Tax conformity is usually a no-brainer. Amid budget woes, it’s ‘much bigger deal’
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- Idaho legislature moves to broadly conform state tax code to federal law.
- Conformity would open new federal deductions and credits to Idaho taxpayers.
- Estimated fiscal impact ranges from $115M to $400M, complicating budgets.
Idaho lawmakers have taken the first step toward aligning the state’s tax code — almost completely — with the federal one. That means that people and companies filing their taxes in Idaho will be eligible for most of the new and expanded tax credits and deductions available under the federal tax code.
Those changes include individual tax deductions for tips, overtime pay and car-loan interest, as well as corporate deductions for spending on research and development and certain kinds of property investments.
Rep. Jeff Ehlers, a Meridian Republican, on Friday proposed that, as in past years, Idaho not conform to the bill’s largest corporate incentive, bonus depreciation. Bonus depreciation allows businesses to deduct up to the full cost of new machinery or equipment during its first year of use, rather than spreading out deductions over multiple years.
Most years, aligning the state tax code with the federal one is a non-issue, Ehlers told members of the House Revenue and Tax Committee, of which he is vice chair.
But because of the changes from President Donald Trump’s “One Big Beautiful Bill” Act, “this is a much bigger deal this year,” Ehlers told committee members. It’s a decision that could have ripple effects in a tight budget year. Estimates of what such conformity would cost the state have varied widely, from about $115 million to about $400 million.
Amid projected state budget shortfalls, Gov. Brad Little has proposed aligning Idaho’s tax code with the federal one — but only starting in calendar year 2026, which he estimated would cost the state $155 million in lost revenue. Ehlers’ proposal uses the same number but calls for backdating such alignment to 2025.
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Rep. John Gannon, a Boise Democrat, said Ehlers’ estimate of the cost to the state was not “credible” compared with the findings of the national Tax Foundation, or with the experiences of other states that have adopted the federal tax code.
“Aside from arguing the merits of the bill, we have to get this fiscal impact down first, I think, before we can proceed,” Gannon told committee members.
Lawmakers in mid-January set an estimated “revenue number” — that is, the amount of money the state could expect to take in — of $5.8 billion for fiscal year 2027. But that projection did not include the cost of conforming with the federal tax code, Keith Bybee, a legislative budget analyst, told the Idaho Statesman.
In November, the Idaho Center for Fiscal Policy warned that Idaho stood to lose nearly $300 million in revenue if it fully adopted the federal tax code. The center said it was relying on projections from the national Tax Foundation.
But in early January, Idaho’s own Tax Commission estimated that conformity would cost the state between $115 and $193 million in lost revenue, the Idaho Capital Sun reported. The Tax Foundation had acknowledged that observers should defer to their local revenue departments’ estimates — to the Tax Commissions’ findings, in this case, said May Roberts, the author of the report from the Center for Fiscal Policy.
Still, Roberts questioned the wisdom of conforming with the federal tax cuts amid budget shortfalls.
“It really jeopardizes funding to support the essential services that all Idahoans rely on,” she told the Statesman.
In his State of the State address, Little said it was important for the state to align with the federal tax code despite the cost.
“The Trump tax cuts will help Idaho compete for jobs and investment, and they will preserve the core principles I have long advocated for in Idaho’s tax system — simple, fair, predictable, and competitive,” he said.
Reporter Carolyn Komatsoulis contributed.
This story was originally published January 23, 2026 at 3:01 PM.
