High court lets two Idaho tax increases stand

BOISE – The Idaho Supreme Court has tossed out a lawsuit claiming the 2003 increases in sales and cigarette taxes were unconstitutional.

However, the justices didn’t rule on one of the lawsuit’s main points: whether the state constitution’s requirement that all tax legislation originate in the House of Representatives makes it unconstitutional for the state Senate to substantially amend a tax bill, leaving only its bill number the same, and still say it had started in the House.

That’s what senators did in 2003 with the cigarette tax bill. HB264 started in the House that year as something entirely different – a bill adjusting details of the “occupancy tax,” which determines when property taxes are assessed on newly occupied property.

When it emerged from the Senate, however, it was a bill to nearly double the state’s cigarette tax.

“I don’t think that’s correct,” said House Tax Chairwoman Dolores Crow, R-Nampa. “It didn’t seem proper to me, and it certainly wasn’t a very ethical thing to do.”

Ralph Gallagher, a smoker from Nampa, filed suit, but a lower court ruled he had no standing to sue because he wasn’t affected any differently from any other smoker.

The justices backed that decision, citing a technical issue regarding the incidence of the tax falling on cigarette wholesalers.

“Gallagher argued that such an amendment must not amount to a wholesale substitution of the bill, leaving only the bill number intact,” Justice Roger Burdick wrote for a unanimous court.

That argument, he wrote, “has not been addressed.”

Gallagher made the same argument about the sales tax bill, HB400, which started in the House in 2003 as a bill to raise Idaho’s sales tax by half a cent for a year.

But once the Senate had amended it, it became a full-cent, two-year tax increase. That increase, from 5 percent to 6 percent, was signed into law, but it expires Friday, when the tax will drop back to 5 percent.

The Senate version of the bill raised $253 million more in taxes than the original House bill would have, so Gallagher argued it was a revenue bill that had originated in the Senate.

The justices disagreed. “This court has already explicitly held that the Senate may amend House-originated revenue bills,” Burdick wrote.

“The sales and use tax originated in the House. The Senate made amendments and the House approved. This sales and use tax … was constitutionally enacted.”

Gallagher, a hospital security guard, said in 2003 that he filed the lawsuit after he had noticed the sharp increase in cigarette taxes and wondered whether it had been enacted properly.

He was represented by former Idaho Supreme Court Justice Robert Huntley.

Huntley said Monday that his client had not seen the ruling and he had no comment.

He filed the case as a class action on behalf of Gallagher and all taxpayers in Idaho.

It didn’t ask that the taxes collected be paid back but asked the courts to declare both tax increases unconstitutional and then give the Legislature a chance to pass new bills through appropriate channels or consider alternatives to raise the revenue.

The Supreme Court declined to award attorney fees to each side in the case, ruling, “This case was not brought frivolously or without foundation.”

After he had filed the lawsuit, Gallagher said, “I want them to be accountable and follow the rules, just like all of us have to.”