Could a 1995 Idaho ballot initiative cut the sales tax rate from 5% to 3% by amending Idaho Code § 63-3619 alone, while leaving the 5% use tax in place?

Plain-English summary

Mary J. Charbonough filed a companion initiative on September 13, 1995 to reduce the Idaho sales tax rate from 5% to 3%. As with her food-water-clothing exemption initiative reviewed the same day, this proposal amended Idaho Code § 63-3619 (sales tax) without touching Idaho Code § 63-3621 (use tax).

Deputy AG Brian G. Nicholas, writing for AG Alan G. Lance, found a serious Commerce Clause problem. If only the sales tax rate dropped to 3% and the use tax remained at 5%, Idaho would have two different rates depending on whether the seller was in-state or out-of-state. Under § 63-3621(c), the use tax does not apply when the retailer collects sales tax from the customer. So an Idaho retailer would collect a 3% sales tax; an out-of-state retailer (or an Idaho consumer self-remitting use tax) would owe 5%. That disparity discriminates against interstate commerce.

The U.S. Supreme Court's 1994 decision in Associated Industries of Missouri v. Lohman, 511 U.S. 641, 114 S. Ct. 1815 (1994) made the analysis explicit. Missouri's combination of statewide and local sales taxes plus a higher use tax was struck down: "Where the use tax exceeds the sales tax, the discrepancy imposes a discriminatory burden on interstate commerce. Out-of-state goods brought into such a jurisdiction are subjected to a higher levy than are goods locally." The compensatory-tax doctrine articulated in Henneford v. Silas Mason Company, 300 U.S. 577 (1937) requires that "when the account is made up, a stranger from afar is subject to no greater burden . . . than the dweller within the gates."

The opinion noted the same analysis applied under the North American Free Trade Agreement and the General Agreement on Tariffs and Trade, both of which incorporate national-treatment obligations that mirror the Commerce Clause's nondiscrimination rule.

The fix was simple: amend Idaho Code § 63-3621 in parallel to lower the use tax to 3% as well. Past Idaho legislatures had handled rate changes this way: 1984 Sess. Laws ch. 287 (3% to 4%) and 1987 Sess. Laws ch. 31 (4% to 5%) both moved sales and use rates together. The petitioners could fix the constitutional problem by following the same pattern.

The opinion also raised the same effective-date concern as in the food-water-clothing certificate: with no proposed effective date, the rate change would take effect when the Governor proclaimed the initiative passed under § 34-1813, leaving retailers and the Tax Commission no time to prepare. An effective date at the beginning of a calendar quarter would avoid mid-period reporting complications.

Currency note

This opinion was issued in 1995. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Why is a sales-tax / use-tax mismatch a Commerce Clause problem?

Because the Commerce Clause prohibits state taxes that discriminate against interstate commerce. If Idaho taxes in-state sales at 3% and effectively taxes out-of-state purchases at 5% (whether collected by the seller or remitted by the consumer), out-of-state goods bear a higher tax burden than in-state goods. Lohman framed this as a violation of the basic compensatory-tax requirement: a use tax must compensate for the sales tax burden borne by intrastate commerce, not exceed it. The discrepancy creates an incentive for Idaho consumers to buy from in-state sellers and a disincentive for out-of-state sellers to compete in the Idaho market.

What is the compensatory-tax doctrine?

The compensatory-tax doctrine, articulated in Henneford v. Silas Mason Company, 300 U.S. 577 (1937), permits a state use tax that mirrors the state's sales tax: it makes interstate commerce bear the same burden as intrastate commerce, no more and no less. The Lohman test asks: when the account is made up, does a "stranger from afar" pay the same total state tax as a "dweller within the gates"? If the use tax exceeds the sales tax, the answer is no, and the use tax becomes an unconstitutional discrimination against interstate commerce.

How would NAFTA and GATT come into play?

NAFTA and GATT both contain national-treatment obligations that prohibit signatories from discriminating against goods from other signatory countries in favor of domestically produced goods. State-tax discrimination against out-of-state (in this case, out-of-Idaho but potentially also out-of-United-States) commerce can implicate those obligations. The opinion's brief mention reflects the broader trade-law framework that complements the federal Commerce Clause analysis.

What's the simple fix?

Amend Idaho Code § 63-3621 in the same initiative to lower the use tax to 3% in parallel with the sales tax cut. The 1984 and 1987 legislative changes (raising rates from 3% to 4% and then from 4% to 5%) had each moved both rates in lockstep, and the same approach would work in the other direction. Once the rates match, the compensatory-tax doctrine is satisfied and the Commerce Clause is no longer a problem.

Why didn't the petitioners just do this in the first place?

Drafting a tax initiative is harder than it looks. Many citizen-drafted initiatives focus on the headline statute (the sales-tax imposition section) without considering the connected use-tax statute, the exemption statutes, the income-tax-credit interactions, or the implementation timing. The certificate-of-review process exists precisely to catch these issues before the initiative goes out to circulation, when changes are still possible without invalidating signatures.

