From the Executive Director – Week of March 11, 2024

House Introduces Legislation to Tax Rate Regulated Utilities Based on Kilowatt Hours Sold

The House Revenue and Taxation Committee introduced legislation last week to exempt the real and personal property of rate regulated electric utility companies from taxation. In lieu of paying property taxes, the three electric companies (Avista, Idaho Power, and Rocky Mountain Power) would pay a kilowatt hour tax based on the number of kilowatt hours sold to Idaho customers. The proposal, introduced as House Bill 702, proposes the following:

– Exempts the centrally assessed real and personal property of rate regulated electric utilities from property taxation

– Establishes a new kilowatt hour tax, with tax proceeds distributed to counties and other taxing districts based on the number of line miles in each taxing district (similar to how property taxes are apportioned)

– The new kilowatt hour tax would be treated as property tax replacement similar to the gross profits tax on solar energy generation facilities, meaning, the kilowatt hour tax distribution would be used to “buy down” annual property tax budgets

– Situs property, like Idaho Power’s gas fired power plants in Elmore and Payette County would be locally assessed and continue to be subject to local property tax levies

– The amount of kilowatt hour tax revenues are estimated to be similar to the historical five year average property tax collections from rate regulated electric utilities

Because the kilowatt hour tax will be treated similar to the solar tax, there will be a reduction in each taxing district’s base property tax budget, with the difference between the reduction and the approved property tax budget being made up by the new kilowatt hour tax. This will result in a slight reduction in overall budget capacity overtime; however, in the vast majority of taxing districts, the amount will be de minimis. Those districts that will be most impacted are those with significant net values from rate regulated electric utilities like Washington County (16.99% market value),  Oneida County (9.98% market value), and Power County (7.12% market value). IAC is working on a county-by-county fiscal analysis and will share additional information later in the week.

There will likely be changes to the bill. IAC is working on potential amendments related to the distribution of the kilowatt hour tax to minimize the impact on taxing districts. Idaho Power has also raised technical concerns that will likely be addressed in any changes. The bill itself marks a major policy shift in how operating property is taxed. If enacted, it would reverse some of the tax shifting that has occurred over the past few years due to the escalation of residential market values and the ongoing lawsuit between Idaho Power and the Idaho State Tax Commission over the valuation of rate regulated utilities.