BOISE — Idaho counties and cities have been pleading with state lawmakers for decades to give them another way of funding basic local services and projects, from jails to courtrooms to roads, besides the much-hated property tax: Local-option sales taxes.
In Idaho, only resort cities with populations of less than 10,000 are allowed to ask their local voters if they want to impose a local sales tax. Fourteen have done so, from Sun Valley to Sandpoint, and from Donnelly to Victor.
But Boise can’t ask voters if they want to tack on another cent of sales tax to fund transit or other local priorities, like most major cities around the country do, according to the Tax Foundation. Other Idaho cities can’t turn to local sales taxes to fund fire stations or road improvements or police patrols. Canyon County can’t ask its citizens whether they’d be more supportive of funding a badly needed new jail if it could be paid for with sales taxes, rather than more property taxes.
“I’m not hearing a lot of support for local option, unfortunately, from the Legislature,” said Seth Grigg, executive director of the Idaho Association of Counties. “The voters, they’re feeling the pressure on the property tax side, and they’re just not inclined to pass a bond to pay for a jail. … Absent an alternative like a local option, I just don’t know how we’re going to build jails in the future.”
HISTORY OF DEBATE
Key lawmakers and legislative leaders have long been hesitant to allow any local-option taxing authority; most taxing authority in Idaho is held by the Legislature itself. House Majority Leader Mike Moyle, R-Star, who is among the most fervent opponents of the idea, said, “Local option is nothing more than a sales tax increase, and I don’t think it’s needed.”
But over the years, local officials have made the case to lawmakers that there’s more to it than that. In 1996, desperate to fund a new jail amid something of a property tax revolt, Kootenai County lawmakers finally convinced the Legislature to pass a local-option sales tax just for their county — with conditions including 60% approval from voters and half of the sales taxes raised going to property tax relief. The bill passed after a similar proposal that would have applied statewide failed.
The North Idaho legislators argued that they were a resort county — just like the resort cities the state already allowed to impose local sales taxes by a vote of the residents — and they struggled to fund services for thousands of visitors who showed up in town but didn’t own property and didn’t pay property tax.
“It will increase revenues from tourists and transients who place a significant demand on services now paid by property taxpayers,” then-Sen. Clyde Boatright, R-Rathdrum, told the Senate in March of 1996. “It’s the right thing to do.”
Among those voting against the bill was then-Sen. Gary Schroeder, R-Moscow, who said it wasn’t fair to provide that option only for Kootenai County.
“We would like one, too,” he said.
The bill passed and Kootenai County voters approved a local half-cent sales tax that helped fund a new jail. But the law was challenged in court, and in 2002, the Idaho Supreme Court overturned it as an unconstitutional “local and special law” forbidden by the state Constitution. Laws are supposed to apply statewide, or to a broad category of locations or groups.
In 2003, North Idaho lawmakers joined with others from around the state to propose a new version that would apply to any county, but such a measure was a tough sell. After multiple tries, the bill that finally, narrowly passed allowed only a half-cent local sales tax for paying off debt for a jail, only with a two-thirds vote of county residents, and only for 10 years. Kootenai County tried multiple times to pass a local tax under the law, but couldn’t hit the two-thirds supermajority; Nez Perce County was the only Idaho county that successfully used the law to build a new jail.
In 2009, the law expired and the Legislature refused to extend it.
PROPERTY TAX RELIEF
Now, county and city officials, along with business leaders, are calling for the Legislature to again approve local-option sales tax authority.
“As you know, we are legislatively restricted on how we can raise revenue,” Twin Falls County Commissioner Don Hall told the Legislature’s Property Tax Working Group on Nov. 18. “For large capital projects, we have to use general obligation bonds, which exacerbate the property tax burden on our citizens. … I advocate for having the authority to ask our citizens if they would support a local-option sales tax for a specific capital project.”
Bannock County Commissioner Terrel Tovey told the legislative panel, “About 85 to 90% of all county functions are requirements of the state.”
Those range from prosecution of felony crimes to zoning regulations to solid waste disposal to jails, he said. “The list goes on and on.”
Tovey read from the opening lines of the 2003 bill, which expired on Dec. 31, 2009.
“The legislature hereby finds that the increase in growth of the population of certain counties and the influx of great numbers of people traveling to those counties for sport, recreation and business have created a drain on the county infrastructure that is borne to an inequitable degree by the property owners of those counties,” he read. “The legislature finds that it is both equitable and desirable to shift this tax burden in part from the property owners of the county to those visitors partaking of the services of the county.”
“The legislature also finds that this objective must be subject to the approval and supervision of the voters of the county both through their elected officials and through direct input at the ballot box,” the law stated.
Tovey said that’s a good description of Pocatello, where thousands travel through on the freeway every day. And it’s a good description of many parts of the state.
Hall said, “It is a mechanism that can provide relief to property tax. This is a user fee — people that come and utilize our services will be paying for them.”
