A unanimous Idaho Supreme Court has rejected an appeal from Chandler’s, a steakhouse and seafood restaurant in Boise, over the state Tax Commission’s interpretation of a sales tax rule; as a result, Chandler’s will have to pay tens of thousands in back sales taxes, plus attorney fees for the appeal. At issue were tips that are automatically added into patrons’ bills, for banquet or room service meals or for groups of six or more dining in the restaurant. After an audit, the Tax Commission contended that those tips were subject to the sales tax, because they weren’t voluntary, like most tips, but mandatory.
In 2011 – after the audit – the Idaho Legislature changed the law to make those tips sales tax-exempt, whether they’re voluntary or mandatory, as long as the money goes to the employees involved in preparing or serving the meals, not to the restaurant.
Chandler’s argued that the 2011 change in the law, which lawmakers made retroactive to Jan. 1, 2011, was actually just a clarification of what the law meant all along. But the justices rejected that argument. “The 2011 Amendment did not merely clarify Idaho Code section 63-3613 as it existed all along; rather, it changed the law,” wrote Justice Warren Jones. “This Court has held that when the Legislature amends a statute, it must be presumed that the Legislature intended the statute to have a different meaning from the pre-amendment version. … Moreover, the inclusion of a retroactive effective date indicates that the Legislature intended the 2011 Amendment to take effect from that date forward.”
The 2011 amendment, he wrote, changed Idaho’s sales tax law “by rendering a large swath of service charges, including mandatory gratuities, tax-exempt.”
You can read the full 15-page decision here.