's recommendation, however, was for conformity to kick in for tax year 2026 compared to Ehler's bill that would have conformity in place for tax year 2025, a proposition that would exceed the state's general funds if the governor's revenue projection held and his recommended spending cuts were adopted.

The Joint Finance-Appropriations Committee (JFAC) has differed with Little on the projections for this fiscal year. Last week the committee adopted a revenue number about $152.5 million higher than Little's, just shy of the estimated cost of conformity used by both Little and Ehler. 

Rep. John Gannon, D-Boise, questioned during the committee meeting whether the cost number used by both Ehler and Little was accurate. He cited numbers from the Tax Foundation, a national tax policy nonprofit, that pegged the cost of conformity for Idaho for this fiscal year to be $167.4 million for the new personal income tax deductions and $117 million for corporate tax changes, when excluding bonus depreciation.  

This comes to a total of $284.4 million, well above the number provided by the Idaho State Tax Commission.

“I do not think that this fiscal impact is credible when compared with the Tax Foundation, when compared with other states,” Gannon said. “ … we have to get this fiscal impact down first before we proceed.”

Ehlers said part of the reason for this discrepancy came from the Tax Commission estimating the cost of corporate tax changes to be around $80 million, which has already been “washed through the system" and incorporated into the state's revenue projections. What hasn't been accounted for is the personal tax provision changes, which are represented within the $155 million cost of enacting the legislation.

The committee voted for the legislation to be introduced. It will return to committee at a later date for a public hearing on the bill's implications for the state and the estimated conformity costs.