Tovey commented later, “As a conservative Republican, user fees are the best option and we should do that first. These things that we’re required to do by the state aren’t going away.”
‘PATCHWORK OF SALES TAX’
House Speaker Scott Bedke, R-Oakley, has long been reluctant to support local-option taxes. He said in his rural part of the state, such taxes would mean rural folks who drive all the way in to Twin Falls to shop would be paying for improvements to that county through the local sales tax, rather than to the county where they live.
But backers of local-option taxes say shoppers and other visitors should share in the costs of the communities they patronize — not just where they own property — because they impact the areas where they shop.
Rep. Robert Anderst, R-Nampa, said, “The thing that is good about local option is that it’s transparent. If it’s done right, you develop a plan, you put that plan in front of the voters and the voters decide.”
However, he added, “The question becomes: What’s the threshold? Is it two-thirds, 60%, 50%? Constitutionally, to take on debt, it’s two-thirds.”
Rep. Gary Collins, R-Nampa, who chairs the House Revenue & Taxation Committee, has long been hesitant to support local-option taxes; he voted against the 2003 bill. But he said of bringing back the restrictive, jail-only proposal, “That’s something we could look at.”
Rep. Brent Crane, R-Nampa, said he’s faced local-option proposals over the years and sought counsel from the late Rep. Dolores Crow, R-Nampa, who long chaired the House committee, until 2006, that Collins chairs now.
“She said, ‘You’ve got to tread lightly — you don’t want a patchwork sales tax throughout the state,’” Crane said.
He said he’d only support a local-option tax proposal if it contained substantial restrictions: It’d require a two-thirds vote, apply only countywide, and the Idaho Constitution would be amended to enshrine those requirements so they can’t change. A constitutional amendment requires two-thirds passage in each house of the Legislature plus a majority vote of the people in the next general election.
“She said, ‘If it’s got that built into it, that’s a solid piece of legislation,’” Crane recalled.
The constitutional amendment proposal is one Moyle also has backed in past years. But he’s now opposing any move toward local option.
“It’s crazy, and all it will do is add to the problem,” he told the crowd at a recent town hall in Nampa organized by the House GOP caucus. “I think that local-option ought to stay right where it is right now, and that’s dead.”
PROS AND CONS
Local-option taxes in some form or another are common in most states, said Lucy Dadayan, a senior research associate with the Tax Policy Center, which is operated by the Urban Institute and the Brookings Institution.
Most common are local hotel taxes, she said, followed by local sales tax and local income taxes.
Idaho allows for local hotel taxes if local voters form a taxing district called an auditorium district. The state currently has three of those in greater Boise, Idaho Falls and Pocatello/Chubbuck. A group of volunteers in Nampa is working to put an auditorium district up for a vote next May.
But only small resort cities are permitted to ask local voters to impose local sales taxes. They’re allowed to limit the taxesto just lodging, alcohol by the drink and restaurant food, or apply them to everything that’s subject to the sales tax.
Dadayan said 38 states allow local governments to levy a local sales tax, including one, Alaska, that has no state sales tax. Thirteen states allow local governments to levy a local income tax.
“Overall, there are advantages and disadvantages associated with local-option tax,” Dadayan said. “The main advantages are that local-option taxes help localities to diversify their tax revenue structures, rely less on property taxes and also rely less on state aid. Local-option taxes also give more autonomy to local jurisdictions.”
“The main disadvantage, of course, is higher cost of living in a given local jurisdiction and heightened disparities among local jurisdictions,” she said.
Dadayan said one advantage to relying on property taxes as the main funding source for local government is that it’s a “far more stable revenue source compared to income tax or sales tax, and doesn’t fluctuate as much during economic downturns.”
She said those are all concerns that localities should weigh when deciding whether local-option taxes are a good choice for them.
But in Idaho, lawmakers have foreclosed that possibility for most local jurisdictions.
Idaho legislators like to push back against federal authority — but they jealously maintain their own authority over taxing when it comes to the local governments below them, said Stephanie Witt, professor of political science at Boise State University.
“Many other states allow local option taxation,” Witt said. “I have never understood the opposition to it here.”
Longtime Idaho political observer and BSU emeritus professor Jim Weatherby said, “State control is more highly valued than local control in Idaho. Business interests prefer to lobby one set of policy makers at the state level rather than a multitude of local officials.” Plus, he said, “There is also rural hostility toward granting larger cities local option taxation.”
Kootenai County Sheriff Ben Wolfinger noted that when his county built a $12 million jail expansion in 2000 using local-option sales taxes, it only took three and a half years to pay off. “It’s a huge benefit,” he said. “You’re having other people help pay for it.”
He added, “Let’s face it, jails aren’t sexy. But they’re a critical part of infrastructure in a growing community.”
Hall, the Twin Falls county commissioner, said, “We’re not asking the Legislature to authorize us to impose a local option tax. We’re asking the Legislature to give us the authority to ask our taxpayers, our citizens, if they want to impose a local option tax. … It would take the tax burden off the people who own property within our county.”