What did Idaho's AG flag about the 2013 ballot initiative to overhaul state sales tax?

Plain-English summary

A petition filed with Secretary of State Ben Ysursa on August 26, 2013, would have made several substantive changes to the Idaho sales tax statutes. The first issue Attorney General Lawrence Wasden's certificate flagged was structural: the petitioners drafted against an outdated version of the statutes, missing amendments from the 2011, 2012, and 2013 legislative sessions. Petitioners would have to revise to track current law before circulating signatures.

On the substance, the certificate raised several drafting concerns:

• Personal-property versus sales-tax provision mismatch. Section 1's proposed amendment to Idaho Code § 63-602L addressed personal-property tax, not sales tax. Personal-property tax is a separate tax. The petitioners likely wanted to omit this section if their goal was sales-tax-only reform.
• Computer software and digital goods bifurcation. Section 2 pulled "computer software" out of the tangible-personal-property definition in § 63-3616 and created a separate taxable category, then defined "digital goods" again separately. Historically digital goods fell under the computer-software definition as "information stored in an electronic medium." Treating them as separate could create internal inconsistencies and definitional gaps. Both items would still be taxable, so the issue might be immaterial in practice, but the sourcing sections would carry the same drafting risk.
• Real property contracts. Section 4 would shift the sales tax obligation from contractor to purchaser when real property contracts became taxable under proposed § 63-3612(2)(k). This could mean newly built homes are taxed as retail sales while existing-home sales are not, since a builder-developer could buy materials and subcontract services for resale. The certificate flagged this as an unintended consequence likely to surprise homebuyers.
• Sourcing changes. Proposed amendments to § 63-3613 raised additional sourcing questions for the rapidly changing digital-goods industry.

Currency note

This opinion was issued in 2013. 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 initiatives are technically demanding because the statutes interlock with each other and with regulatory definitions across the Idaho tax code. The 2013 petition tried to expand the sales tax base to cover computer software, digital goods, and real-property construction contracts. Wasden's certificate didn't take a policy view, but flagged the drafting traps that would trip up the proposal in court or in practice.

The certificate's biggest single warning was procedural. Initiative drafters must work from the current version of the statute they are amending. When the legislature amends the underlying statute mid-drafting, the petition's text becomes incoherent unless updated. The petition here had to be re-aligned with the 2011-2013 legislative changes before circulation.

Common questions

Q: Did the initiative make the ballot?
A: The certificate is silent on what happened to the petition after this review. Idaho did not adopt sweeping sales-tax reform by initiative in this period.

Q: Why was the personal-property tax provision a problem?
A: It was simply unrelated. Idaho Code § 63-602L exempts certain intangible personal property from property tax, which is a tax on owning property, not on selling it. Including the amendment in a sales-tax initiative could confuse voters and create unintended limits on the initiative's scope.

Q: What's the practical concern with bifurcating computer software and digital goods?
A: If the two categories overlap or have ambiguous edges, the same product might be classified differently for tax purposes depending on which definition a tax assessor applied first. The certificate suggested making digital goods a subset of computer software if that was the petitioner's intent.

Q: Could the legislature later fix any drafting problems voters approved?
A: Yes, but with constitutional limits. Idaho voter-adopted statutes can be amended by the legislature without further voter approval, though doing so would be politically costly if voters had just approved the measure.

Citations and references

Statutes:
- Idaho Code § 34-1809 (initiative review)
- Idaho Code § 63-602L (intangible personal property exemption)
- Idaho Code § 63-3612(2)(k) (real property contracts)
- Idaho Code § 63-3613 (sourcing)
- Idaho Code § 63-3616 (tangible personal property)

Source

• Landing page: https://www.ag.idaho.gov/office-resources/opinions/
• Original PDF: https://ag.idaho.gov/content/uploads/2018/04/C09242013.pdf

Original opinion text

STATE OF IDAHO
OFFICE OF THE ATTORN EY GENERAL
LAWRENCE G. WASDEN

September 24, 2013

The Honorable Ben Ysursa
Idaho Secretary of State
Statehouse
VIA HAND DELIVERY
RE:

