What did Idaho's AG say about the 2011 ballot initiative that would broaden the sales tax base to services and lower the rate to 5%?
Plain-English summary
A petition filed with Secretary of State Ben Ysursa on December 6, 2011, would have broadened Idaho's sales tax base to include services and lowered the rate from 6% to 5%. The expansion came through a proposed Idaho Code § 63-3612(k) defining sales to include contracts for "applying, installing, cleaning, altering, improving, decorating, treating, storing, or repairing real property." That language would have brought a wide range of construction and improvement contracts into the sales tax base.
Attorney General Lawrence Wasden's certificate flagged a problem the petitioners likely had not anticipated. Idaho Code §§ 63-3622A and 63-3622O exempt sales to governmental entities from sales tax. Combined with the new § 63-3612(k), that meant materials and labor used on government contracts would escape sales tax entirely. Under existing law, contractors paid sales tax on materials they bought and used on government projects. Under the proposal, the contracts themselves would be exempt sales to government, and the underlying materials would also escape tax. The certificate listed concrete examples: contracts at the Idaho National Laboratory (INL), Mountain Home Air Force Base, and state and federal highway projects would all become tax-free transactions. That would punch a significant hole in the revenue base the rate-lowering relied on.
The certificate did not address the rate-reduction component on its own merits. It also did not take a position on the policy choice. The AG's role was to flag the legal and structural drafting issues; the petitioners would decide whether to revise.
Currency note
This opinion was issued in 2011. 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.
Background and statutory framework
Sales tax base broadening is a recurring Idaho ballot proposal. The core trade-off is rate cuts (visible to consumers) in exchange for taxing services that previously escaped tax. The 2011 petition went further by including contracts for real-property improvements, a category that historically has been carved out from general sales taxes in many states.
The interaction with existing government-sales exemptions illustrates a common problem in tax-base expansion drafting: every new "sale" added to the base inherits whatever exemptions the existing code grants. The petitioners would have needed to either narrow the new § 63-3612(k) or carve government contracts out of the existing exemptions to avoid the windfall the AG identified.
Common questions
Q: Did this initiative make the ballot?
A: The certificate doesn't speak to later progress. Idaho did not adopt this approach to sales tax reform during this period.
Q: Why did the government-contractor windfall matter?
A: Federal facilities like INL and Mountain Home AFB generate massive construction spending. Taxing the materials but exempting the contracts (under existing law) at least captured part of that spend. Exempting both would lose substantial revenue, undercutting the petition's rate-reduction math.
Q: Could the petitioners fix this with a single amendment?
A: Yes. They could either expressly carve government contracts out of the new § 63-3612(k), or amend §§ 63-3622A and 63-3622O to keep tax on contractor materials.
Q: Is taxing services a good idea?
A: That's a policy question outside the AG's certificate-of-review role. The certificate addresses legality and drafting only.
Citations and references
Statutes:
- Idaho Code § 34-1809 (initiative review)
- Idaho Code § 63-3612 (sales tax definitions)
- Idaho Code §§ 63-3622A, 63-3622O (governmental exemptions)
Source
- Landing page: https://www.ag.idaho.gov/office-resources/opinions/
- Original PDF: https://ag.idaho.gov/content/uploads/2018/04/C121211.pdf
Original opinion text
STATE OF IDAHO
OFFICE OF THE ATTORNEY GENERAL
LAWRENCE G. WASDEN
December 12,2011
The Honorable Ben Ysursa
Secretary of State
HAND DELIVERED
RE:
Certificate of Review
Proposed Initiative to Broaden the Sales Tax Base and Lower the Sales Tax Rate
Dear Secretary of State Ysursa:
An initiative petition was filed with your office on December 6, 2011. Pursuant to Idaho
Code § 34-1809, this office has reviewed the petition and prepared the following advisory
comments. Given the strict statutory timeframe in which this office must review the petition, our
review can only isolate areas of concern and cannot provide in-depth analysis of each issue that
may present problems.