Background and statutory framework

Idaho's sales and use tax framework rests on two complementary statutes: Idaho Code § 63-3619 imposes the sales tax (then 5%) on retail sales within the state, and Idaho Code § 63-3621 imposes a use tax (then 5%) on the storage, use, or other consumption of tangible personal property in the state when sales tax has not been collected. The use tax catches purchases from out-of-state sellers, mail-order companies, and sellers who otherwise lack a sales-tax collection obligation in Idaho.

The 1995 initiative was filed at the end of a decade-long debate about Idaho's sales tax rate, which had grown from 3% to 4% in 1984 and from 4% to 5% in 1987 to fund education and other state services. The petitioners apparently wanted to roll the rate back to its pre-1984 level. The technical drafting flaw the AG identified was the same kind of flaw seen in many citizen-drafted tax initiatives: not following the legislature's practice of amending sales and use rates together.

Citations

• U.S. Const. art. I, § 8 (Commerce Clause)
• Idaho Code §§ 34-1809, 34-1813, 63-3619, 63-3621
• Associated Industries of Missouri v. Lohman, 511 U.S. 641, 114 S. Ct. 1815 (1994)
• Henneford v. Silas Mason Company, 300 U.S. 577 (1937)
• 1984 Sess. Laws, ch. 287; 1987 Sess. Laws, ch. 31

Source

• Landing page: https://www.ag.idaho.gov/office-resources/opinions/
• Original PDF: https://ag.idaho.gov/content/uploads/2018/04/C101395_a.pdf

Original opinion text

October 13, 1995
The Honorable Pete T. Cenarrusa
Secretary of State
HAND DELIVERED
Re: Certificate of Review; Sales Tax Initiative—Sales Tax Rate

Dear Mr. Cenarrusa:

An initiative petition was filed with your office on September 13, 1995. Pursuant to Idaho Code § 34-1809, this office has reviewed the petition.

MATTERS OF SUBSTANTIVE IMPORT

The proposed initiative provides for an amendment to Idaho Code § 63-3619 to reduce the sales tax rate from 5% to 3%. The initiative does not propose to make any change to the rate of the complementary use tax, which raises a question of whether it can survive a Commerce Clause challenge. To the extent there are Commerce Clause violations, there are NAFTA and GATT violations.

ANALYSIS UNDER THE CONSTITUTION

The proposed initiative amends Idaho Code § 63-3619 to reduce the tax rate for all transactions subject to sales tax. However, the proposed initiative has not addressed the use tax rate of 5% which is controlled by Idaho Code § 63-3621. If it is adopted Idaho will be a jurisdiction with two varying tax rates, a 3% rate on all items subject to sales tax, and a 5% rate on all items subject to use tax.

The net effect of the resulting statutory scheme is to discriminate against out-of-state sellers. In the typical situation, the sales tax applies when the sale is made by an in-state seller, and the use tax applies when the sale is made by an out-of-state seller to an Idaho resident and the goods are shipped to Idaho. The United States Constitution prohibits discrimination against interstate commerce. U.S. Const. Art. I, § 8, cl. 3; Associated Industries of Missouri v. Lohman, 511 U.S. 641, 114 S. Ct. 1815 (1994).

In Lohman, the Court ruled Missouri's use tax scheme violated the Commerce Clause. The Supreme Court held that to be constitutional a use tax must be a compensatory tax designed to make interstate commerce bear a burden already born by intrastate commerce. The Court stated that the end result under the compensatory tax theory is that "when the account is made up, a stranger from afar is subject to no greater burden . . . than the dweller within the gates." 114 S. Ct. at 1821, citing Henneford v. Silas Mason Company, 300 U.S. 577, 584 (1937).

The Court held Missouri's use tax scheme ran afoul of the basic requirement: "Where the use tax exceeds the sales tax, the discrepancy imposes a discriminatory burden on interstate commerce. Out-of-state goods brought into such a jurisdiction are subjected to a higher levy than are goods locally."

If enacted, the initiative would result in a 3% tax on in-state sales and a 5% tax rate on purchases of goods from outside the state. Thus, the taxes are not compensatory and run afoul of the Commerce Clause. The petitioners can remedy the constitutional defect by simply amending Idaho Code § 63-3621 to lower the use tax rate to 3%.

ISSUES RELATING TO IDAHO'S SALES TAX STATUTES

On two prior occasions, 1984 and 1987, the Idaho Legislature has amended the rate of the sales and use taxes. In both instances, the legislature amended both Idaho Code § 63-3619 and § 63-3621 to make the sales and use tax complementary. If the petitioners would amend the initiative to make the sales and use tax rates consistent, the proposed initiative would comport with past legislative practice and accomplish the apparent purpose of the petitioners.

EFFECTIVE DATE

The petitioners have not proposed an effective date for the initiative. Experience indicates it is better to have the effective date at the beginning of a calendar quarter.

CONCLUSION

The petitioners of the proposed initiative need to keep the sales and use taxes consistent. Otherwise, the initiative could face serious constitutional problems as a violation of the United States Commerce Clause as well as a violation of both NAFTA and GATT.

I hereby certify that the enclosed measure has been reviewed for form, style and matters of substantive import and that the conclusion set forth above has been communicated to the petitioner, Mary J. Charbonough.

Yours very truly,
ALAN G. LANCE
ATTORNEY GENERAL

Analysis by:
BRIAN G. NICHOLAS
Deputy Attorney General
Civil Litigation Division