Certificate of Review
Proposed Initiative Amending the Idaho Sales Tax Statutes

Dear Secretary of State Ysursa:
An initiative petition was filed with your office on August 26, 2013 . Pursuant to Idaho
Code § 34-1809, this office has reviewed the petition and prepared the following advisory
comments. Given the strict statutory timeframe within which this office must review the
petition, our review can only isolate the 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 them in whole or in
part." 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, this office will prepare short and long
ballot titles. The ballot titles should 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

One overarching complication of this review is that Petitioners used a prior version of the
statutes when constructing the proposed initiative ("initiative"). Thus, it does not include many
recent amendments made to the relevant statutes by the 2011, 2012, and 2013 legislative
sessions. Petitioners will need to revise the initiative to include the most recent version of the
relevant statutes.

P.O. Box 83720, Boise, Idaho 83720-0010
Te lephone: (208) 334 -2400, Fax: (208) 854-8071
Located at 700 W. Jefferson Street, Suite 210

The Honorable Ben Y sursa
September 24, 2013
Page 2of5
The proposed amendment in Section 1 to Idaho Code § 63-602L will not affect Idaho
sales tax because that code section relates to personal property tax. This code section exempts
from property taxation certain intangible personal property. Personal property tax is a distinct
tax that is applied separately from Idaho's sales tax. Petitioners may want to omit this
amendment in order to limit the effect of the initiative to Idaho sales tax only, ifthat is the intent
of the initiative.
Section 2 proposes a new section to Idaho Code pertaining to Computer Software and
Digital Goods. This amendment pulls "computer software" out of the tangible personal property
definition in Idaho Code § 63-3616 and creates a new taxable item outside tangible personal
property. Section 2 defines "computer software" to include information stored in electronic
media. The initiative also defines "digital goods" separately from computer software.
Historically, digital goods have been interpreted to fall under the definition of computer software
as "information stored in an electronic medium." Bifurcating these definitions could create
internal inconsistencies. Petitioners may wish to review these definitions to make digital goods a
subset of computer software if that is their intent. However, the initiative makes both items
taxable, which may make the issue immaterial. The drafters should also note that this area of
taxation presents difficulty in defining these terms in this rapidly changing industry. This will
also be a problem in the proposed sourcing sections as well.
The proposed amendment in Section 4 will shift the tax obligation from the contractor to
the purchaser since real property contracts would be taxable under the proposed changes to Idaho
Code § 63-3612(2)(k). It is possible the proposed initiative may tax the sale of new homes and
not tax the sale of existing 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.
Under the language of the proposed initiative, the sale of the newly constructed home may be
categorized as a retail sale. The sale of an existing home would not be a retail sale.
The proposed changes to Idaho Code § 63-3613, subsection (a)(6), includes contracts for
applying, installing, cleaning, altering, improving, decorating, treating, storing, or repairing
tangible personal property or real property. Recall that Idaho Code §§ 63-3622A and 63-36220
prohibit the imposition of taxes on retail sales to governmental entities. By including contracts
described in subsection (a)(6) as retail sales, the initiative will completely exempt those contracts
performed for governmental entities from taxation whereas under present law, materials used on
government contracts are taxable. Contractors working at the Idaho National Laboratory (INL),
Mountain Home Air Force Base, and contractors building or repairing highways or other roads
are just a few examples of contracts that would completely escape taxation under the proposed
initiative.
Petitioners should also revise the proposed changes to Idaho Code§ 63-3613, subsection
(f), which is incomplete.
Section 8 of the initiative, which creates a new section, Idaho Code § 63-3614A, limits
the imposition of tax on services to certain activities engaged in for consideration. The new

