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Property tax in Idaho

Stephanie Witt

Dr. Stephanie Witt is Director of Training for the School of Public Service. She is also a Professor in the Master of Public Administration (MPA) and Political Science programs. Her research interests include intergovernmental relations and human resource management. She is the former Editor of the Social Science Journal, and has served as Department Chair, Associate Dean, and the Associate Vice President for Academic Affairs.

The following is the first policy brief in a series that explores findings from the School of Public Service’s 7th Annual Idaho Public Policy Survey and places those results within their broader policy context.

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The property tax doesn’t have a lot of friends. Despite being the source of most local government and school district revenues, both nationally and in Idaho, people seem to dislike this form of taxation. We know this from earlier Idaho public opinion polling done by Boise State University, which found over the years that the property tax was consistently identified as “the least fair” tax (see this link to previous surveys). In this year’s survey, less than 1% of respondents thought the property tax was “too low.”

There are likely several reasons for this animosity about property taxes. First, homeowners can feel the pinch of rapidly rising property taxes when housing markets are hot and population growth is fueling housing prices—and the assessed value of homes–to rise. Homeowners on fixed incomes are especially vulnerable to rising property taxes that may threaten their ability to stay in their homes. Unlike sales taxes that we pay out in small amounts each time we buy groceries or other retail goods, the property tax is due twice a year, so the total amount of the tax is clearly highlighted.

Why do local governments stick with a tax that so many people dislike? They do so because, with a few notable exceptions such as the Great Depression of the 1930s and the Great Recession of 2008, property taxes are very stable and comparatively easier to collect than sales taxes. Sales taxes are volatile when the economy slows and consumers limit purchases.

One way to gauge voter unrest about the property tax is to look at the number of times voters have utilized the initiative process to try and limit it. The mother of all property tax limitations, California’s Proposition 13, was passed using the initiative process in 1978. This started what is commonly referred to as the Property Tax Revolt. Within several years, most rapidly growing western states had adopted some form of property tax limitation. Most of these property tax limits were enacted by the citizens directly through the initiative, although some were enacted through legislation passed by legislatures. In Idaho, voters twice defeated initiatives that would have limited the property tax rate at 1% (1992 and 1996). The Idaho legislature has imposed several property tax limitations, most recently in 2021.

Idaho is currently in a perfect storm when it comes to property taxes. State population growth was first in the nation from 2010-2020, leading to sharp increases in housing values and prices. Idaho local governments, trying to build and maintain infrastructure and provide services to all those new residents, are finding their budgets strained as they try to meet increased costs. Many parts of the state are experiencing record increases in housing costs and assessed values. Boise Idaho’s housing market was recently found to be the most expensive relative to income in the United States. Idaho taxpayers have let the legislature know they are unhappy about property taxes, but the issues are complex and several interim legislative committees met without producing substantial change until 2021.

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Property Tax Reform

There are many ways to structure changes to property taxes to try to address citizen and/or local government complaints. Several of these changes take the form of limitations to the property tax, while others are targeted at property tax relief for taxpayers. It’s important to note that the rules about the property tax are established by the state legislature and/or by citizens through the initiative process. In other words, the legislature/state sets the rules and the local governments live with them. To understand property tax reform, it’s useful to look at how the property tax works.

Simply put, the property tax has three major parts: 1) the assessed value of taxable property established by the County Assessors; 2) the tax rate applied to that assessed valuation set by the County Commission and Treasurer; and 3) the revenue generated by the property tax (also known as the property tax portion of the local government’s budget). Property tax limitations can be placed on any (or all) of the three parts. Prop 13 from California, for example, limits assessed valuations and the tax rate. Since 1996, Idaho has had a revenue limit on property taxes that allows the property tax portion of the budget for each taxing jurisdiction to grow up to 3% a year. Traditionally, new growth and forgone (unused) taxing authority would be excluded from that limit, regardless of their respective size.

