2006 Legislation
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HOUSE BILL NO. 494 – Schools, finance, utility sales tax

HOUSE BILL NO. 494

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Bill Status



H0494...........................................................by LEFAVOUR
UTILITIES - SALES TAX - Repeals and amends existing law relating to the
sales and use tax exemption for utilities to provide that the sales and use
tax on utilities shall be paid to the school district building accounts.
                                                                        
01/27    House intro - 1st rdg - to printing
01/30    Rpt prt - to Rev/Tax

Bill Text


                                                                        
                                                                        
  ]]]]              LEGISLATURE OF THE STATE OF IDAHO             ]]]]
 Fifty-eighth Legislature                   Second Regular Session - 2006
                                                                        
                                                                        
                              IN THE HOUSE OF REPRESENTATIVES
                                                                        
                                     HOUSE BILL NO. 494
                                                                        
                                        BY LEFAVOUR
                                                                        
  1                                        AN ACT
  2    RELATING TO PROVIDING MONEYS FROM THE SALES AND USE TAX TO PROVIDE FOR  BUILD-
  3        ING  AND  REPAIR  OF  SCHOOL BUILDINGS; PROVIDING A SHORT TITLE; PROVIDING
  4        LEGISLATIVE INTENT; AMENDING SECTION 63-3622D, IDAHO CODE, TO DELETE  REF-
  5        ERENCE  TO  THE  SALES  TAX  EXEMPTION  ON UTILITIES WITHIN THE PRODUCTION
  6        EXEMPTION; REPEALING SECTION 63-3622F, IDAHO CODE, RELATING TO  THE  SALES
  7        AND  USE  TAX EXEMPTION FOR THE SALE OR PURCHASE OF NATURAL GAS, ELECTRIC-
  8        ITY, AND WATER WHEN DELIVERED TO CONSUMERS AT THE PLACE OF CONSUMPTION  BY
  9        MEANS OF PIPES, WIRES, MAINS OR SIMILAR SYSTEMS; AMENDING SECTION 63-3616,
 10        IDAHO  CODE,  TO DEFINE "TANGIBLE PERSONAL PROPERTY"; AMENDING CHAPTER 36,
 11        TITLE 63, IDAHO CODE, BY THE ADDITION OF A  NEW  SECTION  63-3638B,  IDAHO
 12        CODE,  TO PROVIDE THAT THE SALES AND USE TAX ON UTILITIES SHALL BE PAID TO
 13        THE SCHOOL DISTRICT BUILDING ACCOUNT; AND TO PROVIDE SEVERABILITY.
                                                                        
 14    Be It Enacted by the Legislature of the State of Idaho:
                                                                        
 15        SECTION 1.  This act shall be known as the "Public School Plant Facilities
 16    and Property Tax Relief Act of 2006."
                                                                        
 17        SECTION 2.  (1) Although it is desirable to  maintain  local  control  and
 18    local  responsibility  for  the  construction  and operation of Idaho's public
 19    schools, it is evident that reliance on  local  property  taxes  as  the  sole
 20    source of revenue for plant facility construction and maintenance is no longer
 21    adequate or equitable; and
 22        (2)  Idaho  can meet its responsibility to provide each public school stu-
 23    dent with a thorough education only if a portion  of  the  funding  for  plant
 24    facility  construction and maintenance is provided from broad-based taxes col-
 25    lected at the state level; and
 26        (3)  Provision of funds for maintenance and renovation of  school  facili-
 27    ties  will,  over  time,  reduce  the need for, and incidence of, school plant
 28    facilities levies, thus reducing property taxes at the local levels.
                                                                        
 29        SECTION 3.  That Section 63-3622D, Idaho Code, be, and the same is  hereby
 30    amended to read as follows:
                                                                        
 31        63-3622D.  PRODUCTION EXEMPTION. There are exempted from the taxes imposed
 32    by this chapter:
 33        (a)  The  sale  at retail, storage, use or other consumption in this state
 34    of:
 35        (1)  Tangible personal property which will enter into and become an ingre-
 36        dient or component part of tangible personal property manufactured,  proc-
 37        essed, mined, produced or fabricated for sale.
 38        (2)  Tangible personal property primarily and directly used or consumed in
 39        or  during  a  manufacturing,  processing, mining, farming, or fabricating
 40        operation, including,  but  not  limited  to,  repair  parts,  lubricants,
 41        hydraulic  oil, and coolants, which become a component part of such tangi-
                                                                        