The Honorable Ben Ysursa
September 24, 2013
Page 3of5
statute will not tax services performed for an "employer" by an "employee." The initiative does
not contain a specific definition for either term. For instance, the classification of a worker as an
employee or as an independent contractor is often problematic. The activities of an independent
contractor may mirror that of an employee. Under a strict interpretation of the initiative, the
activities of the independent contractor would be taxable while the activities of the employee
would not be taxable, even though the services performed are identical. Petitioners may wish to
clarify these terms and address their intent with regard to worker classification in order to avoid
confusion.
Additionally, Section 8 does not include services provided by certain licensed medical
professionals. It would appear that the drafters seek to exempt medical-related services.
However, by exempting the service providers rather than the service provided, the exemption
could extend to any service provided by a licensed medical professional. For instance, a
registered nurse could operate a day care out of her home. Those services provided by the nurse
would be exempt under the proposed Idaho Code § 63-3614A. On the other hand, a day care
operated by a non-licensed medical professional (such as a teacher or a full-time child care
provider without a medical designation) would be fully taxable. Additionally, the list of service
providers excludes some health care professionals and includes other health care professionals.
Physical therapists are included, but occupational and speech therapists are not. This could be an
impediment to passage by those excluded from the exemption and should be more broadly
worded to include all health care professionals "licensed" by certain state boards.
The addition of the phrase "including sales of services" in Section 11 is redundant. The
amendment to Idaho Code § 63-3612 includes the sales of services in the definition of "sales."
The additions in this section may not be necessary.
The inclusion of the term "or service(s)" in Section 12 and Section 13 may not achieve
the result intended by the drafters and may cause unnecessary confusion. By way of example,
Idaho Code § 63-3621(f) relates to inventory held for resale. It is not clear how holding
inventory for resale relates to services and the imposition of Idaho's use tax. Similarly, the
addition of "or services" to Idaho Code § 63-3622(c) relates to tangible personal property sold
for resale. The drafters' intent in adding "or services" is not apparent in relation to the resale of
tangible personal property and could benefit from additional clarification.
The proposed Idaho Code § 63-3622D does not exempt any services except those
services consumed in a production process. There are many statutes that provide exemptions of
tangible personal property but would not be exempt from 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
maintain any of the exemptions for sales of tangible personal property while taxing sales of

The Honorable Ben Y sursa
September 24, 2013
Page 4of5
related services, but the Petitioners may wish to consider some consistency for service-related
transactions.
The drafters also included sourcing provisions in Sections 18, 19, and 20. These sourcing
rules seem unduly complex. Moreover, the sourcing rules may or may not be consistent with
other provisions of the Idaho sales tax laws. Sourcing is defined as the point where the retail sale
occurs. Subsection (5) of proposed Idaho Code § 63-3642 states that services "performed and
consumed" in Idaho will be sourced to that location in Idaho. Services "performed" in another
state yet "consumed" in Idaho will be sourced to Idaho where the "consumption" occurred.
Services "performed" in Idaho yet "consumed" in another state will be sourced to that other
state. The terms "performed" and "consumed" appear to be terms of art that could benefit from
an explicit definition. Additionally, this section affects services related to sales of computer
software and digital goods. It's worth noting that the recent 2013 legislative changes also
included provisions for remotely accessed software, which will need to be addressed in the
sourcing rules.
Relating to more general matters, Petitioners may wish to revisit the statement of purpose
and the ten exemptions (broadcast equipment, commercial aircraft, railroad rolling stock and
manufacturing, driver's education automobiles, trade-in value, ski lifts and snow grooming
equipment, heating materials, utility sales, precious metal bullion, and telecommunication
equipment) that it seeks to eliminate. These items are explicitly exempted in other statutes,
which the drafters did not repeal in the proposed initiative.
Additionally, the proposed statutes appear to raise revenue for the State of Idaho. The
initiative itself does not identify the revenue impact, yet as described in the cover letter submitted
concurrently with the initiative, it is estimated the initiative could raise upwards of $740 million
in revenues. This raises the question of whether an initiative that raises revenue will be struck
because it did not originate in the House of Representatives. Article III of the Idaho Constitution
provides that all bills which raise revenue must originate in the House. There is an argument that
an initiative not originating in the House, which raises revenue, will be prohibited.
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
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 to
the Senate - the power to advise and consent to Presidential appointments and to ratify treaties.
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.

The Honorable Ben Ysursa
September 24, 2013
Page 5of5
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, P.O. Box 2188, Boise, Idaho 83701.
Sincerely,

Attorney General
Analysis by:

CHELSEA E. KIDNEY
Deputy Attorney General