The 2021 property tax changes enacted by the Idaho legislature affect many areas, including reducing the taxable value of new growth by 10% and placing new limits on the use of forgone taxing authority. It also imposes an overall property tax revenue increase limit of 8%, regardless of source (with potentially one or two exceptions). So if a jurisdiction takes the full 3% increase it is allowed each year, it could only take new growth or forgone property taxes equivalent to a 5% increase over the prior year, otherwise it will have exceeded that 8% limit. Elected leaders ultimately decide the amount that each local government’s property tax portion of the budget increases within these limits. These reforms may have increased control over total spending, but at the price of complexity that is nearly impossible to explain concisely.

Property tax relief measures offer reductions in property tax bills to taxpayers. The better-known relief measure used in Idaho is the homeowners’ exemption, which exempts 50% of the home’s value (up to a certain dollar amount) from taxation. From 2016 to 2021, the exemption in Idaho was capped at $100,000, despite rapid increases in assessed valuation in the state. Previously, Idaho’s homeowner exemption value was tied to the housing price index. The 2016 change has resulted in many taxpayers paying property taxes on a much higher portion of their home’s assessed value than would have been the case if the homeowner’s exemption had stayed tied to the housing price index. The 2021 changes to Idaho’s property tax code increased the homeowners’ exemption to $125,000.

Another common property tax relief measure is known as a circuit breaker (called “Property Tax Reduction” in Idaho). Eligibility varies by state, but typically includes the elderly and disabled. This form of property tax relief is intended to help seniors and other vulnerable homeowners stay in their home and keep rising property taxes from displacing them. The 2021 changes to Idaho property tax policy made modest increases in the amount participants get in reducing their taxes as well as eliminating approximately 4,000 participants. Idaho also has a sparingly used property tax deferral program that is available to provide property tax relief to eligible homeowners.


Property Tax and Public Opinion in Idaho

Two things are apparent when examining whether Idahoans think property taxes in Idaho are “too high,” “about right,” or “too low.” The first is that only 9 of the 1,000 respondents (0.9%) think Idaho’s property taxes are “too low.” The second is that the remaining respondents are more evenly split between assessing property taxes as “too high” (46%) or “about right” (41%). Results are similar when breaking out respondents by self-reported party affiliation. For example, 47% of Democrats responded that the property tax is “too high,” as did 46% of Independents, and 47% of Republicans.

When we examine the reported economic welfare of respondents, however, we begin to see some striking differences in opinion about property taxes in Idaho. For example, 66% of respondents who reported being temporarily laid off said Idaho property taxes are “too high.” Similarly, 52% of those who are unemployed and 52% of those who have disabilities said property taxes are “too high.” In contrast, 44% of respondents who are employed said property taxes are “too high.”

Answers to a related question follow a similar pattern in that 55% of respondents who indicate that the pandemic has made their financial situation “worse” think property taxes in Idaho are “too high,” while only 39% of those indicating their financial situation is “better” say property taxes are “too high.” The lower the respondent’s reported income, the higher the percentage who indicate the property tax in Idaho is “too high.” For example, 51% of those earning less than $50,000 per year say property taxes are “too high,” compared to 46% of those earning between $50,000-100,000 and 39% of those earning over $100,000.

Respondents from areas of rapid growth, where rising home assessments may add to concerns about property tax levels, are also more likely to report that Idaho property taxes are “too high.” For example, 58% of Canyon County (west of the capital city) respondents and 57% of Twin Falls County (120 miles east of the capital) respondents say property taxes are “too high,” compared to 45% of Ada County (where Boise resides) respondents and 49% of Kootenai County (near the Canadian border) respondents. Canyon and Twin Falls County are the only counties where more than 50% of the respondents say property taxes are too high.

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Looking Ahead

The 2021 changes made to Idaho’s property tax code are unlikely to be the final word on how the taxes should be structured. As taxpayers and local governments adjust to the 2021 limitations, new areas of concern will come to light.  If housing prices continue to rise in Idaho, taxpayers are likely to insist on changes to the homeowners’ exemption or other tax relief measures.

The results of the 7th Annual Idaho Public Policy Survey indicate that those most vulnerable to the pandemic’s impact on the economy are much more likely to consider their property taxes too high than those not as economically vulnerable. When the Idaho Legislature convenes for its next legislative session, property taxes will likely loom high on the agenda once again.