                                           2
                                                                        
  1        ble personal property; provided that the use or consumption of such tangi-
  2        ble personal property is necessary or essential to the performance of such
  3        operation.
  4        (3)  Chemicals, catalysts, and other materials which are used for the pur-
  5        pose of producing or inducing a chemical or physical change in the product
  6        or for removing impurities from the product or otherwise placing the prod-
  7        uct in a more marketable condition  as part of an operation  described  in
  8        subsection  (a)(2)  of  this  section, and chemicals and equipment used in
  9        clean-in-place systems in  the  food  processing  and  food  manufacturing
 10        industries.
 11        (4)  Safety equipment and supplies required to meet a safety standard of a
 12        state  or  federal agency when such safety equipment and supplies are used
 13        as part of an operation described in subsection (a)(2) of this section.
 14        (5)  Plants to be used as part of a farming operation.
 15        (b)  Other than as provided in subsection (c) of this section, the  exemp-
 16    tions  allowed  in  subsections  (a)(1),  (2), (3) and (4) of this section are
 17    available only to a business or separately  operated  segment  of  a  business
 18    which  is primarily devoted to producing tangible personal property which that
 19    business will sell and which is intended for ultimate sale at retail within or
 20    without this state. A contractor providing services to a business entitled  to
 21    an  exemption  under  this  section  is  not  exempt as to any property owned,
 22    leased, rented or used by it unless, as a result of the terms of the contract,
 23    the use of the property is exempt under section 63-3615(b), Idaho Code.
 24        (c)  The exemptions allowed in  subsections  (a)(1),  (a)(2),  (a)(3)  and
 25    (a)(4)  of  this  section shall also be available to a business, or separately
 26    operated segment of a business, engaged in farming or  mining,  whether  as  a
 27    subcontractor,  contractor, contractee or subcontractee, when such business or
 28    segment of a business is primarily  devoted  to  producing  tangible  personal
 29    property  which is intended for ultimate sale at retail within or without this
 30    state, without regard to the ownership of the product being produced.
 31        (d)  As used in this section, the term "directly used or  consumed  in  or
 32    during"  a  farming  operation  means the performance of a function reasonably
 33    necessary to the operation of  the  total  farming  business,  including,  the
 34    planting,  growing, harvesting and initial storage of crops and other agricul-
 35    tural products and movement of crops and produce from the place of harvest  to
 36    the  place  of  initial  storage.  It includes disinfectants used in the dairy
 37    industry to clean cow udders or to clean pipes, vats or other  milking  equip-
 38    ment.
 39        (e)  The  exemptions  allowed  in  this  section do not include machinery,
 40    equipment, materials and supplies used in a manner that is incidental  to  the
 41    manufacturing,  processing,  mining, farming or fabricating operations such as
 42    maintenance and janitorial equipment and supplies.
 43        (f)  Without regard to the use of such property,  this  section  does  not
 44    exempt:
 45        (1)  Hand  tools  with  a unit purchase price not in excess of one hundred
 46        dollars ($100). A hand tool is an instrument used or worked by hand.
 47        (2)  Tangible personal property used in  any  activities  other  than  the
 48        actual  manufacturing,  processing,  mining, farming or fabricating opera-
 49        tions such as office equipment and supplies, and  equipment  and  supplies
 50        used in selling or distributing activities.
 51        (3)  Property used in transportation activities.
 52        (4)  Machinery,  equipment,  tools or other property used to make repairs.
 53        This subsection does not include repair parts that become a component part
 54        of tangible property exempt from tax under  this  section  or  lubricants,
 55        hydraulic  oil,  or  coolants  used  in the operation of tangible personal
                                                                        
                                           3
                                                                        
  1        property exempt under this section.
  2        (5)  Machinery, equipment, tools or other property  used  to  manufacture,
  3        fabricate, assemble or install tangible personal property which is:
  4             (i)  Not held for resale in the regular course of business; and
  5             (ii) Owned  by the manufacturer, processor, miner, farmer or fabrica-
  6             tor;
  7        provided, however, this subsection does not prevent exemption  of  machin-
  8        ery, equipment, tools or other property exempted from tax under subsection
  9        (a)(2) or (a)(3) of this section.
 10        (6)  Any  improvement  to real property or fixture thereto or any tangible
 11        personal property which becomes or is intended to become  a  component  of
 12        any real property or any improvement or fixture thereto.
 13        (7)  Motor vehicles and aircraft.
 14        (8)  Tangible  personal property used or consumed in processing, producing
 15        or fabricating tangible personal property exempted  from  tax  under  this
 16        chapter in sections 63-3622F, 63-3622G and 63-3622I, Idaho Code.
 17        (9)  Tangible  personal  property  described  in  section 63-3622HH, Idaho
 18        Code.
 19        (g)  Any tangible personal property exempt under this section which ceases
 20    to qualify for this exemption, and does not qualify for any other exemption or
 21    exclusion of the taxes imposed by this chapter, shall be subject  to  use  tax
 22    based  upon its value at the time it ceases to qualify for exemption. Any tan-
 23    gible personal property taxed under this chapter  which  later  qualifies  for
 24    this exemption shall not entitle the owner of it to any claim for refund.
                                                                        
