Families putting a lot of money away for college would get a break under a change proposed by the Idaho Tax Commission and introduced Monday by the House Revenue and Taxation Committee.
Under current law, savers who roll over Idaho college savings plans to another state’s “529” plan, must pay back taxes on any income previously deducted from their Idaho personal income tax liability.
The problem, says the Tax Commission, is that taxpayers are required to pay Idaho income tax on the entire transfer, even it wasn't all eligible for a deduction. Individuals are able to deduct $4,000 annually from their taxable income, or $8,000 for couples, for money put in state-approved college savings accounts. Some families deposit larger amounts and Idaho is assessing tax on the full amount of any rollover to another state's savings plan.
“It’s really a fairness issue,” Dan John, a Tax Commission staffer, told the committee. The commission estimates the change will cost the state less than $25,000 a year.
The committee also introduced a Tax Commission bill that would eliminate double sales tax refunds to retailers and financial institutions on financed purchases that subsequently enter default. The commission estimates the change will save the state $500,000 annually on double refunds claimed on automobiles, appliances and other financed goods.
Commission staffer Ted Spangler said both retailers and purchasers of debt are filing claims for the refund of sales taxes paid by consumers who fail to pay off their bills.
“There are a lot of claims being paid twice,” Spangler told the committee.
The bill would change the law to presume that a partial payment on a financed purchase would first apply to Idaho’s 6 percent sales tax.
Hearings on both bills will be held later.