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Committee hears divergent forecasts as lawmakers weigh whether to conform to federal 'OB3' tax changes
Summary
A legislative revenue assessment committee heard economists and tax officials describe a tighter revenue outlook and differing assumptions about corporate-tax timing related to federal SALT/’One Big Beautiful Bill’ (OB3) changes; the committee will compile individual member projections and vote on a recommendation tomorrow.
A joint revenue assessment committee heard a series of economic and tax presentations Wednesday that left members facing two central choices: whether to count a projected drop in corporate income receipts as a structural hit or as a timing/behavioral effect tied to federal SALT changes, and whether to conform to the federal “One Big Beautiful Bill” (OB3), which the Tax Commission estimates could reduce state revenues by $115 million–$192 million depending on how the legislature conforms.
Erin Phipps, an economist at the Division of Financial Management, summarized the executive branch’s January forecast and explained a change in how DFM will report sales‑tax‑related accruals. "We are including the tax relief fund transfer in sales tax accruals," Phipps said, adding that the $330 million sales‑tax transfer for school funding has been added to the historical series so the forecast compares 'apples to apples.' Phipps also said the agency combined corporate and individual income tax categories in part because of observed taxpayer behavior around SALT changes.
The Legislature’s budget analysts described the spending side of the ledger, noting several statutory programs (including Medicaid expansion, a state public defender office and House Bill 1 school funding) that together accounted for roughly $500 million of budget growth in recent years and narrowed policymaker choices this season.
The Idaho State Tax Commission presented a receipts‑based model that uses seasonal historical collections through December 2025 rather than macroeconomic assumptions. "Our model is data driven: it applies seasonality to months such as December and April," Jeff McCray, chairman of the Tax Commission, said. McCray cautioned that corporate collections were unusually low through December while individual collections were high, and presented the OB3 conformity cost range of $115 million to $192 million for lawmakers to consider.
Several presenters emphasized uncertainty about taxpayer behavior. Phipps described an earlier assumption that affected business entities (small pass‑throughs) might revert filing behavior after OB3 expanded the SALT deduction cap, but December corporate receipts showed a large rebound that complicated that assumption. "December surprised us on corporate taxes," she said. "That changed our view about whether the change was behavior or timing."
Committee members pressed staff on whether one‑time cash balances and interest earnings could be used to balance the near term, and asked how quickly the Tax Commission and software vendors could implement conformity changes if lawmakers direct conversion to federal law. Legislative staff repeated that any effective‑date decision affects implementation time for forms and vendor software.
No formal action was taken. The committee asked members to submit individual projection worksheets (the committee 'homework') by noon tomorrow; co‑chairs will present the committee’s recommended number to JFAC on Friday morning following a reconvened meeting at 3 p.m. tomorrow.
What happens next: members must turn in projections by noon; the committee will aggregate results and is scheduled to vote on a recommended revenue projection at tomorrow’s reconvened session.