 25        SECTION  4.  That Section 63-3622F, Idaho Code, be, and the same is hereby
 26    repealed.
                                                                        
 27        SECTION 5.  That Section 63-3616, Idaho Code, be, and the same  is  hereby
 28    amended to read as follows:
                                                                        
 29        63-3616.  TANGIBLE  PERSONAL  PROPERTY.  (a)  The  term "tangible personal
 30    property" means personal property which may be seen, weighed,  measured,  felt
 31    or touched, or which is in any other manner perceptible to the senses.
 32        (b)  The  term "tangible personal property" includes any computer software
 33    which is not a custom computer program.
 34        (i)   As used in this subsection, the term "computer software"  means  any
 35        computer  program,  part  of a program or any sequence of instructions for
 36        automatic data processing equipment or information stored in an electronic
 37        medium. Computer software is deemed to be tangible personal  property  for
 38        purposes of this chapter regardless of the method by which the title, pos-
 39        session or right to use the software is transferred to the user.
 40        (ii)  As used in this subsection, the term "custom computer program" means
 41        any  computer software (as defined in this subsection) which is written or
 42        prepared exclusively for a customer and  includes  those  services  repre-
 43        sented  by  separately  stated  charges  for  the modification of existing
 44        prewritten programs when the modifications are written or prepared  exclu-
 45        sively  for a customer. The term does not include a "canned" or prewritten
 46        program which is held or existing for general or repeated sale,  lease  or
 47        license,  even if the program was initially developed on a custom basis or
 48        for in-house use. Modification to an existing prewritten program  to  meet
 49        the  customer's needs is custom computer programming only to the extent of
 50        the modification, and only to the extent that the  actual  amount  charged
 51        for  the  modification  is  separately stated on invoices, statements, and
 52        other billing documents supplied to the purchaser.
                                                                        
                                           4
                                                                        
  1        (c)  The term "tangible personal property" does  not  include  advertising
  2    space  when  sold  to an advertiser or its agent by the publisher of the news-
  3    paper or the magazine in which the advertisement is displayed or circulated.
  4        (d)  The term "tangible personal property" includes  electricity,  natural
  5    gas and water when delivered to consumers at the place of consumption by means
  6    of pipes, wires, mains or similar systems.
                                                                        
  7        SECTION  6.  That  Chapter  36,  Title 63, Idaho Code, be, and the same is
  8    hereby amended by the addition thereto of a NEW SECTION, to be known and  des-
  9    ignated as Section 63-3638B, Idaho Code, and to read as follows:
                                                                        
 10        63-3638B.  SALES  AND  USE  TAX ON UTILITIES TO BE PAID TO SCHOOL DISTRICT
 11    BUILDING ACCOUNT. Notwithstanding the provisions  of  section  63-3638,  Idaho
 12    Code,  the  sales  and  use tax, net of refunds and in compliance with section
 13    63-3709, Idaho Code, collected on the retail sale of natural gas,  electricity
 14    and  water  by a public utility regulated under title 61, Idaho Code, shall be
 15    credited directly to the school district building account and shall not become
 16    a part of the sales tax account.
                                                                        
 17        SECTION 7.  SEVERABILITY.  The provisions of this act are hereby  declared
 18    to  be  severable  and if any provision of this act or the application of such
 19    provision to any person or circumstance is declared invalid  for  any  reason,
 20    such  declaration  shall  not affect the validity of the remaining portions of
 21    this act.

Statement of Purpose / Fiscal Impact



                              STATEMENT OF PURPOSE

                                    RS 15824

     This bill enacts the "Public School Plant Facilities and Property Tax
Relief Act of 2006".  The bill repeals the Idaho Sales Tax exemptions
applicable to Utility Sales which will result in approximately $67.1 million
increased revenue to the State at the 5% tax rate.
     The funds are dedicated to public school plant facilities, with the
funds to be applied in the following order:
     (1) first available revenues each year are allocated to public schools
as matching funds for amortizing bonded indebtedness on all bonds issued on
and after September 15, 2002; and
     (2) next available revenues each year to provide matching funds for
school facility maintenance to a maximum of three quarters of one percent
(0.75); and
     (3) any excess to be utilized by the Permanent Building Fund as may be
provided by law.



                                   FISCAL NOTE

     The bill will result in an increase in revenue to the State of Idaho of
approximately $67.1 million per year commencing July 1, 2006, at the rate of
5% sales tax rate.
     Implementation will be accomplished with in-house staff and in-house
printing service, thus requiring an appropriation of less than $10,000.




Contact:
Name: Nicole LeFavour  
Phone: 724-0468  




STATEMENT OF PURPOSE/FISCAL NOTE                         H 494