Further, under the review statute, the Attorney General's
recommendations are "advisory only." The petitioners are free to "accept or reject them in
whole or in part." The opinions expressed in this review are only those which may affect the
legality of the initiative. This office offers no opinion with regard to the policy issues raised by
the proposed initiative, nor the potential revenue impact to the state budget.
BALLOT TITLE
Following the filing of the proposed initiative, our office will prepare short and long
ballot titles. The ballot titles must impartially and succinctly state the purpose of the measure
without being argumentative and without creating prejudice for or against the measure. While
our office prepares titles for the initiative, petitioners may submit proposed titles for
consideration. Any proposed titles should be consistent with the standard set forth above.
MATTERS OF SUBSTANTIVE IMPORT
The purpose of the proposed initiative is to broaden the sales tax base to include services
and lower the rate from six percent (6%) to five percent (5%). Included within the definition of
sales are contracts for applying, installing, cleaning, altering, improving, decorating, treating,
storing, or repairing real property. See proposed Idaho Code § 63-3612(k). This provision has
the effect of making many contracts for the improvement of real property retail sales subject to
P.O. Box 83720, Boise, Idaho 83720-0010
Telephone: (208) 334-2400, FAX: (208) 854-8071
Located at 700 W. Jefferson Street, Suit 210
Secretary of State Ysursa
December 12, 2011
Page 2 of4
sales tax. Idaho Code §§ 63-3622A and 63-36220 prohibit or exempt the imposition of taxes on
sales to governmental entities, which means the proposed initiative will completely exempt
materials and hibor used on government contracts. Under present law, materials used on
government contracts by contractors are taxed. Contractors working at the Idaho National
Laboratory (INL) , Mountain Home Air Force Base, and contractors building or repairing
highways and other roads are just examples of contracts that would completely escape taxation
under the petitioners' proposal.
Alternatively, the petitioners could consider amendments similar to states like
Washington, which treat most contracts as retail sales, but for government contracts, the
contractor is taxed on the materials used or consumed.
The proposed initiative may, in certain instances, tax the sale of new homes. If a builder
builds a home that he intends to sell upon completion, he may be able to purchase the materials
and the subcontract services for resale. Once the house is complete and he sells it, this may be a
retail sale. Sales of existing homes are not considered to be retail sales pursuant to the initiative.
The proposed statute does not exempt any services except for those services consumed in
a production process. Idaho Code § 63-3622D. There are many other statutes that provide
exemptions of tangible personal property but would not exempt related services. For example,
the occasional sale exemption exempts the transfer of tangible personal property between related
entities. The proposed initiative would impose tax on service transactions between related
entities. There are other exemptions that similarly exempt transactions involving tangible
personal property, but related-service transactions would be taxed under the initiative. Some
obvious examples include the pollution control exemption, the research and development
exemption, and the logging exemption. The drafters of the initiative have the prerogative to
either provide for or not provide for exemptions. However, since the proposed initiative does not
remove any of the exemptions for sales of tangible personal property, the petitioners may wish to
consider some consistency for service-related transactions.
Though not classified as an exemption, the initiative does not impose tax on services
provided by" ... licensed medical doctors, dentists, osteopaths, physical therapists, optometrists,
physician assistants, midwives, podiatrists, hospitals, nursing homes, chiropractors, nurse
practitioners, naturopaths, or psychologists." See proposed Idaho Code § 63-3614A. I In a broad
sense, the drafters are not taxing medically-related services. The method they have chosen to
reach that result is to exclude services provided by certain medically-related professionals. The
services provided by these professionals are not subject to sales tax regardless of whether the
services are medically related. For example, if a physical therapist opened a day care at her
business location that she operated in conjunction with her physical therapy business, the child
care may be exempt from sales tax even though child care provided by a licensed day care would
be taxable under the proposed statute.
1 The drafters inserted "midwives" twice in the sentence identifying the professionals who are providing
services for purposes of the tax on services.
