Idaho ballot proposal would lower sales tax, cut exemptions

BOISE – The League of Women Voters of Idaho is launching a ballot initiative drive to lower Idaho’s sales tax from 6 percent to 5 percent, while eliminating some exemptions and expanding the tax to cover most services.

The changes would raise $424 million more a year that could be spent on schools.

If the measure makes the 2016 ballot, it would give voters a chance to restructure Idaho’s exemption-riddled sales tax system. Idaho’s 6 percent sales tax currently raises about $1.5 billion a year in gross collections, while the amount of exemptions is tallied at more than $2 billion, according to the state Division of Financial Management.

But the League could have a tough sell in expanding the sales tax to the broad range of services, including construction, legal advice and haircuts, and big-money interests may fight the loss of their existing exemptions.

“I applaud them – I think their heart is clearly in the right place here in terms of making a fair tax structure, but I think it’s going to be a really hard sell,” said Boise State University political scientist emeritus Gary Moncrief, an expert on elections and initiatives.

“We’ve had a lot of trouble in this state getting exemptions closed in the past,” Moncrief said.

Repeated attempts by the state Legislature over the years to review existing sales tax exemptions have all failed. Instead, lawmakers have continued to enact new ones each year.

Moncrief said the initiative process made more sense than asking the Legislature for tax changes.

“There’s no way this is getting through the Legislature,” he said.

The League’s initiative, titled “Fair Share Idaho,” would eliminate 22 current sales tax exemptions on July 1, 2017, and subject 12 services to sales taxes. Targeted exemptions include sales of funeral caskets, which would generate $1.6 million a year in sales taxes, and Idaho National Laboratory research and development purchases, at $6.2 million a year.

Others include goods purchased by contractors to install into real property in non-taxing states, $5.1 million; research and development equipment, $7.2 million; interstate trucks, $8.6 million; and remotely accessed digital media, $8.5 million.

The initiative also would remove the sales tax exemption for lottery tickets; apply the tax to construction labor; and impose it on vending machine sales, auto manufacturer rebates and purchases by senior centers.

The biggest dollar amounts come from services that would be newly subject to the sales tax, including transportation of freight and passengers, $47 million; information services, $83.5 million; repairs, $48.2 million; professional services, including legal, accounting, architectural and consulting services, $254.4 million; and business services, $133.1 million.

Most states tax few services, according to Jared Walczak, a policy analyst with the Tax Foundation. “Some will tackle a certain number of personal and professional services,” Walczak said. This year, three states – Pennsylvania, Illinois and Maine – have “looked very seriously at substantial sales tax base broadening,” though none have enacted it.

Idaho already taxes some categories of services, including lodging, recreation, admissions, restaurant meals and printing.

“Our members said sales tax exemptions for basic human needs should be protected,” said Betsy McBride, state advocacy chair for the League of Women Voters. Left untouched would be sales tax exemptions for medical care, churches, home heating and education.

“If they have an accountant or a personal massage therapist, there will be new sales tax,” McBride said. “But for the average Idaho family who spends most of their money on groceries, and shoes for their kids, and hamburgers, their tax is going to be lower.”

The League cited Idaho’s near-last national ranking for school funding, and said the current system doesn’t require everyone to pay their fair share.

“If multiple interests and business sectors avoid paying taxes, the tax base shrinks and everyone has to pay more,” the group said in its Frequently Asked Questions about the ballot measure.

To qualify for the November 2016 ballot, the League would have to collect at least 47,623 valid voters’ signatures by April 30, including signatures from 6 percent of voters in each of 18 Idaho legislative districts.