Secretary of State Ysursa
December 12, 2011
Page 3 of4
The drafters of the initiative have included several sections to source the sale of tangible
personal property and services to certain locations? These sourcing rules seem unduly complex
for the state sales tax and mayor may not be consistent with other provisions of the Idaho sales
tax law. Sourcing is defined as the point at which a retail sale occurs. The statute then provides
a series of rules to determine the location of the sale. However, if the sale occurs in Idaho, then
the transaction is subject to sales tax. Under present law, if delivery of tangible personal
property occurs in Idaho, then the sale takes place in Idaho. If the sale takes place in another
state, and ifno sales tax is charged, then use tax is due if the property is used in Idaho.
The sourcing rules for services are inconsistent. For example, proposed Idaho
Code § 63-3642(1)(a) provides that if the service is received by the purchaser at a business
location of the seller, the sale is sourced to that location. Paragraph (1)(b) provides that if the
service is not received at the business location of the seller, it is sourced to the location where
received. In short, pursuant to subsection (1), the sale is sourced to the location where the
service is received.
Subsection (5) of proposed Idaho Code § 63-3642 introduces some new terms for
sourcing of services. Pursuant to this provision, the sale is sourced to Idaho if the consumption
of the service occurs i~ Idaho, even if the service is performed outside Idaho. These provisions
are confusing. Under one provision, the service is sourced to Idaho if the service is received in
Idaho, whereas under a second provision, the service is sourced to Idaho if it is consumed in
Idaho. The provision creates a conflict between the terms "receipt" and "consume." If an Idaho
mechanic repairs a car belonging to an Oregon resident at the mechanic's business location in
Idaho, the service is performed in Idaho and, presumably, the receipt of the service occurs in
Idaho. However, if the Oregon resident drives his car back to Oregon where he keeps it and uses
it, the services may be said to be consumed in Oregon. The petitioners may want to clarify the
sourcing rules for services.
The proposed statutes appear to raise revenue for the State of Idaho. The initiative does
not address revenue impact, but since it only lowers the rate to five percent (5%) and
substantially broadens the tax base, there is a likelihood that the initiative will raise revenue.
This raises the question of whether an initiative that raises revenue may not be allowed because it
is contrary to art. III, sec. 14 of the Idaho Constitution, which provides that all revenue-raising
bills originate in the House. At a minimum, there is an argument that an initiative to raise
revenue is prohibited by art. III, sec. 14, which provides that "[b]ills may originate in either
house, but may be amended or rejected in the other, except that bills for raising revenue shall
originate in the house ofrepresentatives.,,3
By using the term "bill," the drafters of the Constitution implied that the provision only
applies to legislative enactments. An initiative, as allowed for in art. III, sec. 1, is a process for
the people through signatures and voting to enact legislation. The history of the federal
Origination Clause is all about balance between the two legislative houses. Idaho seems to have
See proposed Idaho Code §§ 63-3642 and 63-3643.
We are unaware of any case authority, and we are unsure whether a court has ever addressed the issue,
but we believe we are compelled to raise the issue for the petitioners to consider.
2
3
Secretary of State Ysursa
December 12,2011
Page 4 of4
just copied the federal practice. The Idaho Constitutional Convention in 1889 adopted this
section without debate or amendment. At the federal level, the clause had two motives. First, it
put the fiscal authority in the House of Representatives, which was seen as being the house
closest to the people. Second, it acted as a counterbalance to the special powers granted only the
Senate - the power to advise and consent to Presidential appointments and to ratify treaties. 4
Thus, the rationale for requiring revenue-raising measures in the House seems inapplicable to
initiatives. If in fact one of the motives is to give the power to the body closest to the people,
then it seems logical that the initiative process could be used to raise revenue.
CERTIFICATION
I HEREBY CERTIFY that the enclosed measure has been reviewed for form, style, and
matters of substantive import. The recommendations set forth above have been communicated to
the Petitioner via a copy of this Certificate of Review, deposited in the U.S. Mail to Robert C.
Huntley, The Huntley Law Firm, PLLC, P. O. Box 2188, Boise, Idaho 83701.
Sincerely,
LAWRENCEG. WASDEN
Attorney General
Analysis by:
WILLIAM A. VON TAGEN
Deputy Attorney General
4
The Federalist No. 66 (Alexander Hamilton).